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New Cars Still Out of Reach of Masses

Prices of local assembled cars witnessed a decline for the first time in many years thanks to government’s decision to slash various taxes imposed on locally assembled vehicles in the recently implemented Auto Policy 2021-26. Government aims to bring car prices, particularly of those of smaller cars to come within the reach of middle-class buyers. In addition government will also introduce a new car financing scheme with lower interest rates to facilitate customers & first-time car buyers.

Related: Impact of Price Reductions on Used-Cars

Government has reduced the GST from 17% to 12% and abolished the 2.5% FED and ACD on cars up to 1,000cc engine capacity. Then for cars from 1,001cc to up to 2,000cc, FED has been reduced from 5% to 2.5% while 7% ACD has also been reduced to 2%. For vehicles above 2,000cc the 7.5% FED has also been lowered to 5% while 7% ACD has been reduced to 2%.

Reduction Car Prices

Most automakers have already announced their price revisions however whether the decrease is good enough is something that can be debated. The price of 1.3L Toyota Yaris Ativ CVT for example, with a reduction of Rs 100,000 have come down from PKR 27.69 lac to PKR 26.69 lac. The difference is a bit more evident in case of 1.0L Suzuki Cultus AGS the price of which has reduced from PKR 21.3 lac to PKR 19.75 lac witnessing a reduction of Rs 155,000. Price of 660cc Suzuki Alto VXL has come down from PKR 16.33 lac to PKR 15.21 lac rendering a difference of Rs 112,000. For a complete list of price reductions, see our earlier post.

Related: Why a Bigger Drop in Prices of Existing Automakers Compared to Newcomers?

However if you notice, prices of cars sold by existing automakers (Suzuki, Toyota & Honda) have been lowered by a greater margin compared to newcomers. For instance, both the 1.3L Changan Alsvin & 1.3L Proton Saga witnessed a reduction of just Rs 50,000 compared to Rs 100,000 in case of 1.3L Toyota Yaris. Similarly, the price of Kia Picanto AT was reduced by Rs 127,000 compared to Rs 155,000 of Suzuki Cultus VXL AGS. This is because the Additional Customs Duty (ACD) enforced by the government was contested by the newcomers. According to a company official representing a new entrant:

“The new car companies that came after Auto Development Policy 2016-21 contested the ACD because government promised it will not change anything in the industry during the period. So, when it imposed ACD, we contested it and were not paying it. So, removing ACD doesn’t have any implications on new car companies.”

Now looking at the reduced car prices, there is certainly difference but not substantial enough to make a noticeable difference for most buyers. Yes car prices have come down but considering the amount of decrease, it might have become a little more attractive for those who could already afford, but the prices are still largely out of the reach of the majority.

Related: Should Car Prices Be Further Reduced?

Although government has played its part by abolishing various taxes, assemblers should also lower their margins amid reduction in Rupee-Dollar parity. Car prices in Pakistan were revised quite frequently during the last couple of years with automakers citing forex fluctuations as the primary reason behind the increase in prices. Rates were revised even in the slightest of fluctuations till Rupee reached a record low of Rs 168 against a Dollar.

However since August 2020, PKR continued to recover by more than Rs 13 against the USD rendering a 10% improvement in its value by January 2021, but sadly car prices were not reduced. Although Rupee stands at Rs 159+/- against a Dollar today, its still shows improvement considering the low of Rs 168 it reached last year. So there is certainly some room for a further reduction in car prices.

Related: Car Price Comparison: When Dollar was Rs 152+/-

Today the cheapest available mass produced passenger car in the market is Suzuki Alto VX which cost PKR 11.34 lac, not to mention it doesn’t even have an AC and many other basic things. Not bringing into account the Prince Pearl & United Bravo due to their extremely limited production capacity and lack of proper nationwide presence.

Not so long ago, the price gap between an entry-level local assembled 70cc 2-wheeler motorbike and an entry-level 800cc 4-wheeler (Suzuk Mehran) was hardly Rs 300,000. Today this gap is beyond Rs 1 million, which should give you an idea how rapidly the prices of cars in our country have gone out of the reach of masses. The largely populated middle class of the country or the first-time car buyers are forced to buy motorcycles, which are sold well above 1 million units a year. Families can be seen carrying 4-5 people (including children) on a motor cycle risking their lives just to go from point A to point B.

Related: Rising Difference in Motorcycle & Car Prices & the Need to Fill the Gap

The price reductions due to reduced taxes is a welcome move by the government. But if car prices are reduced even further, in order to pass a better impact on the customers, sales are likely to witness a massive increase. Do you think local assemblers should announce a further reduction in car prices? Let us know with your comments.

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