KARACHI, Dec 23: Some selected models of locally assembled cars have now become a ‘hard cash or short term investment with ensured high returns’ since the market has seen a new artificial layer of investors in auto sector.

Automobile assemblers and even the government are now unable to find out these hidden investors as they have made solid arrangements to book cars through housewife, army officers, professionals, corporate sectors, businessmen, government officials, etc., rather than exposing themselves in limelight or being spotted as an active market player.

“We are finding it really hard to identify them as cars are being booked in the name of eligible individuals,” a leading assembler said.

At a time when stock markets are showing signs of hope for investors to cash their luck there rather than in US dollar, gold and real estate, some clever investors have now become very much active in auto sector too, thus pushing up demand and creating extreme difficulties for the genuine buyers to wait for the car delivery to four to six months.

The issue of premium, being charged on new locally assembled cars, had cropped up due to heavy presence of investors. As a result, assemblers had to gear up the production to meet the rising demand of cars in the market.

Investors have chosen auto sector owing to lucrative returns. According to a calculation of an auto analyst, if one invests Rs1 million in new cars and its delivery time is three to six months from the date of booking, then a investor can easily earn Rs100,000-150,000 as a premium by selling it to other party. The investor, after earning a premium, will again book a car and then sell it in four to six month. “The net return on one time selling comes to 10 per cent in six months and 20 per cent in one year,” the analyst said.

“If a person will invest Rs1 million in any bank, he will get five to six per cent profit in one year or nine per cent in special saving certificate,” an analyst said adding that the annual return on term finance certificate ranges between eight to 10 per cent. The fabulous returns on new four wheelers in a short span of time have sparked new hopes among investors.

In order to discourage the malpractice of premium, the Engineering Development Board (EDB) had asked the Excise and Taxation Department to prohibit the transfer of newly booked cars for six months, but the Excise Department had turned down the request of the EDB two days back.

Sources said that the Ministry of Industries and Production has sought opinion from the provincial government whether any law could be implemented to restrict delivery of cars for six months.

Despite increase in production of cars, the market is still facing shortage of cars owing to late delivery schedule ranging between two months to six months depending on the model.

An authorised dealer of Toyota said that if a customer books a diesel car these days, he will get it in June 2003. Same delivery schedule is also for petrol engine. The company will pay a mark-up of six per cent to the customers after two months delivery time. Indus Motors has so far paid Rs35-40 million to the customers for late delivery of cars from July-November this year. The company has now got orders of 3,500 cars to be delivered.

People are being given delivery time for Alto 1000cc in February next year, while Cultus will be delivered in March/April if these cars booked today, an authorised dealer of Pak Suzuki said. An authorised dealer of Honda said there is no problem in delivery of Honda cars as new models are ready.

Premium on Toyota now ranges between Rs100,000-150,000, on Cultus it ranges between Rs14,000-20,000. On Alto 800cc, premium hovers between Rs20,000-22,000.

In order to outstrip the huge demand of cars in market against slow supplies, assemblers have decided to work in double shift.

An executive in Indus Motors said that the company intends to go for double shift by end of February, raising the rolling out of cars to 1,400 units from the current 900-1,000 units in single shift. He said vendors have also geared up their efforts to bring in line the supply of parts to assemblers’ demand.

“It is really a party time for dealers, manufacturers and investors,” Research Head of Invest Cap, Mohammad Sohail said predicting record profits and dividends for the local assemblers and shareholders in the 2002-2003.

As far as taxes to government and dividend to shareholders are concerned, there is no problem, then why these companies should not make high profits, he said.

He said banks, having sizable liquidity, are heavily investing in car financing business. The cut in interest rates from 25-30 per cent three years back to current 10-14 per cent have attracted a number of people.

The shares of three leading Japanese assemblers have also performed well in the last one years rising phenomenally.

An analyst at Taurus Securities said increase in demand is a positive sign for any industry as it should increase output and thus increase profits. However, car assemblers have colluded between themselves in the past to restrict supply and increase the prices and their margins instead, exploiting the trade barriers of high duty on imported cars and the ban on used cars to their fullest advantage.

Car makers had been earning interest on customer deposits and paid off their long term loans, resulting in improved bottom lines at the expenses of the consumers, he added.

Arrival of home remittances and tremendous liquidity in the market have also contributed in increasing the demand spurt in cars.