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The automobile industry forced to lower its prices | The Express Tribune


Auto experts say a combination of factors, including weakened purchasing power, heavy taxation, soaring inflation and currency devaluation, has forced automakers to cut prices. The move, while reducing profit margins, benefits customers and provides support to the struggling industry.

Expressing frustration over poor economic policies, market analysts told The Express Tribune that the government’s recent decision to increase sales tax on vehicles with engines of 1,400 cc and above, as well as those with the price exceeds 4 million rupees, by 18% to 25%, it has harmed the automobile sector. They point out that this increase in sales tax, imposed by the government and the Federal Board of Revenue (FBR), has prompted automakers to lower prices, sacrifice profit margins and come up with customer-friendly strategies.

For example, if companies had passed on the entire 7% increase in sales tax on vehicles priced slightly above Rs 4 million, customers would have faced a hike of at least 280 000 rupees per unit. However, instead of passing this burden on to customers, companies have chosen to reduce prices in order to keep these vehicles within the 18% sales tax bracket. Ultimately, it’s customers who bear the brunt of these sales taxes.

Experts identify four major challenges – high interest rates, heavy taxation, rupee devaluation and inflation – which are having a significant impact on the automobile industry. They stress the need for the government to formulate coherent and pragmatic policies to boost the sector’s growth, warning that without such measures, auto factories could become economically unviable, leading to increased unemployment.

Read: Automakers optimistic about signs of recovery

“In 2021-22, more than 300,000 vehicles were sold and the government collected heavy taxes. However, given current economic challenges, including high interest rates and inflation, the imposition of additional taxes is expected to significantly reduce car sales, with projections ranging from 80,000 to 90,000 units in 2023- 2024,” notes the Pakistan Automobile Parts and Accessories Association. Manufacturers (PAAPAM), Chairman Abdul Rehman Aizaz.

Honda Atlas Cars has slashed the prices of two City variants to Rs4,649 million and Rs4,689 million, representing reductions of Rs50,000 and Rs140,000, respectively. Similarly, Indus Motor Company (IMC) recently reduced prices of its Yaris sedan range, with cuts ranging from Rs 73,000 to Rs 133,000. The price adjustments apply to four variants of Yaris, which are priced now stands between Rs4,326,000 and Rs4,766,000 per unit.

IMC CEO Ali Asghar Jamali attributed the price cuts to an internal strategy, without providing further details.

According to Waqas Ghani, deputy director of research at JS Global, reduced inflationary pressures, coupled with low interest rates on auto financing, are expected to boost sales in the near future.

Meanwhile, Muhammad Abrar Polani, research analyst at brokerage Arif Habib Limited (AHL), noted a contraction in demand from the local automobile market. The drop in automobile prices aims to facilitate the recovery of the industry.

Published in The Express Tribune, March 20th2024.

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