AGL 23.81 Decreased By ▼ -0.54 (-2.22%)
AIRLINK 103.60 Increased By ▲ 0.60 (0.58%)
BOP 5.66 Decreased By ▼ -0.05 (-0.88%)
CNERGY 3.93 Decreased By ▼ -0.03 (-0.76%)
DCL 8.36 Decreased By ▼ -0.14 (-1.65%)
DFML 41.70 Decreased By ▼ -1.29 (-3%)
DGKC 88.30 Decreased By ▼ -0.60 (-0.67%)
FCCL 22.70 No Change ▼ 0.00 (0%)
FFBL 40.88 Increased By ▲ 2.68 (7.02%)
FFL 8.96 Decreased By ▼ -0.15 (-1.65%)
HUBC 160.49 Decreased By ▼ -3.21 (-1.96%)
HUMNL 11.46 Decreased By ▼ -0.34 (-2.88%)
KEL 4.82 Decreased By ▼ -0.03 (-0.62%)
KOSM 4.09 Decreased By ▼ -0.04 (-0.97%)
MLCF 38.60 Increased By ▲ 0.19 (0.49%)
NBP 53.60 Increased By ▲ 0.75 (1.42%)
OGDC 130.60 Decreased By ▼ -2.29 (-1.72%)
PAEL 25.36 Decreased By ▼ -0.29 (-1.13%)
PIBTL 6.25 Decreased By ▼ -0.13 (-2.04%)
PPL 118.90 Decreased By ▼ -0.60 (-0.5%)
PRL 23.95 Decreased By ▼ -0.65 (-2.64%)
PTC 12.92 Increased By ▲ 0.28 (2.22%)
SEARL 59.11 Decreased By ▼ -0.49 (-0.82%)
TELE 7.43 Decreased By ▼ -0.06 (-0.8%)
TOMCL 34.99 Decreased By ▼ -0.16 (-0.46%)
TPLP 8.72 Decreased By ▼ -0.13 (-1.47%)
TREET 15.90 Increased By ▲ 0.10 (0.63%)
TRG 55.95 Decreased By ▼ -1.95 (-3.37%)
UNITY 34.95 Increased By ▲ 0.06 (0.17%)
WTL 1.20 Decreased By ▼ -0.02 (-1.64%)
BR100 8,536 Decreased By -8.5 (-0.1%)
BR30 27,187 Decreased By -204 (-0.74%)
KSE100 79,944 Decreased By -48.3 (-0.06%)
KSE30 25,500 Decreased By -43.9 (-0.17%)

Only a few months ago—sometime in June—the government was actually mulling over providing a subsidy for car financing to facilitate new car buyers (particularly those buying smaller cars) and boost volumes. The reasoning here was that greater volumes would make it economically justifiable for new investments in localization to come in. Many found the idea of a subsidy in auto financing incredulous. But as quickly as the idea occurred to policymakers—without going into the merits and demerits of such a policy—as quickly did it dissipate. In fact, auto financing is now slowing down, organically as well as intentionally. And given present circumstances, that is not out of the blue.

Even though, right now, total outstanding loans under auto financing are at their very peaks, and the share of auto loans in consumer financing is the highest ever at 44 percent, month on month net borrowings are cooling down. This trend is expected to carry on for the rest of the fiscal year.

Invariably, the earlier need to shore up automotive volumes—which has been one of the major goals under the previous and the upcoming auto development policies—has been pushed in the backburner. This is simply because other more pressing needs have reared their heads, namely, the recurring concerns over the import bill and ensuing pressures on the current account.

Putting curbs on luxury imports is also nothing unfamiliar in this country and has been a tool adopted by subsequent administrations time and again. The SBP decided to put restrictions on financing for CBU imported vehicles and there were discussions on whether the country should ban CBU import of cars altogether. That latter measure never materialized, but demand had already started to wind down.

Multiple reasons for this. For one, auto makers raised prices very soon after dropping them as cost pressures and rupee depreciation came to bite. The price decrease itself was a monumental step that has never been witnessed before in the auto maker but came as a direct result of negotiations with the government to slash duties and taxes on cars. Once the tax incidence decreased, auto makers reduced car prices. But only to increase them again. In any case, it would be very naïve of any government to believe that reduction in taxes would make cars “affordable”, if that were indeed the purpose of the policy measure (read: “Autos: The more things change”, Nov 17, 2021).

The reality is, no policymaker can be that gullible and it is likely that auto lobbies that have been crying over high taxes and duties for years were able to convince the government that it would be a good idea to expand the market with tax cuts. Whether tax reductions can do that or not is up for debate, but there is no arguing that when more cars sell, the government makes more revenue, even if rates are lowered. Win-win?

Market expansion can wait though. Policymakers’ focus has shifted on bringing down imports immediately. On top of that, policy rate increases are now making the fairly affordable borrowing expenditure on loans less so. Visibly, monthly demand of passenger cars is slowing down, and will continue to. How does the upcoming auto development policy fit into all this—more on that later.

Comments

Comments are closed.