Car purchases

Published October 6, 2022

IF we are in the market to buy a new car, we end up paying a significantly large amount as premium over the sticker price before driving off. The alternative is to book one’s favourite car and get in the queue. The downside is that we would have to wait for at least six months — a period which in some cases may easily extend up to nine months or more, depending on the brand and demand and supply chain issues — as well as assume the exchange rate and tax policy risks, despite making full payment at the time of booking the order. No wonder most car buyers prefer to pay the extra amount above the listed price to jump the long queue to avoid the wait and associated cost risks. A PIDE research study suggests that new car buyers pay a whopping Rs35bn every year as premium — also known as ‘own/on money’ — to get immediate delivery.

These car market dynamics have mostly remained unaffected by the increase or decrease in car production in the last two decades, in spite of the entry of several Korean and Chinese car assemblers, and the introduction of new models in the market during the last five years. Successive governments have promised to tackle the issues of excessive delay in delivery by carmakers and the exorbitant premium charged by dealers, but none has actually done anything. The consumers are unlikely to get any relief unless the government makes laws to stop assemblers from taking orders exceeding their three-month, if not less, production capacity and ensuring delivery within 90 days. Moreover, the assemblers should not be allowed to pass on the entire exchange rate and tax policy risk to the buyers; each car invoiced by the OEMs must be registered in the name of the buyer or dealerships with the provincial excise and taxation departments before it leaves the factory. Implementation of these actions will forge healthier market competition and incentivise carmakers to boost their capacity.

Published in Dawn, October 6th, 2022

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