Auto industry likely to raise prices again due to rupee fall

Expects drop in sales owing to weak currency, high interest rate

KARACHI: The free fall of the rupee this year against the dollar will be affecting many industries and the auto industry will be one of the worst affected as it is bracing for weak demand.



All major auto manufacturers have increased car prices three to four times since December 2017 and with Tuesday’s historic 7.5% steep fall in the rupee’s value, it is largely expected that it will again compel them to raise prices.

The rupee has lost 26.67% of its value in the past 10 months.

“One official of an auto manufacturing company has already said that if the dollar value crosses Rs130, they will be forced to hike car prices. Today [Tuesday], it did and what would be happening is largely understood that car prices will also jump up,” JS Global Research analyst Ahmed Lakhani told The Express Tribune.

Lakhani said the industry expected a decline in sales volumes as apart from the rupee depreciation, the gradual increase in interest rate was also hurting auto financing. The key interest rate has gone up by 275 basis points to 8.5% in the last nine months.

“Ban on purchase of new vehicles by non-filers of tax returns has also been reinstated, which has brought down car bookings by 30%. Moreover, several new entrants into the auto industry have also planned to start operations, so margins are certainly going to fall,” he added.

A source in the industry said the car replacement cycle - average time for a car buyer to replace his vehicle with a new one - would increase.

“For instance, if a person replaces his car with a new one after five years, under present circumstances, the person will buy a new vehicle after 10 years,” the source said and added it would force companies to give up expansion plans as when the delivery period under present circumstances dropped to two months from six, then why would they spend on expansion.



It would hamper economic activity in the country, especially the auto industry, the source said. 

Published in The Express Tribune, October 10^th, 2018.

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