Auto Financing Drops for 18th Consecutive Month

The amount of outstanding vehicle loans fell for the 18th consecutive month to Rs 251 billion at the end of December 2023, down from Rs 257 billion in November and Rs 337 billion a year earlier in December 2022, representing a 2.3% month-on-month and 25.5% year-on-year drop.

According to data released by the State Bank of Pakistan (SBP), the cumulative drop in the last 18 months was Rs 117 billion, from Rs 368 billion at the end of June 2022.

The unprecedented 22% interest rate (which was around 7% a couple of years ago), the meteoric rise in vehicle prices, and prudential regulations by SBP including the imposition of the upper limit of Rs 3 million on auto loans, and the reduction in payment duration had cast gloom on the auto demand. Besides, low overall economic growth and higher inflation are also affecting car sales.

As per data released by the Pakistan Automotive Manufacturers Association (PAMA), sales of new locally assembled passenger cars during the first half of FY24 shrank to 30,662 units from 68,912 units in the same period FY23 rendering a further 55% drop in sales. In addition, light commercial vehicles (LCV), vans, and pickups sales almost halved to 8,442 units from 15,204.

Issues relating to restrictions on opening letters of credit (LCs) due to the foreign exchange crisis have also hit production activities resulting in frequent plant closures by the auto assemblers due to a shortage of imported parts and accessories.

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