Journalists and experts have often brought up fraud in the car industry, particularly with regard to the on-money (own/premium). Policymakers have taken various token actions over the years to demonstrate their commitment to containing this threat, but no real steps have ever been done to confront the devil.
The fundamental auto industry issue, which has persisted for years, was recently highlighted once again in a research-based piece published in Dawn by the Pakistan Institute of Development Economics (PIDE). The study finds that car buyers in Pakistan spend more than Rs 35 billion every year as "own-money" in addition to the cost of faster vehicle delivery. Own money is a term used to describe a premium on the black market that is mostly amassed by automakers (assemblers), new vehicle dealers, and their friends who serve as speculators and insider traders.
Ownership is largely caused by two elements: a lack of available automobiles and prior reservations. According to economic theory, monopolists will offer less than the market requires even if it means holding back excess capacity. According to this strategy, vehicle manufacturers only make 200,000 units annually while having a capacity of 400,000, causing a shortage on the market.
Ironically, vehicle makers campaign to impose limitations to guarantee that there is an excess of demand on the market even when certain imports (of old cars) are permitted, even if they are under the baggage program while failing to increase output. Imported secondhand automobiles are desired and have a propensity to kill our local autos even at a higher duty rate.
Evidently, even after 50 years of government protection, our young auto sector is still unable to create a vehicle that can match the features and quality of a used vehicle. A protected oligopoly operates in this manner. The neighborhood assemblers have a field day when imports are halted. And instead of increasing output, they increase booking, which means they gather extra orders to give themselves working capital and build a lengthy line to maximize their own. As a result, customers reserve automobiles without any assurances regarding the availability date or the price.
It's interesting that they accept our payment in whole with no pricing or delivery date guarantees. While holding the customer's money, assemblers and dealers are allowed to raise prices under any circumstance. Own money has existed for 50 years with no regulation from a ministry or government body. Nobody examines this unregistered economy that drains investor capital. This subject has also never been discussed in the government or by the parliament.
Sadly, nobody has a say in this system—not even the customers. But what can be done to create a market for cars and get away from the prevailing illegal market? The research indicates that:
General contract terms must be applied to advanced bookings. First, delivery deadlines of no longer than a month should be set at the expense of penalties. Second, the cost of the booking time must be considered.
For periods of surplus demand to persist no more than four weeks, assemblers must run at a minimum of 80% capacity. This may be simply measured by the size of the own.
Dealers must not be allowed to commit to the sale of any car that is not physically present at their dealership, along with the prohibition against corporations collecting advances for vehicle reservations. To stop this abuse of the customers, the dealers—who are the primary participants and stakeholders in the collecting of their own money premium—must be dealt with in accordance with the law.
In the end, it is government policy that has been held captive for the past 50 years by assemblers. Because of poor government policies that attempt to achieve the impossibly lofty objective of local vehicle manufacture under strict protection, there isn't now a market for automobiles. When they have a captive market, vehicle manufacturers have little motivation to export or grow a typical auto sector.
It's time we realized how damaging protection is to children. Every child should be able to compete in school without parental supervision. The government has also frequently been informed that transparency on both the import and export sides is necessary for all markets. However, the assemblers ultimately find a means to claim ownership.
The government must permit selective imports. Local assemblers already have an advantage due to the tariff difference between imported and manufactured autos. Furthermore, since the cost of assembly kits and the price of a new automobile are not much different, imports result in tariff income rather than a major loss of foreign money.
For the past 20 governments, the auto sector has remained dormant. It appears that no one in the administration has the analytical skills necessary to study this complicated issue. However, there are high taxes on consumers. The own premium on subpar automobiles, which is a tax on customers, should at the very least be included in the tax calculation to demonstrate that our tax to GDP ratio is not as awful as it is said to be.