The downward trend in auto financing in Pakistan continued for the 26th consecutive month in August. Car sales and finance went down together during the pandemic and the economic meltdown later. Afterward, car sales revived slightly, but the auto loan industry is still in shambles.
According to the State Bank of Pakistan (SBP), car financing dropped to Rs. 227.3 billion in August from Rs. 228 billion in July. This marks a significant decrease of Rs. 140.7 billion from the peak of Rs368 billion in June 2022.
The Reason
The persistent decline in auto financing can be attributed to several factors. High borrowing costs, coupled with fiscal consolidation measures, have dampened consumer demand. Consequently, fewer people are opting for auto loans. On a year-on-year basis, auto financing fell by 18.25%, from Rs278.05 billion in August 2023.
While the SBP has recently cut interest rates, private-sector borrowing, including auto financing, has not seen a substantial recovery. The central bank reduced the interest rate for the first time in three years to 20.5% in June 2024, followed by further cuts to 19.5% in July and 17.5% in September. However, these reductions have yet to stimulate a revival in auto sales.
Coming to the car sales, after observing a considerable nosedive of 36% in July, sales charts have observed a nominal jump of 1% in August. According to the Pakistan Automotive Manufacturers Association (PAMA) report the local car assemblers sold 8,699 units last month against 8,589 cars in July.
Meanwhile year-on-year (YoY) sales reported a growth of 15%. Local car manufacturers managed to sell 8,589 cars last month compared to only 7,579 vehicles sold during the same period last year.
The decline in auto financing has had a significant impact on the auto industry in Pakistan. Auto sales have plummeted, leading to production cuts and job losses. Several auto manufacturers have announced plans to reduce their operations or even close down their plants.
What do you think about the downtrend in car loans? Tell us in the comments section.
