Small is Big

The sales of below 1,000cc cars have witnessed a growth of 107 per cent in March 2022, despite the political turbulence, rupee depreciation and economic meltdown.

The overall auto sales continued to depict a positive growth in March, where it recorded a growth of 25 per cent on a month-on-month basis and 30 per cent on a year-on-year basis to 27,131 units.

Despite the upward revision in car prices and rising inflation, the buyers’ interest remained alive, mainly in anticipation of the further price hike, amid the rupee depreciation against the dollar and a surge in the cost of production on the back of rising steel prices, a report by Arif Habib Limited said.

“A greater demand has been witnessed for the locally-assembled cars given increasing cost of imported completely built units (CBUs) on the back of higher freight costs and commodity prices, especially steel, substantial local currency depreciation and the imposition of temporary ban on financing of imported CBUs,” it added.

In September 2021, the State Bank of Pakistan (SBP) tightened rules on consumer lending to trim loan growth mainly in the auto sector.

Under the regulations, the maximum tenure of auto finance was reduced from seven years to five years, while the maximum tenure of personal loan was also reduced from five years to four years.

These rules also included limiting overall auto financing limits availed by one person from all banks and the development finance institutions (DFIs) to not exceed Rs3 million, at any point in time; and minimum down payment for auto financing was increased from 15 per cent to 30 per cent.

These regulations are not applicable to the locally-manufactured or assembled vehicles of up to 1,000cc engine capacity, and the locally-manufactured electric vehicles to promote use of clean energy.

Mir Zaman, a local car dealer in the secondary market, said that the cars below the engine capacity of 1,000cc have always been in high demand in the country due to their affordability and lower fuel consumption average.

“The surge in the sales of the cars can be attributed to the higher resale value of this specific segment of cars where the people use them and resell them for profit. Unlike heavy vehicles with higher engine capacity, these cars’ parts are easy to get and cheaper, which minimise the maintenance cost of the vehicle,” he added.

In March 2022, the local auto assemblers after the segment below 1,000cc cars, registered impressive sales growth in the 1,300cc and above, which was up 10 per cent on a year-on-year basis. In addition, the passenger cars segment also remained in the limelight with a growth of 34 per cent on a year-on-year basis.

The upward trajectory in the sales of 1,300cc and above is mainly owed to the anticipation of a further price hike, amid massive rupee depreciation and a surge in the cost of production. While the lower competition in the small cars segment together with stringent conditions imposed on the financing and purchase of imported CBUs has further catalysed the positive growth.

As per the Pakistan Automotive Manufacturers Association (Pama) report, Suzuki Alto recorded the highest-ever sales in March, with a record-breaking sales of around 10,000 units during the previous month.

The best performing vehicle remained Alto with a growth of 107 per cent on a year-on-year basis; followed by Wagon-R, recording an increase of 67 per cent in sales on a year-on-year basis, Ravi 30 per cent and Bolan 27 per cent, while Cultus showed a declining trend, as its sales dropped 81 per cent on a year-on-year basis.

The significant rise in the sales of cars came despite the fact that the automobile assemblers in Pakistan, across-the-board, increased the prices by an average 9.4 per cent in March 2022, where the highest price jump was witnessed in 1,000cc cars. The price of Cultus, Wagon-R and Picanto surged in the range of 30 and 36 per cent.

The lowest price increase was spotted in Crossover SUVs such as Sportage and Tucson, where the prices were increased in the range of 14 per cent and 17 per cent.

To promote localisation in the domestically-assembled cars, the previous government had provided exemption from filing tax returns at the time of buying new and imported cars below 1,000cc engine capacity.

As written in the tax ordinance of the Federal Board of Revenue (FBR), a person is required to furnish a return of income for a tax year if he owns a motor vehicle having engine capacity above 1,000cc.

This step was aimed at providing affordable small cars from 850cc to 1,000cc, while providing support to many auto companies already present in Pakistan to launch small car models in the country.