Importing older cars: Car dealers say govt decision will not change anything

Customs duties and depreciation rates should be changed to decrease prices, say dealers. Manufacturers beg to differ.

KARACHI/LAHORE: Automobile dealers have said that the decision to allow the import of reconditioned cars that are up to five years old will not change the volume of imports or car prices. They added that neither customs duty nor depreciation had changed under the decision, which could have resulted in reduced prices.

The recent decision to allow the import of vehicles up to five years of age was meant to send a signal to local manufacturers to reduce car prices.

Imports of used cars will not increase even after the government’s decision, according to All Pakistan Motor Dealers Association (APMDA) Chairman HM Shahzad. It will not make any difference because the government’s order applies only to the import of cars and not all vehicles, he said, adding that this did not include four-wheel drives.

“We have written a letter to the government to issue an amended notification soon.”

Explaining his stance, he said that restricting imports of four-wheel drives will not hurt the local industry as Pakistan does not produce or assemble these vehicles. Car imports could cross over 15,000 units this year and the government will also get more revenue if it amends this notification, he said.

“I assure you that manufacturers will bring back their car prices back to the level of 2008 if the government allows the import of ten-year-old cars,” he asserted.

An automobile dealer in Japan told The Express Tribune that the price of a reconditioned 1,000cc Toyota Vitz had risen in Japan to Rs0.44 million from Rs0.34 million due to expectation of greater demand after the decision on Thursday.

Local dealers added that the increased price will increase customs duties paid since the car will move into a higher tax bracket. A locally manufactured 1,000cc Suzuki Cultus will cost Rs0.65 million while a newly imported 1,000 cc Toyota Vitz will cost customers around Rs0.8 million after imposition of duty.

In 2004, a three-year-old Vitz was available in range of Rs0.5 million to 0.6 million. Now, a three year old Vitz is available for between Rs0.9 and Rs1 million. Similarly, a locally manufactured Suzuki Mehran was available in the range of Rs0.3 and 0.35 million which is now available in the range of Rs0.45 and Rs0.55 million.

A car dealer from MA Jinnah Road, Karachi, one of the biggest used car markets in country, said, “I don’t think this relief will cause a sharp increase in car imports owing to various reasons.” One of the biggest reasons is the increase in car prices globally.

Car prices in the past four to five years have nearly doubled and this phenomenon can be seen in both old and new cars. Secondly, there are less car purchasers today compared to four years back when people were spending much more, he explained.

Automobile dealers in Lahore who were approached by The Express Tribune said that the decision will not benefit dealers as the ministry of commerce has not given any relaxation on customs duty. They added that the depreciation rate was not increased from 1 per cent either.

Imad Ullah Shah, dealer of imported automobiles, termed the decision ‘worthless’. He added that the order would have been worth something for dealers and customers if all reconditioned vehicles, including public transport, trucks, wagons, jeeps and other vehicles of more than 1,800cc in engine capacity had received at least a partial exemption on customs duties.

He added that vehicles like jeeps would have been vital for areas affected by recent floods.

Lala Ghani, who deals in reconditioned vehicles, said that the decision has no significance for anyone. He explained that customers did not want to buy luxury cars in the presence of locally manufactured cars which are cheaper than imported ones. “The only attraction could have been an exemption on customs duty and an increase in depreciation value.”  He added that there are other issues related to the import of luxury cars: unavailability of parts, maintenance expenses and shortage of skilled mechanics.

Jail Road Traders Association of Automobiles General Secretary Zafar Iqbal Goraya said that, according to his calculations, the recent decision did not make any difference to prices. He said that if the federal government really wanted to decrease the price of automobiles then it has to decrease customs duty. He said that local car manufactures had recently increased the price of locally manufactured cars by Rs300,000 and reducing the price by a few thousand will not trouble them.

Manufacturers beg to differ

On the other hand, car manufacturers insist that the relaxation in age limit will definitely increase imports of old cars, which in turn will hurt the local industry.

Raza Ansari, marketing director at Indus Motor Company, said the government’s decision will not only increase car imports but also adversely affect local manufacturers.

He cited the example of Santro, a small car of Korean origin, which was in production in Pakistan but was discontinued after the government allowed the import of old cars five years back.

Regarding the imports of four-wheel drive vehicles, Ansari said that the government has given this facility to those who want to have small cars and not four-wheel drive vehicles. “The price range of four-wheel drives goes up to Rs10 million which is certainly not for most customers. If the government allows the import of big vehicles then the common man will not receive any relief,” he said.

Local car manufacturers assert that they increased car prices owing to a hike in the cost of production. However, car dealers say that prices have increased because of high margins that manufacturers enjoy as a result of their monopoly in the country.

In 2005, the government had allowed the import of cars up to 10 years old but the age limit was reduced to five years in 2006. After one year, in 2007, the government further reduced this limit to three years. Now, the government has brought this limit back to five years after witnessing huge increases in local car prices.

Published in The Express Tribune, December 12^th, 2010.