Auto financing slows down over high costs

KARACHI:

Auto financing continued to decline for the 17th consecutive month in November, falling 2.6% to Rs257 billion amid exorbitant cost of financing and significant increase in car prices over the past one and a half year.

Auto financing had stood at Rs264 billion in October 2023 and Rs340 billion in November last year.

Arif Habib Limited reported that auto financing had cumulatively dropped 30%, or Rs111 billion, in the past 17 months. It peaked at Rs368 billion in July 2022.

An analyst, associated earlier with Ismail Iqbal Securities, said auto financing may continue to decrease till January or March 2024 when the central bank was expected to make a first cut in its benchmark policy rate, which currently stood at the record high of 22%.

People are expected to resume requests for auto financing after the central bank cuts the policy rate. At present, it is not feasible for them to buy a car at financing rates significantly higher than the central bank’s policy rate.

Most of the consumers are retiring auto financing and awaiting reduction in the policy rate, jacked up by the central bank to control inflation. The policy rate stood at around 7% in September 2021 and spiked to 22% in June 2023.

Secondly, the government has placed some restrictions on the auto sector including the import of auto parts owing to the country’s low foreign exchange reserves and the pressure of foreign debt repayment. This has led to a sharp increase in car prices and a marked decline in auto sales.

The analyst pointed out that the auto financing share in total car sales had remained around 35% in the past. However, it came down to just 5-10% in the face of high inflation and economic slowdown.

He said that most of the consumers belonging to the middle-income group were taking auto financing for buying a car but soaring inflation and particularly high car prices discouraged them in the past one and a half year.

Topline Research analyst Faez Ahmed Shaikh said in a recent report that Pakistan’s car sales came in at 6,500 units in November, up 5% month-on-month (MoM) but down 65% year-on-year (YoY). If non-PAMA members were included, car sales stood at 7,700 units, up 6% MoM and down 60% YoY.

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The MoM growth was led by Honda Atlas Cars due to the easing of supply-side challenges. “However, escalating car prices, expensive auto financing and the weak purchasing power of consumers contributed to the decline in YoY sales.”

Overall, in the first five months of current fiscal year, car sales by the members of Pakistan Automotive Manufacturers Association (PAMA) were recorded at 33,638 units, down 50% YoY compared to 67,104 units in 5MFY23.

Sales of Pak Suzuki Motor Company and Indus Motor went down 8% and 9% MoM, respectively amid plant shutdowns due to inventory shortages.

Hyundai Nishat Motor recorded sales of 532 units, up 21% YoY and 41% MoM. The primary reason for the better performance was the sale of its commercial pickup truck, Hyundai Porter.

Pakistan’s bike sales fell 13% MoM and 20% YoY in November 2023. Atlas Honda recorded sales of 76,000 units, down 16% MoM and 18% YoY.

Total industry sales came in at 459,000 units in first five months of FY24, down 12% YoY, due to higher bike prices and the low purchasing power.

In tractor sales, Al-Ghazi Tractors recorded a decline of 68% MoM to 701 units, followed by Millat Tractors, which recorded a 6% MoM decrease to 2,809 units.

Total tractor industry sales in five months reached 20,806 units, up 98% YoY, because of a low base last year amid devastating floods.

Sales of trucks and buses dipped 20% MoM and 57% YoY to 147 units in November, taking five-month industry sales to 877 units, down 47% YoY.

Published in The Express Tribune, December 20^th, 2023.

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