KARACHI: Last month, auto financing concluded its second consecutive year of decline, falling from Rs233 billion in May to Rs230.5 billion in June.
Based on the June 2022 figure of Rs368 billion, the State Bank of Pakistan (SBP) provided data showing that the total drop in outstanding loans in the last two years was Rs138 billion.
Due to their outrageous costs, it doesn’t seem that the SBP’s June 10 interest rate reduction from 22% to 20.5 % has persuaded consumers to finance new, locally built cars. Nonetheless, buyers continued to prioritize leasing outdated cars that were put together locally via private banks.
Due to high monthly loan instalments and interest rates, exorbitant car prices, and State Bank financing restrictions intended to reduce demand and manage the current account deficit, consumers continued to be hesitant to purchase new cars.
Despite recent policy announcements, car components maker and exporter Mashhood Ali Khan claims that the anticipated improvements in the auto industry did not materialize in FY24.
The percentage basis for withholding tax (WHT), which was previously fixed for smaller segments, has been changed, resulting in an increase rather than a decrease in the taxable amount. The fact that a sizable amount of secondhand automobiles were imported in fiscal year 2024 and had an impact on local production is another important issue.
“We seem to be heading towards an even more challenging period based on the low auto sales data for FY24,” he said, attributing the decline in sales to the declining purchasing power of customers, high prices, and the unfavorable effects of budgetary measures on the already severely impacted salaried class.
freight costs
Mashhood Khan stated that the cost of international freight has increased dramatically and that this could result in higher production expenses in the upcoming months. “It is improbable that automobile prices will stay steady in the upcoming year.”
On the plus side, though, he declared that the State Bank’s initiative to reduce interest rates was a welcome step. Even if loan rates are further reduced by one percent, pressure on auto finance would still exist. “Auto financing will fully revive with an interest rate in the single digits, or perhaps as low as 10–11 percent. We do not anticipate any improvement in sales over the next six months, as things are,” he was afraid.
Mr. Mashhood continued, saying that the government must act right now to solve the issues facing auto assemblers.
