KARACHI: After identifying “dodgy corporates and habitual investors”, Indus Motor Company (IMC) has cancelled advance car booking orders worth Rs600 million.

IMC initiated a public-interest campaign at the end of November to discourage the practice of premium. Auto dealers charge their customers a premium for quick delivery of vehicles.

To improve the booking process for genuine customers of Toyota vehicles, IMC conducted an examination of the pending provisional booking orders (PBO) to verify the accuracy of customer information, identification and other details.

Automaker aims to curb the practice of ‘on-money’

The company prepared a list of 1,288 PBOs that, in its opinion, are discrepant and/or booked by potential investors for the resale of vehicles in the market.

“Out of 1,288 bookings, we cancelled advance bookings of 1,118 customers while 170 emerged as genuine buyers,” an IMC official told Dawn, requesting anonymity. He added that these vehicles were to be handed over to people between January and May next year.

The order intake of Toyota and other cars hovers around 5,000-6,000 vehicles per month.

He said that half of all cancelled advance booking orders were by “dodgy corporates” while the remaining were by individuals.

Sources said some authorised dealers of Toyota were also found involved in this practice. They would book cars under the name of a different company. IMC also cancelled their advance bookings.

Around 98 per cent of investors had booked cars on the partial payment of Rs500,000 while others paid the full amount in advance. The Japanese car assembler has started refunding the booking amount to customers.

Some people had booked more than three vehicles. Some had booked even up to seven vehicles under a single name.

Other car assemblers have yet to come up with any campaign to curb the menace of premium or “on-money”.

The premium on locally assembled cars still exists despite an increase in the production capacity.

The average delivery time of Toyota vehicles is four months. If a person books Honda Civic or City now, dealers will hand over the vehicle in five to six months. The premium on Honda Civic and City is Rs150,000 and Rs75,000-100,000, respectively.

The “on-money” on Suzuki WagonR is Rs50,000. It is Rs10,000-22,000 on other Suzuki vehicles. The delivery time of these vehicles ranges between three and four months.

Demand for imported used cars as well as locally assembled ones has been robust of late. Many investors and individuals are using vehicles for Careem, Uber and other taxi services.

An industry official said the share of auto financing by commercial and Islamic banks in overall car sales has risen to 40pc from 30-32pc last year.

Another official claimed the share of auto financing now stands at more than 30pc, up from 26pc a year back.

According to figures released by the State Bank of Pakistan (SBP), auto loans in July-September soared to Rs9.5 billion from Rs7.1bn a year ago.

The total volume of consumer financing in 2016-17 was Rs70.5bn in which the share of auto loans was 54.3pc or Rs37bn, SBP data shows.

The sources said commercial and Islamic banks are resorting to heavy advance bookings with automobile manufacturers. They said this is in violation of the rules laid down by the central bank. Banks charge a premium when vehicles reach dealerships to cover the cost of funds invested in this venture. This is the act of an investor who is charging a premium in a different guise, they said.

This prevents genuine customers from getting early delivery of vehicles. Massive pre-bookings by banks result in longer delays for ordinary customers.

This exercise also compels customers to buy cars using bank financing, which involves a mark-up. It has become a win-win situation for banks as well as carmakers and their dealers.

The sources demanded that the SBP, Ministry of Industries and Ministry of Finance should take notice of the situation.

Some banks even advertised in the media a few months back that their clients will get “to drive premium and not pay premium”. The mark-up charged by banks is itself a premium spread over a period of five to seven years.

Published in Dawn, December 31st, 2017