Auto financing increases before tax hike


Auto finance grew by 19.4% year-on-year and reached Rs 368 billion in the fiscal year ending June 2022, which boosted car sales.

“June car sales grew 106% yoy and 24% mv in anticipation of higher vehicle prices after the imposition of taxes,” said auto analyst Arsalan Hanif. .

“As a result, auto financing increased in June year-over-year and month-over-month.”

The year-over-year increase in auto financing was mainly due to a large order book and pent-up demand, said Ali Asif, auto analyst at Aba Ali Habib Securities. However, on a month-to-month basis, a slowdown began to be felt due to rising auto finance rates.

Auto finance was up just 0.32% month-on-month in June. “There is no growth in auto finance,” commented Muqeet Naeem, auto industry analyst at Ismail Iqbal Securities.

Growth has been recorded over the past two to three months, said automotive industry expert Mashood Ali Khan in an interview with The
Grandstand Express.

The implementation of fiscal policies started from July 1 and after that, major original equipment manufacturers (OEMs) did not make significant
reservations, he said.

Citing the reason, Khan pointed out that banks do not issue Letters of Credit (LC) as per the instructions of the State Bank of Pakistan (SBP) to
curb imports.

Even though banks were opening LCs, from July 1 the interest rate hit 15.75%, “now who will go for car financing at this insane rate?” He asked.

Khan explained that buying a car does not mean a one-time expense because after the purchase there are expenses for running the vehicle, which are difficult for a customer to bear.

“Current numbers reflecting industry performance are positive when compared to 2021 and 2020. A real picture will emerge when the comparison is made with the year before the Covid outbreak,” Khan said.

He added that the positive numbers were about to change as over the past three to four months new bottlenecks had begun to hamper growth and were putting the survival of the automotive industry and other industries at risk.

Factors that have started to hurt the industry include high interest rates that have hit the purchasing power of the working class.

Prices rose due to the depreciation of the rupee which reached Rs228 per dollar. More taxes are introduced as it is difficult to open LCs by OEMs amid falling foreign exchange reserves and soaring fuel prices following the implementation of the IMF lending program while withdrawing
all grants.

“The trust deficit between government and industry has widened,” he said. “The State Bank has been left without a governor as political uncertainty in the country pushes the economy and industries into turmoil.”

He called on the government to sit down with the industries and chart the way forward or the current situation would spell disaster for the business. At the same time, “the industry must prepare for difficult times”.

Published in The Express Tribune, July 23rd2022.

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