Auto industry anticipates sales boost post elections

Stable prices, reduced interest rates forecasted to drive demand

KARACHI:

Prices of automobiles are expected to stabilise, and a reduction in interest rates following the 2024 general elections is predicted to boost sales, according to forecasts from spare parts vendors and auto dealers.

“There is no hope for decreasing auto prices as inflation has hit around 30% this time, while the exchange rate has reached Rs280 and is now stable. Firstly, I hope auto prices will not go up in 2024 as the current account has already been balanced, and things are better on a macro level. Secondly, a 5% to 6% interest rate reduction is expected in the coming months. Falling interest rates will increase the demand for car leasing. Thirdly, pent-up demand for autos will rise again in the second half of this year (2024). If the current economic situation, following better initiatives of the Special Investment Facilitation Council, tax collection, and stability persist, and if there is some more FDI, the demand for auto sales will definitely gain momentum in 2024 and 2025,” Tecno Auto Glass Limited CEO Aamir Allawala told The Express Tribune.

He mentioned three factors that dented the demand for cars following frequent closures of production plants during 2023. Firstly, Pakistan underwent a current account deficit during 2021-2022, the State Bank of Pakistan imposed certain controls on foreign exchange, and restrictions were placed on opening Letters of Credit. Auto makers could not open their LCs and clear cargo lying at the port, resulting in a break in the supply chain. Completely Knocked Down parts were not available, and vendors were unable to import their raw materials. Secondly, the Pakistan foreign exchange rate shot up to Rs300 from Rs180, increasing the cost of auto due to a significant surge in prices, leading customers to avoid purchasing vehicles. Thirdly, the interest rate swelled to 22% from 10%, affecting the sale of cars on leasing.

Read Auto industry eyes 2024 recovery

Speaking about an uptrend in the auto sector, author and auto maven Murtaza Mandviwala, who is also a leading auto dealer, said institutional buying would pick up soon as the 2024 general poll would slow down sales temporarily, and the post-election scenario would see a rise in sales as car buyers expect less uncertainty.

Highlighting lacklustre auto sales recently and last year, he mentioned that an unusually high price increase resulted in postponing decision-making for buyers looking to replenish or upgrade models. Rising inflation, impacted motorcycle, used, and small car buyers, with monthly instalment payments rising in case of auto financing.

He mentioned high auto financing rates for all of motor vehicles, continued focus by the FBR on notices to individual car buyers, and the SBP capping auto financing, impacting sales. Moreover, the economic downturn affected the commercial vehicle segment used for the transport of people and goods, including trucks, buses, pickups, and vans.

Published in The Express Tribune, February 4^th, 2024.

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