Due to constantly increasing vehicle prices and high interest rates, auto financing has dropped to the lowest level since January 2022. Compared to July, it further dropped by 2.2% in August.
According to data released by the State Bank of Pakistan (SBP), auto loans in August stood at Rs 353 billion witnessing nearly Rs 15 billion decline, as in July they were recorded at Rs 361 billion.
Auto financing is expected to remain in a negative tone in coming months as long as interest rates remain high, followed by SBP’s restrictions on auto financing for amounts greater than Rs 3 million, increase in debt burden ratio, soaring automobile prices, non-improvement in macroeconomic indicators, non-production days by the assemblers, uncertain booking schedule and delayed delivery of vehicles, etc.
According to analysts, people have become reluctant about auto loan borrowing due to high prices, which had slowed down the demand for vehicles. Furthermore SBP’s capping on financing up to Rs 3 million and reduction in auto loan tenure from 7 to 3 years is not attracting many buyers. After adding insurance and other charges, people cannot afford to take an auto loan at 20% interest rate. Majority is now finding it difficult to pay costly monthly installments.
A banker dealing in auto financing told Dawn, “The situation is bad and there is no chance for any improvement under current SBP restrictions.” He said the reduction in the tenure of financing had also taken away the buyers from the markets. There is a need to increase the amount of financing to Rs 8 million from current Rs 3 million to lure buyers, he added.
Auto assemblers heavily rely on banks’ car financing as its share hovers up to 40% of three major Japanese car assemblers in total car sales. However due to insanely high prices, most of the buyers were purchasing new cars via bank financing. But now with auto financing no longer attractive for consumers, the assemblers who are already troubled with non-production days due to lack of CKD parts in hand, will receive another major dent as demand of new cars will remain subdued in coming months.
A 3d animation professional with over 20 years of industry experience having served in leading organizations & production facilities of Pakistan, an avid car enthusiast and petrolhead with an affection to deliver writings to help shape opinions. Formerly written for PakWheels as well as major publications including Dawn. Founder of CarSpiritPK.com