Used cars rarely devalue in Pakistan

Pakistan is a highly unique location for vehicles, both new and old. A new car may be purchased, used for many years, and then sold for considerably more money. The growing price of vehicles and the crazed market for old ones are caused by factors such as a weakening currency, a protectionist market, and excessive inflation.

However, since secondhand automobiles are at the bottom of the issue chain, they are not to blame. The selling of new autos is actually when things start to go berserk. To begin with, auto manufacturers purposefully create fewer cars in order to maintain a demand-supply imbalance in their favor. The hoarders—often referred to as "investors"—then acquire brand-new cars in large quantities and resell them for a profit. The hoarders, dealerships, and the actual assemblers are said to split the profit.

90% of Pakistani consumers, according to research by the Pakistan Institute of Development Economics (PIDE), are required to pay an unreported fee known as "own money," which has totaled 170 billion rupees over the past five years. The study shows that the threat of personal money in the sector is mostly caused by poor output levels. In the previous five years, Pakistan manufactured fewer than even 1 million automobiles.

In contrast, Turkey produced more than six times as many automobiles, Brazil created about 13 times as many cars as Pakistan over the previous five years, and Morocco produced twice as many cars. Not to add Thailand generates up to 15 times more automobiles than the United States while being three times smaller than Pakistan.

In other nations, if you want to purchase a brand-new automobile, you visit a dealership, test drive the car, and then pay for it if you are happy with the car, its price, and the amenities it offers. However, consumers in Pakistan must pay a significant percentage of the money at the time of booking (in some circumstances, without even seeing the car) and then wait for delivery, which might take several months or even longer in extreme situations.

In this case, auto manufacturers produce automobiles in response to requests rather than in advance of demand. Additionally, they import up to 90% of the parts needed to build a normal automobile domestically. The most intriguing aspect is that the quoted price at the moment the vehicle is reserved is not binding. As a result, businesses may charge clients numerous price hikes up until the delivery date while providing any number of justifications. Recent events show that by the time a car was ready for delivery, individuals who reserved them had to pay more than Rs 1.2 million.

And those who choose to stay out of this predicament opt to pay "own money," which is supposedly divided by hoarders, dealerships, and assemblers. Syed Hammad Ali, a private company executive who reserved a brand-new crossover and chose to "wait" rather than pay "own money" to the dealerships for immediate delivery, claimed that it would have been preferable if he had paid Rs 300,000 "own" money a few months earlier rather than the Rs 850,000 price increase levied against him by the auto manufacturer.

The irony is that no one will object if the assemblers delay the delivery past the agreed-upon time. Furthermore, there is no authority to examine vehicle assemblers when they collect a sizable quantity of money from consumers under the guise of "booking" in excess of their real production or delivery capability and continue to make significant bank interests on the money.

Most consumers who pay "own money" to have their cars delivered on schedule typically recoup that expense when they sell the car after a few years of use. And to make matters worse, the cost of new automobiles is always rising—at least, that is what we have seen over the past four to five years. The cost of new cars is often updated every three months, with annual increases in price of about 33%. As a result, by the time a car is acquired, its sticker price has increased significantly, which has an effect on used automobiles.

Muhammad Rameez, Foundation Securities' chief of sales, claims to have bought a new Suzuki Alto in 2019. Rameez had it evaluated three years later at 65% more than the initial price after driving it 12,000 kilometers in Karachi. A Toyota Corolla that was bought brand-new for 2 million rupees five years ago may now be sold on the used automobile market for 3.2 million rupees, an increase of 60%. This is simply due to the fact that new automobiles are now up to 60% more expensive than they were a few years ago.

Due to fierce market rivalry, new automobiles are frequently released in much of the world at a lower price than their predecessors in an effort to draw in buyers. Unfortunately, due to a controlled market and a lack of alternatives, new automobiles in Pakistan can be quite expensive for only a slight change in appearance. Although they typically have the same engine and equipment as the model before it. Not to add that most of what is introduced here is already seen as being outdated elsewhere.

Since the late 1980s, Pakistan has been forced into 13 loan programs from the International Monetary Fund (IMF), despite the fact that per capita income has mostly remained steady. The Pak Rupee has decreased by about 300% since 2000, and inflation is among the highest in Asia. Additionally, the country's vehicle market is limited, with sales of 120,000–220,000 units for the majority of years since 2004, due to stagnating living standards and unchecked price increases.

The majority has turned their focus to used automobiles, where the largest draw is in fact rapid delivery, since new cars become out of the price range of the majority and auto financing is no longer possible owing to strict requirements set by the State Bank. As they continue to dribble out a limited number of automobiles from their factories while claiming to have achieved a greater localization and boasting vast production capacity, local auto assemblers have failed to do this over the last few decades.

Today, the Suzuki Alto VX, the cheapest mass-produced passenger vehicle in Pakistan, costs a staggering Rs 16.99 lac despite lacking air conditioning, power windows, power mirrors, alloy wheels, ABS, and airbags, among other essential features. A reasonable entry-level sedan would cost you at least Rs 3.5 million, while top-of-the-line compact cars like the Honda Civic start at over Rs 7 million.

Investigating the used automobile market finds that vehicles older than ten years old with thousands of miles on the odometer are being requested for prices that are nearly three times more than their real invoice price. However, since the used automobile industry is uncontrolled, it is practically difficult to anticipate car costs to decrease to a level that is reasonable. However, since new car costs are what ultimately determine used car prices, it is possible to regulate new car pricing in the market.

When used JDM imports first began to flood the market during the Musharraf period, the cost of vehicles 10 years old or older decreased by over 50%. Prices will therefore remain under control as long as purchasers have alternatives that are reasonably priced and supply and demand are balanced. But if we willfully choose to ignore the artificial shortage and unfair price increases of new automobiles, then both the new and used car markets would be negatively impacted.