Car financing rises to record high at Rs326b

Rises 46.8% year-onyear as consumers take benefit of lower borrowing cost

KARACHI:

Automobile financing rose 46.8% year-on-year and hit an all-time high of Rs326 billion in August 2021, driven by a low borrowing cost.

According to a report issued by Arif Habib Limited on Tuesday, the loans taken by customers to purchase vehicles inched up 3.8% in August 2021 against the previous month of July. “The substantial growth in auto financing confirms that lower interest rates are motivating people to buy cars while also favouring the sales volume of automobile companies,” said Arif Habib Limited analyst Arsalan Hanif.

“We believe this trend will continue until financing rates enter into double digits.” According to a report prepared by Taurus Securities, sales of new economy cars increased 21% on a year-onyear basis while hatchbacks registered a 48% jump in new bookings in the same period. Similarly, the purchase of sedans almost doubled as it spiked 98% in August on a year-on-year basis.

“However, sales of new luxury passenger cars dropped 15%,” it said. Auto financing accounts for 30-32% of the sales of the automobile sector. Sales of Indus Motor Company through auto financing were lower than the industry’s average because a huge chunk of its consumers resided in rural areas of the country. The government has recently introduced a handful of measures to improve dynamics of the automobile industry.

“The main objective of the measures is to give a boost to the automobile industry by increasing the demand for vehicles similar to other sectors including construction, banking, textile and chemicals,” said automobile expert Mashood Khan. “These trends will persist till the end of this year.” He termed the jump in auto financing a positive development for the sector but pointed out that there were a few impediments hindering its functioning.

Over the next year, the automobile industry will face difficulties in sustaining the growth momentum due to an increase in cost of production, soaring shipping and logistic costs and delays in shipment of raw material. He requested the government to clarify the reduction in additional customs duty on raw material and components imported by vendors.

“Raw material for automotive parts will not only help steer localisation of auto parts but will also aid exports from the country,” he said. He recalled that the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) recently signed a memorandum of understanding with its counterpart in Mexico to pave the way for mutual understanding and cooperation. He revealed that the local businessmen interacted with the Mexican auto parts association through the Embassy of Pakistan in Mexico.

The local auto parts manufacturers would utilise the memorandum of understanding to aid industrial growth, he said. “The ball is in our court now and we need to capitalise on this opportunity and take maximum advantage by upgrading the technology and businesses,” Khan said. “Relaxation in government duties and easy access to finance can further uplift the auto sector of Pakistan.”

He urged the associations in Pakistan’s automobile sector to reach out to their counterparts around the world and create linkages. Mexico is the sixth-largest global passenger vehicle manufacturer and produces approximately 3 million cars annually. “About 89% of vehicles produced in Mexico are exported,” he said.