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Low interest rate fails to boost car financing

Updated July 02, 2015

KARACHI: The automotive industry has expressed conflicting opinions over the quantum of improvement in car sales through banks’ financing schemes.

Some dealers said that the dip in interest rate from 10 to 7 per cent in almost a year had failed to bring any noticeable lift in car financing, while others believe a 10pc jump.

Buyers still prefer locally assembled cars on cash payment, as bank financing entails cumbersome documentation that people mostly wish to avoid.

Car financing enjoyed a boom period during 2004-07 when its share was 70-75pc out of total car sales, owing to banks liberal policy besides different incentives. Banks were sanctioning auto loans with 14-18pc Kibor plus interest rate depending on loan maturity.

“I am sure that the share of car financing has improved to around 30pc of the total sales as compared to 20-22pc a year ago,” Indus Motor Company (IMC) Chief Operating Officer Ali Asghar Jamali told Dawn.

One of the reasons for the boom in car sales, according to a recent report of Carmudi, is the reduction in interest rates over the course of the year. “Car financing still stands at less than 35pc of the total sales in Pakistan.”

The portal believes that after a 24pc improvement during the first three quarters of 2014-15, sales of new and used vehicles are expected to hit a three-year high of 165,000 units. The IMC official hoped that the new auto policy would pave the way for growth.

The country’s population has galloped to 180-200 million, thus there are only 16 cars for every 1,000 persons — the lowest rate among emerging economies.

The demand for automobiles is likely to surge as new auto manufacturers can capitalise on falling discount rates, he added.

He supported the government’s move of offering incentives and tax breaks to new entrants to boost competition for the benefit of consumers, but the motto should be to promote ‘make in Pakistan’.India, Thailand and Indonesia have nurtured their industries until the threshold volumes were achieved to gain competitiveness, he added.

“The industry still feels threatened over thriving used car imports, which are not only eating up the local manufacturers’ market share but inflicting a heavy damage to national exchequer as well.”

At present, the market share of used cars is estimated at over 16pc, which is expected to grow to 20pc by year-end, he said. “If the import continues at present rate, very soon the local auto industry will grind to a halt.”

India and some Far-East countries including Thailand have restricted used cars imports through tariff and non-tariff barriers to ensure domestic production, he added.

Published in Dawn, July 2nd, 2015

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