Price hikes by automakers have become an albatross around the necks of car buyers in Pakistan. Not only has it taken away the buyers’ capability to purchase new cars, but old ones as well.
Since 2019 — the last time the prices surged massively — used cars have been shooting up in value. According to a Bloomberg report, even old used cars are now being sold in the market for huge profits.
Citing a Karachi-based analyst firm called Optimus Capital Management (OCM), the report states that a person who bought a new Toyota Corolla for Rs. 2 million in 2018 can sell it in the used car market for Rs. 3.2 million, which is a gain of 60% before correcting for inflation.
It also pointed toward the own money issue, stating that dealers or ‘investors’ buy numerous automobiles in advance and sell them with hefty illegal premiums. It highlighted, citing a study from the Pakistan Institute of Development Economics (PIDE), that in the last five years, Pakistani customers have paid Rs. 170 billion “own money” on 90% of vehicles.
Muhammad Faisal, president of the automotive division of Lucky Motor Corporation (LMC) stated that:
The investor’s objective is short-term financial gain. When we speak to other global manufacturers, they are amazed that people give extra money to buy a car.
Various experts stated that a struggling state economy is also a reason behind this strange market dynamic. Mattias Martinsson, Tundra Fonder’s chief investment officer, stated:
In most of our markets, which have relatively stable currencies, we didn’t notice this factor. But Egypt has similar characteristics to Pakistan’s automobile industry.
Carmakers at Fault?
The aforementioned study from PIDE also claims that car companies are deliberately holding back production. It adds:
Economic theory says that monopolists will supply less than market demand even if it means retaining spare capacity on hand. In keeping with this practice, car assemblers have a capacity of 400,000 units but produce only 200,000 a year, ensuring a shortage prevails in the market.
The study states that the ongoing oligopoly in the automotive industry has muffled the voice of consumers. It adds that the industry has been in the same sorry state for the past 5 decades.
While the study grills car companies for facilitating the own money culture and the meteoric rise of used car prices by cutting production, automakers continue to face a now long-standing production crisis.
Honda Atlas Cars Limited (HACL), Hyundai Nishat Motors Private Limited (HNMPL), Toyota Indus Motor Company (IMC), Pak Suzuki Motor Company (PSMC), and others are observing regular non-production days (NPDs) to cope with the ongoing chaos.
Carmakers have blamed supply chain issues arising from the government’s sanctions on imports and the plummeting economy.
help the poor pakistanies
I need a job..