Some days ago, the State Bank of Pakistan introduced a new Vehicle Financing Policy to reduce vehicle demand, maintain imports, and also regulate the balance of payments.
The vehicle financing policy was revised and according to the new car financing policy following points were added
- The maximum period of vehicle financing will be 5 years
- The minimum down payment was increased to 30 percent from 15 percent.
- And maximum financing limits will not exceed 3 million for one person at any time.
The new regulations apply to completely buildup imported units and locally manufactured units with engine capacity over 1000cc and it was introduced to give benefits to lower- and middle-class vehicle buyers.
Auto Financing at its Peak
Although there are many restrictions imposed by the State Bank of Pakistan and also by the government on car financing, vehicle financing is not going slow. According to reports, the trend is continuously going upwards and in September 2021 it touched a new high level of 338 billion which means it has monthly growth of 3.8% and yearly growth of 45.5 %.
Critics say that this high demand is due to low-interest rates and lower down payments and along with that this high demand is due to a decrease in vehicle prices.
Morris Garages Pakistan
MG Pakistan is the new entrant in the market. They made their debut in October 2020 and came to the market with an amazing SUV. Soon it became the most attractive and demanding unit. The reason behind this was the most amazing design, state-of-the-art technology, and very less price as compared to the existing SUVs of Toyota. In a very short time, it became a very hot unit in the market.
Initially, MG Pakistan announced that they will set an assembling part in Lahore to meet the demand of MG in Pakistan and also to reduce cost. They also displayed their locally assembled vehicles in a very big event.
Till now the MG has sold units in thousands in Pakistan and according to a report only in September 2021, they have sold around 1,100 units but unluckily not even a single unit of these was assembled locally.
According to the reports, the plant is fully settled and ready for operation but MG hasn’t assembled a single unit there till now. The concern is that how much they will delay this matter and for how long they will sell CBU in Pakistan. If this thing continues then the trade deficit will not reduce even after applying new policies.
The relentless increase in demand
Vehicle demand in Pakistan is continuously increasing and according to reports released by the Pakistan Automotive Manufacturers Association, Vehicle demand is trailing by 20,000 units based on several consecutive months. This data includes the information provided by Suzuki, Honda, Toyota, and Hyundai. The other auto manufacturers didn’t share their data publicly. But as a rough idea, we can say that other auto manufacturers have also sold around 27,000 vehicles during September 2021. This high demand is leading towards more vehicles on roads, more pollution and also towards delays in deliveries of the vehicle.
These numbers show that it doesn’t matter that what policy the govt is introducing, vehicle demand will continuously grow in Pakistan.
Implementation of new Auto Financing Policy
SBP has introduced a new Auto Financing Policy and that policy will be implemented on new sales but according to reports, carmakers are completely sold out for the next three to four months. That’s why this new policy will not take effect until the next few months. Auto financing covers about 30 to 40 percent of total sales in Pakistan due to low markup and advances payment amounts.
Tahir Abbas – Head of research at Arif Habib Limited said that sales are increasing continuously and there is a lot of difference between demand and supply and it will take around 3-4 months to complete the delivery of the already sold vehicle. As there is a low supply and high demand and this has created a backlog in the delivery of vehicles.
We can expect that the sales volume will be reduced with the implementation of the new policy but after seeing the delay in vehicle deliveries, we can say that this policy will not take effect before the mid of the year 2022.
Conclussion
The govt is trying to make new policies to facilitate the new automakers in the market. A round table conference of Pakistan auto Mobile Industry was held at the Pakistan Embassy in China and in that conference, it was aimed that Pakistan will be able to produce eight million vehicles per year at the end of next five years.
But if we talk about the implementation of the New Auto Financing Policy then we can bring ourselves to the conclusion that this will not take effect before the next 3-4 months and until then there are possibilities that there will be an amendment in the policy before its effectiveness.
