Car and sport utility vehicle (SUV) assemblers are now in top gear mode. After witnessing a massive recovery of 61 per cent in production and 57pc in the sale of cars and 57pc to 227pc in jeeps and light commercial vehicles in 2020-21, they also kicked off their first month of the current fiscal year with 85pc and 104pc rise in car production and sales and 66pc to 245pc in jeeps and SUVs.
The above rosy auto scenario has also led to an all-time high import bill of completely and semi-knocked down kits (CKD/SKD) being imported by assemblers for the local assembly of cars, to $1.12 billion in 2020-21 from $478 million in 2019-20 as the new entrants are importing almost 100pc parts and kits under a relief package announced in the Auto Policy 2016-2021. Besides, new models launched by the old players also carry low volumes of locally made parts, thus nullifying the claims of higher localisation in cars.
However, double-shift production by assemblers has failed to shrink the delivery time of vehicles, thus keeping alive the menace of premium and providing a big opportunity to the vested interest to make easy windfall through “own money syndrome.”
Some market people say that the assemblers have kept the capacity utilisation in their hands to manoeuvre the demand and supply gap.
Some auto dealers say that high demand for cars with soaring premiums provides additional income resources and helps maintain the hustle and bustle at the showrooms.
The own money on Fortuner hovers between Rs700,000-900,000 followed by Rs300,000-400,000 on Corolla, Altis and Hilux
Federal Minister for Industries and Production, Khusro Bakhtiar along with Information Minister Fawad Chaudhry had announced in the first week of July 2021 that car manufacturers would also be made to pay penalties of Karachi interbank offered rate (Kibor) plus 3pc as payment to customers for delaying vehicle delivery beyond 60 days and customers would be able to check online the current manufacturing stage of their vehicle.
To tackle the issue of premium, the government has decided that the purchaser would have to get the car registered in his name. In this way, only the person who purchases the vehicle would be able to get it registered. Mr Bakhtiar said people would only be able to get cars booked online so that the customers could see the stages of manufacturing of their booked vehicles.
The registration of vehicles would be time-bound after which the purchaser would have to pay a heavy fine ranging from Rs50,000 to Rs 200,000. And this fine, he said, could be increased up to 10pc of the total price of the car to discourage the “own system”.
All the above decisions have yet to be implemented. A dealer said the government needs to clarify this penalty payment policy. It is not clear if a customer is entitled to the charges of late delivery for the advance payment made months earlier or is only entitled if the vehicle is not delivered within 60 days of the balance payment.
He said auto dealers are of the view that late delivery charges are only payable if the vehicle is not delivered within 60 days of depositing the full payment. Advance payment is merely a confirmation of booking, he added.
In case the penalties are imposed as per Kibor plus 3pc, some market people said that its impact would be negligible on the assemblers’ financial health.
Honda City Aspire model has certainly created history for its delivery period stretching to March 2022 if a buyer books the sedan today, while other models will be delivered in January and February 2022.
After opening the booking from May 2021, Honda Atlas Cars Limited (HACL) had received advance bookings of over 12,000 units to date.
The company will start handing over the keys of Honda City from August 24 to customers who had booked in May 2021.
Despite starting double shifts and operating at maximum capacity, consumers need to wait for seven to nine months to get the delivery.
Honda Civic is being delivered in one to two months with no significant premium. However, the booking of Turbo models has been suspended for a month due to a semiconductor chip shortage.
The waiting time for Toyota Yaris is one to 1.5 months but consumers pay a premium of Rs 10,000-20,000 for urgent delivery.
Consumers need to wait three to four months to get Corolla, Hilux and Fortuner. The own money on Fortuner hovers between Rs 700,000-900,000 followed by Rs 300,000-400,000 on Corolla, Altis and Hilux.
Delivery time of some Suzuki models is two months while in other models it hovers between 15 days to one month.
However, Suzuki Cultus automatic is in high demand leaving buyers to wait for four to five months while the premium on the vehicle is Rs 200,000. A Kia dealer said the company has suspended the booking of Picanto Automatic owing to parts shortage while its manual model would be delivered in less than one month.
He said the Sportage Alpha model’s delivery time is till November 2021 on which no premium is charged while other Sportage models would be delivered in January 2022 on which own money is Rs 375,000.
A dealer at Hyundai Nishat Motor said the booking of Hyundai Tucson has been suspended for the last two months due to the semiconductor chip crisis worldwide. He said he cannot give the exact date of resuming the booking.
However, reports are ripe that the price cut in cars and SUVs in July 2021 on account of cut in duties and taxes in Budget 2021-22 may fade away soon keeping in view of rising raw material prices, soaring freight charges to $6,000-7,000 per 40ft container from $2,000, shipping and logistic issues resulting in late arrival of imported parts and accessories, semiconductor chip crisis and appreciation of the dollar against the rupee. One dollar is now quoted at Rs163-164 in the interbank market as compared to Rs152-153 in May 2021 making imports costlier.
However, consumers had not seen any price reduction from August 2020 to May 2021 when one dollar was available at Rs168.40 in August as compared to Rs152-153 in May 2021, making landing cost of imported parts either cheaper or at least diluting the impact of high freight charges and costly raw material prices in the world market.
Published in Dawn, The Business and Finance Weekly, August 16th, 2021