Car Prices Likely to Increase Soon

Prices of local assembled cars in Pakistan are expected to increase in near future, due to rising raw material costs, sky high freight charges,  depreciating Rupee value against the US Dollar and prevailing global shortage of semiconductor chips.

According to information, the price of electro galvanized steel has increase by 30% to $2,841 per ton in the first quarter of the ongoing fiscal year. Steel prices have increased by 215% since March 2020. Aluminum prices surged to $2,847 per ton while copper has touched $9,145 per ton in September 2021. Cost of cold-rolled coils soared by 31% to $2,707 per ton while hot-rolled coils with an increase of 34% are available at $2,453 per ton.

Rising shipping cost is another main issue since the cost of one container has skyrocketed from $500-800 in February 2020 to $9,000 at present. Furthermore the shortage of containers & delays in shipments is making things even worse. Due to unavailability of semiconductor chips, which is a vital component of any automobile these days, many automakers have stopped accepting bookings of various models and as per reports are in process of negotiating with the government to increase the prices of local assembled cars.

Related: Car Sales to Slow Down Due to Auto Financing Restrictions

Last month, the government made one automaker withdraw the price hike and threatened to fix prices of cars sold in the country. According to a letter written to the Engineering Development Board (EDB) undersigned by Controller General of Prices and Secretary Ministry of Industries and Production Kamran Ali Afzal, reads:

“The government has very recently given significant tax concessions to automobile manufacturers in order to make cars affordable for the public. While the car manufacturers reduced their prices following the grant of these concessions, it now appears that they intend to increase prices even though it has been only a few weeks since the concessions were granted, and despite the fact that there has been no increase in costs of production. This situation is clearly unacceptable, and the government may have no recourse but to initiate regulatory measures, which may include fixation of prices under the Price Control and Prevention of Profiteering and Hoarding Act, 1977. You are, therefore, directed to instruct automobile manufacturers to provide their costing structures failing which, price fixation proceedings would need to be carried out unilaterally.”

However with the current circumstances, especially when the government hasn’t been able to control the depreciating Rupee against the US Dollar with PKR standing at an all time low against USD, it is highly likely that automakers will soon announce prices revisions, and according to analysts the increase in prices might be massive.

Related: Vehicle Import Hits All-Time High in FY21

Pakistan is also battling with the rising trade deficit while witnessing record foreign exchange spending on highest-ever arrival of new automobiles in 2020-21. In overall automobile imports of around $2 billion, the import bill of completely (CKD) and semi-knocked down (SKD) kits for cars, bikes and heavy vehicles stood at record $1.6bn in FY21 as compared to $727m a year ago. In the first two months of the current financial year (2M-FY22), import of CKD/SKD kits for local assembly of all vehicles swelled by 214% to $369m from $117m in the same period last fiscal year, while import of CBU vehicles posted a growth of 118% to $103m from $47m in 2M-FY22. Furthermore State Bank of Pakistan has also imposed restrictions on financing of imported new vehicles to help contain the rising import bill.

vehicle imports

The ‘local’ auto industry remains heavily dependent on imports, be it in the form of CKD/ SKD or even raw materials, however the recent influx of import-dependent newcomers & costly CBUs have made things even worse. How government will tackle all this, and whether price increase is the only solution to the problem, we will have to wait to find out.

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