100% Booking Amount will End On-Money Culture- Says IMC Chief

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The menace of on-money/ premium/ own has been a curse for the local auto industry as well as the auto consumers since long. Government during different periods have made futile attempts to eliminate the malpractice of bulk-bookings & charging higher amount from potential customers for early deliveries of vehicles. However no concrete measure has been initiated ever, and the market still is dominated by a huge number of investors/ hoarders who tend to grab a major chunk of new cars before they can reach the deserving customers.

According to the research by Pakistan Institute of Development Economics (PIDE), 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, up to 90% of passenger vehicles in Pakistan are sold against premium/ on money.

Related: Influx of Imported Phones Never Bother Local Mobile Phone Makers, Why Auto Assemblers Always Feel the Heat?

Government had imposed penalties of 3% plus Kibor on car companies who fail to deliver their automobiles within 60 days after taking the booking order, as well as an up to Rs 200,000 WHT on those who sell newly purchased local assembled vehicles within three months of delivery. However these measures are fruitless since no investor registers & sells the vehicle within 90 days, in fact the game is done on the first booking of ‘unregistered’ vehicles and it is usually the buyers who has already paid the own-money, to be the first to register a new vehicle.

JAmali

According to the CEO of Indus Motor Company (IMC) Ali Asghar Jamali, the government’s restriction to collect a maximum of 20% on booking makes a business case for investors. Jamali says, investors can book 5 cars at a price of one, which chokes supply and increases delivery time, giving margin to investors to charge high own-money. If car companies are allowed to charge full payment at the time of booking it would make the industry unattractive for investors. Government can then penalize assemblers if they do not deliver a car in three months, he added.

Related: Are Cars in Pakistan Really an Investment?

Another official representing the local automakers thinks present-day circumstances with wildly fluctuating exchange rates and international commodity prices would continue to keep ‘investors’ relevant. The official said investors (read hoarders) would still be booking cars at full price anticipating a price increase. He went on to add:

“If the government allows companies to take full payment, with the added clause of charging higher prices if rates increase, then investors will be eliminated.”

However in reality, the core reason behind the menace of on-money is the delays in deliveries of new cars. Eliminate the delay, and the on-money culture will end instantly. Who will pay additional amount to investors when the car will be delivered instantly or say in 10/15 days? Even before the pandemic, the delivery times of local assembled vehicles used to range in several months with total production output of auto industry hovering around hardly 0.2 million units a year.

Related: ‘Free Market’ of Pakistan and the Import of CBUs

It is important to ensure the capacity utilization of local auto assemblers. If the plants are not running to produce 100% units as per capacity, the delays in deliveries are bound to exist. Doesn’t really matter if some investor is booking 5 cars or not, suppose if the investor is eliminated and there are 500 potential buyers in queue but the company having a capacity of over 600 units is only producing 300 units, the on-money culture will remain erected.

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Plus allowing assemblers to charge 100% booking amount will give them more reasons to earn big profits in shape of interest on bank deposits, with deliveries to be ideally maintained at 3-months or beyond regardless of their production capacity. Assemblers demanding government to allow them to have 100% amount in the name of booking while still needing several months to deliver the vehicle, and on top of that passing on the price increase impact (during the period) on the customers will never end the presence of on-money culture, the customers will continue to suffer from delivery delays while the assemblers will get an even greater margin of making money from substantial bank deposits.

Related: Car Financing Costs will Haunt You

Besides ensuring 100% capacity utilization, there are many ways to bring the menace of on-money to an end. Like they say, where there is a will there is a way. For example:

  • Govt should ask FBR to scrutinize the sales data of every assembler and identify the duplicate CNICs in a 6 month period to begin with.
  • Making sure the vehicle must be registered on the name of the person who booked it, by prohibiting to transfer the vehicle before registration.
  • Limit the span of new car bookings against a single CNIC, one person booking a new vehicle will not be able to use the same CNIC to book another vehicle for at least 4 months.
  • Maximum number of new cars in a year per CNIC can be restricted to 2.
  • In Japan, owners (of new Land Cruiser J300) must sign an agreement to not resell the vehicle for at least 12 months after taking delivery, but if they do, they won’t be allowed to buy another Toyota. How simple is that!

TDM Showroom

Curbing the menace of premium/ on-money is pretty easy, all it needs are some strong regulatory measures, and that’s exactly what governments are supposed to do. Allowing to charge 100% booking amount, and no matter how many taxes & penalties imposed, will never work to bring the on-money culture to an end. Only timely deliveries, 100% efficient capacity utilization and strong regulatory measures will do the magic. However the question is, who will put the bell on the cat?

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