Are Cars in Pakistan an Investment?

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Car prices in Pakistan are once again witnessing a round of increase with Kia announcing its revised prices for the third time within just 92 days since the beginning of year 2022. Other automakers are likely to follow suit. The cited reason once again is the depreciation of Pak Rupee against US Dollar and rising freight cost which results in the increase in cost of ‘imports’ used to ‘assemble’ the vehicles locally.

Related: Buying a New Car isn’t Anyone’s Piece of Cake

The interval for each price revision turns out to be 30.6 days, which means technically the new car prices are now being revised every month. Perhaps in future just like petrol, car prices will be revised after every 15 days based on the Rupee-Dollar parity and the huge number of parts needed to be imported in order to bring the local assembled cars into existence.

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The prices which are going up too quickly coupled with stringent car financing conditions, inflation & tougher economic situations have already put most of the genuine buyers out of the equation. However the assemblers are still able to post record sales (bookings) perhaps due to the presence of scalpers in the market, the sole intention of whom is to resell the booked vehicles against premium/ on-money. Not to mention up to 90% passenger vehicles in Pakistan are sold against premium/ on money, according to the research by Pakistan Institute of Development Economics (PIDE).

Related: Free Market and the Import of CBUs

As absurd as it might sound, cars in Pakistan have already become more expensive than residential property. Today an average sedan that cost Rs 3.7 million requires the consumer to pay up to Rs 60,000 per month on a 5-year loan at prevailing interest rate, assuming 30% down-payment which is around Rs 1.15 million. How many do you think are able to pay this hefty amount just to repay the installments, keeping fuel & maintenance and everything else aside. This is the case with an ordinary sedan, just calculate the same for expensive cars most of which are residing beyond Rs 5.5 million range in our market.

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The prices of new cars directly affects the prices of used cars in the market which are now available against a mind-boggingly expensive price tag. For example, just 3 years ago, the price of brand new Honda Civic Oriel was PKR 24.99 lac, today its available for PKR 56.49 lac. As a result the 2018 model Civic having around 50,000km on the odometer already, are now being bluntly asked for PKR 45.0 lac to up to PKR 50.0 lac in used car market & online classified websites.

Absurd prices of used cars in Pakistan

This renders a Rs 2.0 million premium above the invoice price even after using the car for several thousand kilometers. And perhaps that’s exactly why the car market, whether new or used is being dominated by those who intend to make profits on each deal rather than the genuine consumers. Today even a 10 year old Toyota Corolla 1.6L is being sold for around Rs 3 million in used car market, and instead of depreciation, the vehicle is enjoying up to Rs 1.3 million profit even after a decade of usage. (Corolla Altis 1.6L in 2012: Rs 17.56 lac).

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With lack of regulations on the auto sector, the prices of new cars are running out of control like wild beasts in a jungle, while affecting the prices of used cars in the process. The government have said it will conduct a forensic audit to determine whether the impact of increase in input costs is rightly transferred by the auto assemblers to the consumers in form of price increase, however the findings are yet to be concluded. Whether it will make any difference for car buyers in Pakistan, we will have to wait to find out.

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