Robust auto sales

Published August 13, 2021

WITH car sales up in July by 105pc from July 2020 and 75pc from June 2021, government officials, who are over the moon, are claiming that the country is back on the path of rapid recovery. If the momentum is sustained going forward, the increase in car sales will significantly bolster the GDP numbers for the ongoing fiscal year. The car industry, which has seen some rough years of late on account of certain government policies and the economic slowdown, should also be delighted by this enormous jump in its sales. The unprecedented growth in July car sales is owed to a couple of factors: low interest rates for auto financing and a significant reduction in car prices through cuts in taxes announced in the budget for the present financial year. Data shows that the industry is indebted to the cheaper auto loans, which swelled by almost 46pc or Rs97bn to Rs308.1bn in FY21, much of its growth occurring despite the pandemic, as the number of cars sold soared by 90pc from a year ago. That the sale of smaller cars has posted a much more rapid increase in July underlines the positive impact of the reduction in government taxes on the industry.

While the pick-up in car industry sales is a welcome development, it has come at a cost to consumers and the trade balance. The availability of cheaper credit and increase in the demand for cars has brought speculators or investors back into the market as is also the case with real estate, forcing consumers to pay a high premium on almost all brands. The growth in auto sales is also increasing the trade gap as per official data. Last year, imports under the transport group rose by over 93pc to $2.99bn from $1.54bn the previous year since most components — including hi-tech precision parts like the engine, whether imported in the form of CKD, SKD, etc. or separately — are manufactured in Japan, Korea, Thailand, China or elsewhere. Hence, we notice the rigidity in the prices of cars assembled here and the compulsion of assemblers to jack up their prices every now and then to make up for their rising import costs because of currency depreciation. With the new Automotive Industry Development and Export Policy 2021-26 expected to be announced shortly, it is imperative for the government to look into these issues to protect the interests of consumers.

Published in Dawn, August 13th, 2021

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