While the government has agreed to conduct a forensic audit of the country’s unprecedented spike in car prices, industry sources indicate that prices have risen by about 50% due to increases in input costs over the last two years.
Increased input costs due to exponential increases in freight charges, rupee devaluation, and rises in petroleum and steel prices, according to a car industry spokesperson.
Several automakers have lately announced large price hikes on vehicles, in addition to the frequent increases made by local car manufacturers/assemblers.
Following the government’s decision to reduce taxes and levies, the price of local cars fell marginally last year. However, due to currency depreciation and freight charges, prices increased by more than 35%.
An Original Equipment Manufacturer (OEM) recently declared a price rise on their automobiles of Rs200,000 to Rs1.2 million, while another Japanese car manufacturer announced a price increase of Rs250,000 to Rs400,000. Almost every other automaker prepared to follow suit.
Following the yearly budget, automakers raised automobile prices for the third time in March. The first big price increase occurred in November 2021, the second occurred in January when the government reversed tax incentives provided in the FY 2022 budget, and the third occurred in March, once again due to cost pressures.
“In a year, freight rates have increased by more than 250 percent.” In practically all areas, including the car industry, these higher rates are feeding the inflation beast. “There has been a global increase in automobile pricing, particularly since the epidemic began,” said automotive specialist Syed Zafar Ali.
“The situation in Pakistan is bad,” he explained, “since these causes are compounded by the rupee-dollar imbalance and higher levies and taxes on the sector.”
“The producers will undoubtedly pass on the increased manufacturing costs and high raw material costs to the customer.” In the previous two years, we’ve seen an almost 50% spike in car prices in Pakistan,” he remarked.
Steel prices have increased by 28% since the beginning of the month, adding to the cost of production in many industries, including the auto industry. As a result, local steel producers have boosted prices by 55 percent in the last year to maintain profit margins.
Following recurrent increases in car costs in the country and customer concerns, the Ministry of Industries decided last month to investigate the subject by contracting private organisations to undertake a forensic audit of the issue.
Interestingly, despite a significant increase in the price of domestically assembled/manufactured cars, their sales in the country continued to rise. According to data provided by the Pakistan Automotive Manufacturers Association (PAMA), car sales increased by 25% in March compared to February, while the sector grew by 30% when compared to sales in March 2021.
In March, the industry sold 27,131 units, up from 21,664 in February. In March of last year, the industry sold 20,813 units. In the first nine months of fiscal year 2022, the auto industry sold a total of 205,381 automobiles, representing a 52 percent increase over the same time last year, when the industry sold 134,718 units.
According to a Sherman Securities analysis, with an increase in interest rates on the horizon, the market need for car leasing may eventually be diminished.
The report did note, however, that the auto industry has shown resiliency in the past and that sales may not fall as fast as the sector’s indications suggest.
