Over the past two years, policymakers have reduced or raised taxes, and imposed or relaxed restrictions, at times to promote automobile assembling and at other times to curb automobile demand to meet the country’s larger, recurrent, and more urgent goals of reducing the current account deficit (read: “Inside the car policy maze”, Dec 29, 2021). Despite such perpetual u-turning—which undoubtedly earned ire of many new entrants that were expecting policy to be consistent—the industry has outperformed itself, crossing the volumetric records made years ago.

Based on cumulative numbers to date, the industry will have crossed the 200,000 sales mark this year, growing by at least 50 percent compared to last year, as the slump during covid was more than compensated by car buyers in subsequent quarters. Demand has in fact, persevered against all oddspredominant of which are the rising vehicle prices. However, next year will be a different story.

The rupee has been weakening against the dollar, which will eventually cause car assemblers here at home heavily dependent on expensive inputs and carkits from abroad to raise prices further. Thus far, car prices have been absorbed by car buyers but car financing is displaying signs of fatigue. About 40 percent of cars are bought on financing and when policy rate goes up, demand for car financing responds quickly and moves south. This is already visible in credit data where not only has incremental borrowing for auto financing reduced, but the share of vehicle financing in total private credit by banks is also shrinking (read: “Auto financing: Out!”, May 16, 2022).The cost of borrowing at present would hover around 14-15 percent. This would reduce overall vehicle demand where consumers with sufficient cash will want to make such a hefty investment. Others may want to go for the slightly less pricey options offered by Chinese players.

New taxes have also come in for larger engines under the budget which will further put curbs on demand. The demand slowdown will likely continue through at least the first half of next year and may rebound if the country stabilizes on the macro front. Auto policies will come and go but this is the same old story told and retold many times. There are virtually no signs that Pakistaniautomotiveswill turn into a competitive, quality controlled and standardized and more importantly, localized industry with affordable and safe products for the domestic market.