Riding on the crest of a wave
By Aamir Shafaat Khan
The car market has been on a high for some time with consumers having to wait for months to get possession against their bookings. Will they get any relief through the import of second-hand cars?
THE local car market is gearing up to play host to a number of models at spectacular prices following the government decision to rationalize payments of duties and taxes in rupees on the import of cars.
Car dealers are ecstatic after the issuance of Customs General Order (CGO) No.10, which is aimed at facilitating importers to mitigate the discretionary powers of Customs functionaries.
The new regulation has sparked excitement among importers to whom bringing a foreign car now looks feasible. Though late, the government has realized that the arrival of imported cars can help to resolve the grievance of genuine buyers who have to wait for months to get the delivery of locally assembled cars. Besides, the spectre of paying huge premiums also haunts them. The arrival of imported cars is expected to change the market scenario in favour of general as well as corporate, multinational and private-sector entities.
Chairman of the All Pakistan Motor Dealers Association (APMDA) H.M. Shahzad thinks that the import of cars will eliminate the two most pressing issues, high premiums and late delivery. Besides, the monopoly of local car makers will receive a jolt.
Shahzad says that the expected rush by the buyers for imported cars will force local assemblers to reduce the prices in order to remain competitive.
One of those looking forward to the opening of the car import market is Sarfaraz Hussain Dhanji. A local dealer, he thinks that initially two-year-old cars will arrive in Pakistan. An 800cc car will cost Rs 350,000-360,000 after paying all taxes and duties. A locally assembled car of same weightage, say a Suzuki Mehran, costs slightly less. but the buyer has to arrange a premium and wait for months to get the possession.
One irritating thing in tjhis regard is that the new CGO is only meant to facilitate a particular segment of society as the government has not allowed commercial imports. Vehicle imports are allowed only for personal baggage, gift and transfer of residence (TR).
Still, that’s a minor glitch and Dhanji thinks that the entire used-car community is happy with the government’s decision.
Another dealer thinks that above 1800cc cars (two year old model) will land in Pakistan under the new CGO. He says that a two-year-old 1600cc Corolla will cost one million rupees while a locally assembled costs Rs850,000. A two-year-old Honda Accord will be available at Rs2.5 million, while Toyota Mark II and Land Cruiser will arrive at Rs2.5 and Rs5.5 million.
But that is one side of the story. A local assembler says that the local industry has always been apprehensive of such a decision and with the arrival of the used and new cars, the local industry will collapse, causing massive unemployment and putting huge investments at stake.
The new CGO will definitely erode the market share of local assemblers by 10-20 per cent.
The local assemblers are playing the waiting game as things will become clear in a month or two when imported cars find their way in Pakistan. For one thing, buyers of imported cars will have to undergo a mind boggling experience when they run from pillar to post for costly parts. What is the guarantee of after-sales service and lack of technical know-how of mechanics for imported cars? Such questions are being raised in relevant quarters.
Irrespective of the positive side of government decision, there are some apprehension whether import of cars will really eliminate the menace of high premiums and late-delivery issues that have kept the highly protected car industry in the limelight for the last two years.
In view of the rising demand and months of bookings in hand, the chances of complete elimination of high premiums and curtailing delivery schedulesare not in sight, at least in the current fiscal.
The delivery schedule of a Cuore ranges between six to seven months, while the rest of the Toyota models are being delivered in four to six months’ time.
Only Toyota automatic, 1600cc model is being delivered in a month, while the 1600cc manual model is being released inside two months.
The delivery timings of Honda models range between two to five months. Suzuki models are also being delivered in two to four months’ time.
The mere arrival of a new CGO has caused a drop in premium on locally assembled cars. Premium on Honda Civic has dropped to Rs120,000 from Rs 150,000, while for a City, it ranges between Rs80,000 to 90,000 as against the earlier Rs110,000. No change is seen on premium rates on small cars. Premium on Suzuki Mehran and Alto 1000cc is being charged at Rs40,000-50,000, while for a Cultus it ranges between Rs35,000-40,000. Premium for a Baleno, petrol version, ranges between Rs5,000-10,000, while for the CNG model, it is Rs15,000-20,000.
Premium on a Corolla petrol version has fallen to Rs115,000-120,000 from Rs140,000-160,000, while for a diesel version it now ranges between Rs190,000-200,000 as compared to Rs240,000-250,000.
Premium rate for a Cuore now hovers between Rs80,000-90,000 depending on the model. Hynudai Santro is available at a premium of Rs45,000.
For the last two years, assemblers have been claiming that the menace of premium and late delivery period will come under control because of rising production volume, but that hasn’t materialized so far. The latest deadline in this respect is June 2005 when the demand and supply gap is expected to further shrink.
Pakistan perhaps is the only country where car makers demand 100 per cent down payment at the time of booking. By doing so, they earn interest and make investment in other lucrative businesses. There is no ministry to check this strange practice in which the assemblers are the sole beneficiaries.
