Sparse car demand and rising interest rates continue to plague the auto sector as bank financing fell again for the 13th time in July 2023. According to Dawn, the total car loan amount fell to Rs. 285.2 billion from Rs. 293.7 billion in June.
Data from the State Bank of Pakistan (SBP) suggests that auto financing peaked at Rs. 368 billion in June 2022 and has since fallen due to increased interest rates, now at 22%. Other reasons for the decline include demand curbs and rising vehicle costs.
SBP reduced repayment length and raised the vehicle loan ceiling to Rs. 3 million, hurting local assembler sales.
Fahad Rauf, head of Research at Ismail Iqbal Securities (IIS), said that the 25% interest rate after Kibor plus and SBP measures to reduce auto demand are preventing bank loans. He added, citing SBP data, that bank-purchased new vehicles are not rising during net retirement.
Rauf said the market is abuzz with various predictions that the interest rate will rise or stay unchanged due to rising inflation and concern about more vehicle price hikes due to the rupee’s devaluation.
He stated that the auto sector will remain in a crisis till December and the sales situation may also remain alarming even during H1 2024, with no sign of a big drop in interest rate, prices, or rupee-dollar stability.
Indus Motor Company (IMC) CEO Ali Asghar Jamali claimed the auto industry is witnessing its worst economic downturn ever. In 2023, local and worldwide disruptions and CKD kit import limitations caused plant closures and major industry job losses.
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