The month of February ended with an overall 13 percent decline in auto sales in Pakistan. Many reasons contributed to this fall in sales. Mainly, the purchasing power of people in Pakistan has decreased due to inflation and the downturn of the economy. Moreover, the rapidly depreciating rupee has made everything that is imported or has imported components and parts. In the case of locally assembled vehicles, some of the parts like engine and its components are being imported directly from abroad. This causes a surge in prices of vehicles every time the rupee slumps against the dollar. Another rationale behind the decline in sales can be fewer working days in the month of February.
Performing a year-on-year analysis of sales, the figures tell a bleak position of the auto sector in Pakistan. The restriction on non-filers to purchase vehicles also adversely affected the sales figures. However, the ban has been lifted in the new finance bill which has sparked controversy on both sides of the aisle. This to-and-fro position on banning non-filers has also sparked uncertainty among investors and new auto manufacturers trying to enter the Pakistani market. The uncertainty deters the new entrants from starting their operations as their research and field studies get rendered useless after tectonic shifts in policy or market conditions.
While lifting the ban will increase the sales, the imposition of 10 percent Federal Excise Duty (FED) will surely dent the sales. A 10 percent FED has been imposed on cars of 1700cc and above and this has already impacted the prices of vehicles like Toyota Corolla Altis 1.8L variants, Honda Civic and Toyota Fortuner. The surge in prices is astronomical given where the prices stood this time last year. One positive aspect of price hikes has been the periodic elimination of black market charging hefty premiums. Furthermore, slumped sales have decreased the delivery time period for new vehicles, further eliminating the possibility of premiums existing in the auto sector.
In the future, we can see the sales of smaller cars like 1000cc hatchbacks and 1300cc to 1600cc sedans to go up if the FED continues to persist. The price differential between the Toyota Altis 1.6L variant and Toyota Altis Grande CVTi is approximately PKR 800,000 after including 10 percent FED. This is a huge difference and cautious buyers purchasing cars on a tight budget, which are high in a struggling economy, go for smaller more fuel-efficient cars. Sales of high-end vehicles like Toyota Fortuner may remain steady as their buyers have higher purchasing power compared to the buyers of locally assembled sedans and hatchbacks.
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