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Demand for Cars to Plummet in Coming Days

The past few months had been a boom period for the auto sector with numerous car manufacturers posting tremendous sales. However, analysts foresee a decline in car demand due to rising prices as a result of local currency devaluation, tax rate hikes, and rising operational costs.

April 2022 was the first month to register a decline in demand as the monthly sales fell by 17 percent. Analysts estimate that this decline is expected to continue, citing the ongoing political and economic unrest.

They expect sales to decline by 25 percent Year Over Year (YoY) in the coming months, adding that the industry’s outlook appears to be similar to that in 2019. That was the year when the government imposed heavy taxes on locally assembled cars and imposed sanctions on Completely Built-Up (CBU) vehicle imports.

Inconsistent Policies

In 2019, the government imposed 2.5 percent to 7.5 percent federal excise duties (FED) on locally assembled cars, which resulted in massive price hikes. Then, in early 2021, the government reduced FED by 2.5 percent on locally assembled cars to encourage automakers to shift to local manufacturing. As a result, the companies decreased the prices of their cars, which also caused the demand to rise.

However, later that year, the government increased FED on locally assembled cars again by 2.5 which caused the car sales to decline once again. Now the government is planning to increase the taxes on cars further, which will result in more price hikes.

Inconsistent Policies

In 2019, the government imposed 2.5 percent to 7.5 percent federal excise duties (FED) on locally assembled cars, which resulted in massive price hikes. Then, in early 2021, the government reduced FED by 2.5 percent on locally assembled cars to encourage automakers to shift to local manufacturing. As a result, the companies decreased the prices of their cars, which also caused the demand to rise.

However, later that year, the government increased FED on locally assembled cars again by 2.5 which caused the car sales to decline once again. Now the government is planning to increase the taxes on cars further, which will result in more price hikes.

SBP’s Intervention

State Bank of Pakistan (SPB) has also announced a series of measures to control auto sector imports. It has prohibited auto financing for CBUs while for local vehicles, it has reduced auto loan tenure by two years. These measures have resulted in a decline in auto-financing on a Month Over Month (MoM) basis.

Analysts believe that 2019’s auto-industry recession is repeating itself, implying that the auto sector will take a long time to recover from its woes.

Abdul Qadeer
Abdul Qadeerhttps://pakistanwap.com
My Name is Abdul Qadeer. And CEO Pakistanwap ( JamilBaba ) 😊
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