The main reason for choosing the topic of the impact of fuel prices on the automobile sector is that due to the continuous rise in inflation in Pakistan, facing a decline in purchasing power in all sectors. Since petrol is the most traded commodity, therefore the effects are very significant on the country’s economy. Within the auto industry, automobiles and petrol are complementary items that are both in high demand. In this circumstance, an increase in the price of one item results in a decrease in the demand for other items. Thus, a rise in petrol prices resulted in a decrease in the demand for automobiles that put a negative impact on the automotive sector. In this article, we will discuss how much petrol prices effect the automobile industry.
Petrol prices in Pakistan:
The price of petrol in Pakistan is skyrocketing day by day. The government recently raised petrol prices again on June 16 and this was the third major increase in petrol prices in less than 20 days. This time the Pakistani government has increased the price of petrol by Rs 24 and diesel by Rs 60 and this is a huge increase in petrol prices.
- After the recent rise in fuel prices, petrol prices have gone up by Rs 24.03 per liter. Now petrol costs in Pakistan are Rs. 233.89.
- The price of high speed diesel has been increased by Rs 59.16 and the new price is 263.31 per liter.
- The price of kerosene has raised by Rs 33.12 and now its new price is Rs. 211.43 per liter.
- Moreover, the price of light diesel oil (LDO) has been hiked by Rs 25.53 per liter and the current price rate is Rs. 207.47.
High Petrol Price Effect on Automotive Sector:
The increase in petrol price put a bad impact on the automotive sector. This increase in petrol prices comes at a bad time for the Pakistani automotive industry and the country’s economy. The increase in petrol costs has had a direct impact on the revenue and profits of car makers, hits the demand for vehicles, harms the auto industry, and increases overall inflationary pressure.
Increased vehicles prices:
The automakers have increased their vehicle prices due to high petrol prices in Pakistan. The rising fuel prices putting pressure on the automotive sector. A representative of the auto industry attributed the historic rise in prices to the dramatic increase in freight charges and increase in input costs due to the increase in petroleum. This is because Pakistan automotive companies assemble vehicles through imports and face high input cost pressures due to high petrol prices. The increase in car prices is due to increased input costs such as high shipping charges, and raw materials. Therefore, the increase in transportation rates also increases the prices of vehicles in Pakistan.
Decreased Demand for vehicles:
The auto sector has reacted strongly to the rise in petrol prices as it is likely to reduce demand for petrol powered vehicles in the country. The majority of car manufacturers in Pakistan rely heavily on petrol-powered vehicles. This is true for two-wheeler and four-wheeler manufacturers, whose entire product line depends on petrol engines. Petrol and car are complementary goods, when the price of one item increases the demand for the second thing falls. The rising in petrol prices has reduced consumer demand for petrol-powered vehicles. The decrease in vehicle demand has a direct impact on revenue and profits of car makers with a large product line of a petrol vehicles.
Auto Companies stopped vehicles production:
Most of the automobile companies in Pakistan have stopped production of vehicles due to continuous rise in petrol prices and unstable market conditions. Most of the automotive companies in Pakistan import tires and large parts of vehicles for the local production of their automobiles from other countries. These automotive parts are imported by shipping. The petrol prices directly affect the cost of Freight and input cost. As a result, the auto sector faces a shortage of raw materials and they have no choice but to stop their vehicle production.
Decline in Car sales:
The petrol prices also affect the sale of vehicles in the automotive industry. The increase in petrol prices pushes up the costs of vehicles that putting pressure on car dealers’ supply chains. Because the higher petrol prices also increase the cost of dealerships to transport vehicles. As a result, the high vehicle costs reduce the sale of vehicles. Thus, high petrol prices are a major obstacle to car sales and led to a shortage of delivery drivers.
Small Car Demand:
The demand for large cars has impacted by the ongoing rise in petrol prices. Since petrol price is close to Rs. 250 per liter, in that situation the demand for small cars has anticipated rising. Because large automobiles typically use about 50% more fuel than smaller cars. Small automobiles are extremely fuel-efficient and are suitable for most value- and budget-conscious buyers.
Low Petrol Prices Effect on Automotive Sector:
The fall in petrol prices has a positive effect on the automotive sector. It takes a good time for the automotive industry when the sale of the vehicles recovered nicely and the automotive market grows very fast.
Vehicle prices Decreased:
Since gasoline is a petroleum-based product, the changes in the price of petrol put directly affect the price of vehicles. When the prices of petrol go down the prices of vehicles also decrease. because the automotive market doesn’t have to face the pressure of freight charges and increase input costs.
Increased Demand and Sale of Vehicles:
The change in petrol price has the largest impact on the demand and sale of vehicles in the automotive sector. The low petrol prices put a good impact on the automotive sector because they help to increase the customer demand and vehicles sale. The decrease in petrol prices also increases the demand for new vehicles. The low price means that, in this situation, car owners have more usable income to use to buy other vehicles. Because Low petrol prices make driving much cheaper, and as a result, car ownership becomes more attractive to some people. The extra income they save from lower petrol prices can be used to buy a new car.
Influence on Vehicle Size:
The petrol prices also affect the size of vehicles in the automotive sector. In an environment of low petrol prices, more car buyers prefer to choose larger size vehicles than smaller ones. In addition to investing in an improved fuel economy, the automotive industry has focused on producing smaller vehicles in many markets to meet anticipated consumer demand and government regulations for fuel efficiency and low emissions.