90% of Cars in Pakistan are Sold at Premium/ Own/ On Money- Research

According to a recent research by Pakistan Institute of Development Economics (PIDE), it has been revealed that the automobile sector of Pakistan has made undocumented transactions worth Rs 150 billion to Rs 170 billion during last 5 years under the head of additional charges, also known as own/ premium, paid to the car dealers to get an immediate delivery. As per this research, around 80 to 90% of passenger vehicles in Pakistan are sold against premium/ on money.

The PIDE research report by Senior Research Economist Dr. Usman Qadir and Staff Economist Mohammad Shaaf Najib says:

“These transactions remain undocumented. The own money is premium charged over and above the price of vehicles by dealers in exchange for immediate delivery of cars due to shortage existing in the market.”

According to the report, only three major players (Suzuki, Toyota and Honda) assemble a handful of automobiles in Pakistan, with new entrants yet to make their mark in terms of volume production. The researchers noted that during the early 2000s when car sales rose sharply, aided by cheaper car financing services, the demand and supply gap has widened. And this constant gap in demand and supply of vehicles had given birth to the own money culture in Pakistan.

Related: Hefty Premium Despite Cars Sales Down

For immediate possession of an automobile that has been purchased, the buyer must pay a premium/ own money, on top of something that has already been paid for. Over the period of years, the number of buyers kept increasing rapidly, while vehicle production capacities did not significantly increase to match this rise in demand, resulting in a prolonged waiting period for the delivery of vehicles after booking. Such a situation created an opportunity for the dealers to earn commission in the middle of the supply chain.

The research has identified low production levels as the major cause behind the menace of own money in the industry. Pakistan produced less than even 1 million vehicles in the last 5 years. The research also highlights that Morocco produced twice as many cars, Turkey manufactured over 6 times more vehicles, and Brazil’s production remained nearly 13 times more than Pakistan during the last 5 years. Not to mention Thailand which is 3 times smaller than Pakistan still produces up to 15 times more vehicles than us. The research emphasizes increasing the local production of vehicles as the first step in eliminating own money from the automobile industry.

Related: Is Pakistan Really a 200,000 Vehicles per Year Market?

The researchers urged that regulations must be made to creating a market structure that facilitates all market players and not tilting to one side only. Government regulators must fulfill their duty to protect the rights of consumers by crippling the unregulated power at the hands of auto manufacturers, the research concluded.

The complete downloadable PIDE research (pdf) can be found here. Also read:

Economic Advisory Group Says Auto Policy is Damaging for Consumers

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