Used car dealers getting owned?

A recent change in tax rules for used cars has the second-hand auto dealers in a bind. Simply put, there’s a 17 percent General Sales Tax, on the margin made on each sale. The government’s mantra is simple: a profit’s a profit and the taxmen deserve a piece of every pie. The dealers say it’s a burden they can ill afford as their businesses recover from the sudden drop in demand delivered by the coronavirus pandemic. But if used car dealers are feeling the proverbial last nail in the coffin of their businesses, it’s not this tax and it’s certainly not a surprise. Their margins have been falling for years, just like their utility for prospective car buyers.

There was a time when the only way to get a good deal on a used car was through a dealer. They were the ones who had the pulse on market prices. They knew about model-specific defects and they could tell apart minor touch-ups from full-blown coverups. Then, a major technological disruption hit unsuspecting showroom owners, like a rear-end collision at a traffic light.

Within a few years, online portals amassed buyers and sellers, making car prices much more transparent, and uniform across markets. As more and more people began using these platforms, they also began aggregating car reviews and other information, further de-mystifying everything on wheels.

The dealers had no choice but to hop onto the bandwagon. Walk into any second-hand car dealership today and you are very likely to spot a sticker of one of the famous online portals at the door. Ask for rate and the person at the counter will very often check prices online, before giving you a quote. Partly due to these platforms, there are more buyers and sellers now than ever before. But margins and commissions are not as beefy anymore.

And then began gradual re-orientation in the government’s auto policy. Nearly three decades after the advent of the Japanese car giants, Islamabad has finally brought in some new big boys to the domestic assembly scene. And it’s concurrently cracking the whip on used car imports. Back in January 2019, the government toughened up rules for imports by overseas Pakistanis. It mandated that all duties and taxes on these rides rolling into the country will have to be paid with money sent by those Pakistanis who are living abroad and sending cars and motorbikes back home. Overnight, it became harder for dealers to use the identities and accounts of expatriates to stock up on cars from Japanese auctions. The regulation may well have been aimed curtailing the illicit outflow of funds, but it’s a dent to the dealerships nonetheless,

To be clear, the only direction that the second-hand car market is headed, is up. People are not going to stop buying cars and brokers will always have a market to milk. Little wonder that the domestic assemblers are already onto their own certified used car businesses. But the heyday of high margins is over for used car dealers, unless they can step up their game. Few, if any of them offer after-sales services; in-house financing facilities are even rarer and good luck trying to get a comprehensive car history. If there’s a domestically assembled car out there whose first owner has kept meticulous records of its maintenance, it’s likely being resold through that company’s own network of dealers, thanks to the certified used car programs just about all major assemblers are already running. Looking down the road, that’s where the money is. Everyone else is about to get owned!