KARACHI: Despite an 81 per cent surge in sales of cars, LCVs, pickups and vans, auto financing continued its sliding path as it fell for the 19th consecutive month to Rs246 billion at the end of January from Rs251bn at the end of December 2023.
In January 2023, car loans were Rs332bn. According to State Bank of Pakistan (SBP) data, the total drop in the last 19 months comes to Rs122bn as it was Rs368bn at the end of June 2022.
Car sales slumped by 48pc to 49,990 units during 7MFY24 due to an unprecedentedly high-interest rate of 22 per cent coupled with higher prices, the central bank’s strict regulations to suppress the demand for vehicles by putting an upper limit of Rs3 million and substantial reduction in loan repayment period. The purchasing power of many people was also hit by soaring utility bills that do not let them purchase brand-new cars.
Analysts believe that auto sales can only revive if the interest rates are lowered in the coming months.
However, a new challenge for the auto assemblers and their vendors has emerged as the government decided to jack up the general sales tax (GST) to 25pc from 18pc on locally assembled vehicles of 1,400cc and above carrying ex-factory price of Rs4m and above.
Assemblers believe this decision would cause a steep drop in sales besides hitting the government’s plan to raise an additional Rs4bn from the auto sector.
Restrictions on completely knocked down (CKD) kits had been eased in the last quarter of 2023, thus pushing up imports to $71m in November 2023 from $23m in October 2023, while it rose to $104m in December 2023. After witnessing frequent plant closures from August 2022, higher CKD imports helped the local assemblers to keep their plants operational for the last three months.
However, CKD imports again plunged to $37m in January while the production of cars swelled to 9,614 from 6,654 in December 2023, while LCVs, jeeps and vans production rose to 2,066 units from 1,009 in the above period due to higher inventories of imported kits.
Total CKD imports by car assemblers stood at $422m during 7MFY24 versus $546m in the same period last fiscal year, down by 22.5pc.
Published in Dawn, February 24th, 2024
