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Nothing could be more astonishing than the ability of the Pakistani consumer to absorb the exorbitant increase in car prices. In the past ten months, the industry has sold nearly 263,000 units (227K for PAMA registered firms), comfortably up 50 percent from last year. While in month-on-month growth, the slowdown is visible and over the next two months, car sales might decrease further; the industry is set to land at a higher-cumulative sales than before which speaks for the growing appetite of the market that remained subdued prior to and during Covid.

But while demand responsiveness to successive price increases by assemblers has been rather weak, auto financing is certainly responding to increase policy rates visible from net borrowing. Since Nov-21, fewer vehicles are getting auto financing. Part of the reason for this is also the SBP’s move to impose restrictions on financing for imported and curbs on financing of high-end luxury vehicles.This increased regulation was no veiled attempt to reduce demand and safeguard the current account. The unrelenting increase in demand in auto financing from thereon, began to weaken though not nearly close to the levels during FY20. For the data available till Mar-22, auto financing crossed Rs350 billion but since Nov-21 the share of auto financing has also started to drop from 44 percent down to 43 percent. The trajectory is downward—for both share in consumer financing as well as net borrowing in autos.

The 6M Kibor has crossed 14 percent in Apr-22 which will likely reflect in and affect upcoming auto borrowing as consumers would scramble to buy on cash. It is simply too expensive to buy vehicles from the bank, given also the SBP’s greater restrictions (higher down payment, reduced tenure etc.) on vehicles above 1000cc. Those who cannot shift to cash will have to wait for a better time to purchase a much pricier vehicle later on, or compromise on the features, engine, and brand they desire to buy their second or third choice of vehicle which is within budget.


Comments are closed.

Bloody Civilian May 17, 2022 08:21pm
Reason is simple. Increasing number of sold cars are no longer being bought for personal use. Instead, it is being treated as an investment/asset where there is no price ceiling. Further, some unscrupulous people are buying and selling with OWN/premium money. Also, some genuine buyers are feeding into this OWN culture because company increases prices of cars more than OWN amount by delivery time so buyers are hedging their bets and encouraging this illegal phenomenon.
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F Nawaz May 18, 2022 01:17am
Cars are bad for the economy.
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Asad May 18, 2022 02:05pm
Basically shows how much black money is floating around. Cars are investments now: buy luxury models, enjoy for a while and sell at same or higher price even if you bought paying on money. With cars worth the price of a house/flat it is likely people with huge cash lying idle who are driving the market. Planned obsolescence is another factor with parts for older models harder to find.
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