Sky-high car prices indicate hard times for assemblers and consumers ahead

Times are tough, I don’t think we have any hesitation saying that. The country is going through some hard times since the new administration was brought into power. The US Dollar reached some new highs of Rs240 in the past few months. So much so that Google got so tired of people checking the USD vs PKR rates all the time that for some time they even removed the currency convertor from the first result page.

Carmakers to cut production until economic picture clears

The big companies, especially ones like automakers, have been seeing some unprecedented economic turmoil as well. The State Bank of Pakistan is limiting the issuance of letter of credit to buy raw materials from foreign countries. Companies are going through non-production days, and some, like Toyota, are even returning people their money considering they haven’t been able to procure necessary raw materials. 

If big businesses are going through such rough tides, now think of a common man. The common man is cash strapped, and their spending power has decreased significantly. The disposable income has reduced exponentially and savings are depleting. No way the middle class is able to afford to buy a new car like the new Honda Civic.

Talking about Honda, the top of the line Honda Civic RS now costs 8 million. In the used car market, people are selling the same car for as much as 1 crore. That is mind boggling. Who would have thought a small family sedan like Civic would one day cost that much. Car is completely out of reach of a common man. No one has that much lying under their bed to spend on a compact saloon car. 

Honda Atlas has already mentioned that the company is foreseeing some excruciating financial hardships. Company is expecting almost a 35% decline in sales in the current month. Overall, Honda Pakistan is operating at 60% localisation which is not horrible, but still the company needs some drastic changes to increase its localisation. Think it like this, if at 60% localisation Honda is selling a Civic for 8 million, just take a guess how much it would have been had the company been at something like 20-30% localisation. 

For the first quarter, Honda reported that the company suffered a drop of 29% in its profits. Previously the company made 928.2 million PKR whereas during same months this year, the company only made 658.2 million PKR. That is a loss of earning of 270 million PKR.

Literally every car company has increased the prices of their cars; new or old, small or big, Chinese or Japanese. 

Toyota has increased the price of the Fortuner Legender by 3.126 million rupees. You can buy a Kia Picanto for that price. Top of the line Kia Picanto is now priced at 3.2 million PKR. The Corolla which is already a generation older in Pakistan is being sold for as much as 6.2 million. Even the Yaris is selling for Rs 3,659,000. 

DFSK-Prince, a company not exactly known for their quality or even their brand, even their prices have reached some eyewatering levels. Their hatchback, Prince Pearl, now costs almost 2 million PKR. They were supposed to be the cheaper alternative to the mainstream car makers like Suzuki. 

These are just a few of the carmakers that I have mentioned. Fact is, everyone including the Koreans like Kia and Hyundai have increased prices of their cars. 

Leave cars aside, even the motorbike are getting out of the range of people. An almost 50 year old Honda CG125 now costs 180,000 PKR to buy. 

Our foreign reserves are depleting exponentially. The last recorded import bill was staggering $80.02 billion during fiscal year 2021-2022. In the same time period of 2020-2021, the bill was $58.38 billion. According to the SBP, the net foreign reserves held by the commercial banks came at 5.84 billion dollars whereas the total foreign exchange reserves of the SBP fell to around $8.58 billion since the new administration took charge of the country.

Our exports have reduced significantly. We are selling less compared to what we are buying from others. We cannot completely halt purchase or restrict imports because not only do we need some of the basic stuff, like food items (90% of lentils are imported in Pakistan even though we are an “agricultural” country), but it is also because the IMF won’t let us do it. Unless there is no influx of dollars in the country, the reserves are going to get low day by day since we are not selling enough to compensate for the dollars leaving the country.

These automakers seriously need to take a look at themselves. It is time we move from 50-60% localisation to 80-90% localisation; in ideal circumstances 100% localisation.

Companies like MG that have been importing CBU cars in due to some loopholes in the system must also focus on completely making their cars locally in Pakistan instead of spending dollars to buy pre-made cars.

Similarly, the government needs to get its house in order. Let companies dictate the policy won’t do the country any good. We can only hope to see better days ahead. 

Let us know how the price hikes have affected you, in the comments below. 

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