However, the government’s budgetary restriction to sell cars to only national tax number (NTN) holders is an effort aimed at curtailing the investors’ presence in the markets.
An authorized dealer claims that only genuine people are coming to book cars after June 12 as investors have become quite reluctant. “Around 50 per cent of the cars are being booked by genuine buyers,” he says. Besides, auto companies have also geared up efforts to verify the persons whether they are investors or general consumers and some assemblers are cancelling booking orders if the person is identified as an investor.
Till now, it was one of the most viable investment options in the market. If an investor sells, say, three newly assembled cars worth Rs600,000 each in a year by charging a premium of Rs40,000-50,000 on each car — the return on investment comes to around 20 per cent per year which is far better than the expected return from National Savings Scheme and banks.
Some assemblers, who were previously irked by the government’s insistence on the NTN condition, now appear quite satisfied that genuine buyers have started arriving and the investors’ presence have partially dwindled.
But the NTN condition alone is unlikely to completely eliminate the menace, as dealers say that even walk-in customers having NTN numbers are now indulging in debatable practices in order to make a windfall by charging extra money from the buyers. An assembler says that the real impact of NTN will be witnessed in September and October when the booking orders after June 12 will start maturing for delivery.
Till now, the assemblers have been the happiest guys in the country as they know that the government has been very supportive in safeguarding the interest of their powerful lobby, dominated by Japanese investors. And, in any case, had the government been really serious abour redressing public grievances, it would have allowed the import of cars on a commercial basis rather than restricting it to baggage, gift scheme and transfer of residence categories.
The powerful cartel of assemblers have been well aware of every government move that have so far remained in favour of the industry. Besides, the fact is that Japan, whose three companies Toyota, Honda and Suzuki, roll out various models, has been a major source of various aids and funds to the government’s various projects. Whenever the government plans to do someting about the local car market, Japanese officials and local assemblers use their influence to get things back on their own track.
Assemblers are projecting car production to reach 135,000 units in the current fiscal year from 99,000 units and 62,073 units in 2002-2003 to stabilize demand. Three years back, car production was only 40,000 units. Assemblers have also planned to raise production capacity to 200,000 units by the end of 2007-2008 with a planned investment of Rs8 billion by the car-makers, and Rs5 billion by the vendors.
The government has the right to fully protect the industries through various incentives and policies. But that does not mean that 100 per cent protection is given to the car makers only. If the car industry has deliberately kept the demand-and-supply gap in its control despite higher capacity utilization and consumers’ right are not kept in mind, then it is the duty of the Monopoly Control Authority (MCA) and the relevant ministry to keep a vigil on the car makers and take action.
Quality compromised?
LOOSE door-locks, noisy dashboards, low-quality tyres, uncomfortable seats, shoddy alignment and adjustment, irritating fan voice, and fading bumpers ... the litany of complaints is never ending. Having made a heavy investment — that too in advance — and then waiting for an irritatingly long time to get possession of their dream cars, you hardly expect the door to come out of the hinges and drop on your way home to celebrate your new acquisition. But that is what has happened with a few people in the last few months as questions have been raised about the quality of components used by the manufacturers.
It is hard to believe as these cars are being rolled out under quality-conscious foreign producers.
Most of the complaints relate to the use of locally made components by the vending industry whose quality is not up to the mark.
Assemblers have not given any attention towards quality matters at the time of rising demand of cars. Car production has doubled but the quality has hugely suffered.
An assembler, however, flatly denies the existence of problems. He concedes that there have been complains, but argues that they are of a very minor nature. “Actually what has happened is that when production volumes were low two years back, the flow of complaints was also thin. Now that the volumes have quadrupled, then naturally the number of complaints have also swelled,” he says. He does make a relevant point when he says, “The buyers have at least got the satisfaction that their problems are addressed on a priority basis because of a well-organized after-sales service network of the local assemblers. Think about the future when buyers of imported cars will engage in a war of words with the seller under such situations.” — ASK
Get it auto-financed
THE colour of country’s economic indicators have virtually changed since 9/11 and the car market has greatly benefited from the positive indicators. One of the major reasons behind the phenomenol rise in the level of activity in the local car markat is the interest shown by banks and leasing companies.
Almost every bank worth its name is in the fray, with some offering Islamic financing and the rest doing it in the conventional mode. Among the international banks, the Standard-Chartered is the lone entity offering both Islamic and conventional financing, which goes to show the general interest of the sector in car-financing activity.
As things stand today, well over 50 per cent of the cars are being sold through leasing and bank-financing schemes. Leasing companies and banks usually demand 10-20 per cent down payment from the buyers who pay an average mark-up of eight per cent depending on the car financing package.
The customers get possession of their booked cars clightly earlier if they proceed through banks and leasing firms than is the case otherwise. While the customers pay only the downpayment, the banks still have to dish out cent per cent to the local assemblers, who continue to get the best of both worlds.
Auto financing and leasing with attractive packages and low interest rates have certainly fuelled the buying euphoria among consumers which is quite evident on roads, streets and even lanes across the country. — ASK
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