Wait is over

It has taken 41 months for net automobile loans to circle back to the level they used to be. That’s nearly three and a half years. Except the volumes three years ago were double of what they are now. What does that mean?

In 9MFY25, total volumes sold in the automobile assembling sector including passenger cars, LCVs and SUVs (predominantly including Suzuki, Indus Motors, Honda, Hyundai and the recent addition Sazgar) landed at roughly 100,000 units. That is a fair achievement compared to last year where volumes were significantly less.

A 50 percent growth in volumes constitute a major recovery given that consumer appetites are reverting back and macroeconomy is on the mend. The policy rate has certainly moved down, from its peak at 22 percent to 12 percent, this achieved through successive cuts.

The peak rate of 22 percent stayed at that level for exactly one year. But auto loans (net borrowing) had already turned red long before in May-22 at which time policy rate was still about tightening moving from 9.75 percent to 12.25 percent to 13.75 percent in just three months.

In fact, the last time net borrowing was moving was when the policy rate was at 13.75 percent making it an inflection point for consumers to take a decisive step back from auto loans. Coincidentally, when policy rate moved down to 13 percent in Nov-24, net auto borrowing became positive again, indicating that consumers are receptive to borrowing again; and perhaps banks are also willing to increase their exposure.

At the same time, there is a long way for the policy rate to come into single-digits. Meanwhile, the SBP does not seem ready to relax thetightened prudential regulations on auto loans constituting of shorter tenors (5 years max), a ceiling on loanable amount and higher equity requirements. In addition, consumers can no longer attain loans on used imported cars. As a result, current volumes (if FY24 was not included) are still only slightly higher than FY20 but lower than the 10-year average.

But FY25 may be the turning point. Even though delivery times are roughly 2-3 months for nearly all assembled models, there is still a running “own” that buyers are willing to pay for immediate delivery of popular models including Corolla, Yaris, Civic and Alto. Perhaps, they had been waiting for far too long.