The Automobile Industry Anticipates a Challenging Fiscal Year

The local car sector had a rollercoaster year in the fiscal year 2021-22, with lots of ups and downs. Drop-in car prices due to government duty and tax reductions, followed by multiple steep price hikes, massive depreciation in currency value, supply chain issues & massive delays in deliveries, still some record-breaking sales, public outcry over unjust price hikes leading to the government initiating a forensic audit and threatening to fix prices of locally assembled cars, then tightening of imports to control massive outflows of forex reserves and the State Bank's neoliberal monetary policy.

However, the local car sector is projected to have some significant ups and downs in the fiscal year 2022-23. In reality, due to the deteriorating economic environment, political uncertainty, rising inflation, and recent limits on vehicle financing, auto industry stakeholders are already anticipating more downs than ups.

Indeed, given the country's current economic and political scenario, local car industry leaders predict a 30 percent drop in sales in the next months, with no rebound in sight. Furthermore, State Bank's recent limits on auto financing, which include an increase in interest rates and a reduction in financing tenure from 5 to 3 years for vehicles with displacements greater than 1,000cc, have rendered monthly installments unsustainable for regular consumers. Consumer vehicle lending has reduced to 20%, according to a banking spokesman, as a result of the State Bank's tightened prudential standards.

After nearly 35 days since the start of the calendar year, car prices are being changed. However, it has been claimed that the Ministry of Industries and Production (MoIP) has recommended tax reductions to be enacted in the future financial budget for FY22-23 to help relieve the price spikes. Keep in mind that the government decreased certain taxes last year, bringing the prices of locally made automobiles down by a modest margin; nevertheless, auto assemblers announced repeated major price rises in the following months, nullifying whatever respite the public received for just a few months.

The forensic audit, on the other hand, is a key problem for local assemblers. Because of the frequent price spikes, the Ministry of Industries and Production established an auto industry monitoring committee to keep an eye on the sector for profiteering and maintaining high automobile costs. PAAPAM, the Competition Commission of Pakistan (CCP), SBP, the Federal Board of Revenue (FBR), the Ministry of Commerce, and the Ministry of Industries and Production are all represented on the committee. The Engineering Development Board (EDB), the auto industry's regulator, has requested automakers to divulge their cost structures and justify repeated price spikes, threatening the sector with price fixation under the Price Control Prevention of Profiteering and Hoarding Act of 1977.

Major automakers, on the other hand, refused to divulge their cost structures, claiming that the information was secret. Furthermore, the Pakistan Automotive Manufacturers Association (PAMA), a trade association for Pakistani automakers, stated that the country has a free market and that the market, not the government, determines to price. Toyota would leave Pakistan if the government attempted to control vehicle pricing, according to Indus Motor Company CEO Ali Asghar Jamali.

Some industry analysts believe the government's price-fixing measures are only a ruse to divert attention away from the public's dissatisfaction with repeated auto price spikes. They stated that no government action will be taken against the sector. According to observers, the government also does not want vehicle sales to rise since every car sold in Pakistan would have a negative impact on the country's current account and, as a result, foreign exchange reserves. Imported CKDs, SDKs, and raw materials account for up to 90% of a car's cost. Even domestically produced parts rely heavily on imported raw materials.

Assemblers are now calm due to a large number of advance bookings in their hands, with delivery times ranging from 2 to 9 months. However, the local car sector is set to feel the heat in the second part of the next fiscal year. We'll have to wait and see if the country's economic and political crises are resolved by then.

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