Goodbye used cars?

Just the fact that we are still talking about three-year old used cars when the world is moving toward electric and self-driving cars should really be a reckoning to how "developing" we still are. But even so, talk we must, as the debate on used cars is adrift. Local automakers and parts manufacturers call them a plight, an unnecessary evil, a disease that needs to be uprooted. Consumers and dealers call them a blessing. The government on the other hand, has refused to pick a side. Until now. With the regulatory landscape evolving, it is time to talk about what the future entails.

To start with a recall, used cars are brought into this country by dealers using passports and documents of overseas' Pakistanis. These cars are up to three-years old and our market intelligence suggests that cars are auctioned out in Japan at low rates and investors buy them in bulk and send them to Pakistan under the three schemes: Gift, baggage, resident transfer.

By any standards, commercially selling these cars across Pakistan by dealers is exploiting a loophole in the policy. For all intents and purposes, the policy is for the benefit of Pakistanis living abroad that might need to gift a car or bring a car home. Whilst knowing that the policy was being misused, the government did not do much to curb import of these vehicles.

Part of the reason is that used cars provide a much needed variety for consumers that local cars have not been able to address. Another reason-as told by sources-is the potential involvement of custom officials who take a cut off these imports. However, government is not the victor here. Since these imports are allowed at much lower fixed duties that are depreciated as well-estimates suggest revenue loss for the government to the tune of Rs20 billion.

Keeping in view the incapacitating rise in the import bill, the government has been taking measures to cut down imports. CBU car imports have been growing unabated-which include used, new cars as well as those that are imported by authorized dealers and local assemblers. In order to bring these imports down as well as ensure the overseas' Pakistani scheme is no longer misused, the Commerce Ministry introduced SRO that all duties on imported vehicles in new or used conditions would be paid out of foreign exchange arranged by Pakistani nationals themselves.

This however is not possible as - aside from some genuine cases-the cars are not really being sent by Pakistani nationals but imported by dealers using documents of Pakistanis living abroad. Whatever fixed duties are paid, they are paid by the dealers residing here.

The policy has led to a large inventory of cars stuck in transit waiting to be cleared. The government recently announced that the new requirement would take effect from end of February, so that those cars that had already been shipped could be cleared as a "one-time dispensation". From here on, cars that come through any of these schemes would be whetted whereby duties and taxes on those imports in foreign exchange would have to trace back to the beneficiary. Though this will truly reflect in March numbers, CBU imports of cars have dropped by 3 percent between Nov-17 and Dec-17.

Proponents of this policy (mostly dealers) have maintained for years that it is completely legal to commercially sell these imported used cars. However, the government has decidedly taken a stance and declared this activity illegal. That is the good news. The bad news is that critics believe people will find alternative ways to import these cars into the country; and already the system uses hawala/hundi to transfer the money to investors.
The unsavory news for consumers is that they will no longer be able to get a large variety of cars to choose from. Those that have recently been seen on the roads and are reasonably affordable are the small ones-honorable mentions are: Diahtsu Mira and Move, Nissan Dayz and Pixix, Toyota Vitz and Suzuki Alto. The fact that nearly 60 percent of used cars being imported are small-engine, below 800cc, cannot be ignored.

If consumers in fact cannot buy these used cars, will local assemblers rise to the challenge and bring more variety? Whereas Suzuki has its Wagon-R and Cultus; and may bring Alto, the other two players have no plans to venture into small cars. It is still unclear what cars new players like Kia, Hyundai and (maybe) Renault will bring. Optimistically, as they enter, the market size will expand and so will choice. But it is a long road toward such an expansion. Until such a time, consumers must wait.