In the last few days, the flying high dollar rate has started to come down. There are multiple reasons behind this rather rapid downfall of the dollar, i.e., IMF’s statement that Pakistan has met all conditions for release of loan, depleting imports, State Bank of Pakistan’s action against the dollar hoarders, and positive trend in Pakistan Stock Exchange (PSX). So now the biggest question is will car prices in Pakistan come down? Let us discuss.
Dollar & Car Prices in Pakistan
The local auto industry is one of the most affected industries by this devaluation of the rupee in the last few months. All the car companies have increased prices during the previous month. This fresh wave has taken car prices in Pakistan so high that Suzuki Swift – a hatchback – now costs Rs. 4 million, while the new Honda Civic RS Turbo reaches Rs. 8.1 million. While increasing the prices, all car companies blamed the high dollar rate stating that they are unable to face the burden of the forex exchange rate.
Also, most of the major car components are being imported in Pakistan, meaning the dollar rate directly impacts car prices in Pakistan.
Will Prices Reduce?
As mentioned earlier, the dollar is a downward trend for the last few days. Its rate has come down to Rs. 224 from Rs. 250 in just four days. And the first question consumers ask is, will the car prices in Pakistan come down too? The answer to this question is not a “happy one” because there is a very slim chance that rates will be reduced. The reason?
As per economic experts and analysts, car prices are downward sticky. “Car companies have over Rs. 180billion as advance payments because cars have become a dollar-denominated asset,” Ammar Khan, an economist, wrote on Twitter. He added that demand for the dollar-denominated asset is higher than the supply of cars. “So no, prices wouldn’t reduce,” he concluded.
No, because prices are downward sticky. Also, because car companies have > PKR 180bn in cash available w/ them for advance bookings, as cars are now a $ denominated asset class. The demand for a $ denom. asset class outweighs supply of cars. So no, prices won't reduce. https://t.co/g4RmyYENdK
— Ammar Khan (@rogueonomist) August 4, 2022
Now you may ask, what is a dollar-denominated asset? Its simple answer is “an asset that has an underlying value in dollar terms.” And Khan’s tweet shows that there is a higher demand for cars than their supply, and we all know, that when demand is high, prices don’t come down.
Do you think car prices will come down? Please share your thoughts in the comments section.
When the demand is high to help to sustain it and to grow it, they better decrease the price.
Otherwise once the demande will be fullfill it will be a big decrease in car sales.
As well customers should reclaimed price reduction when the rate is implying it.
That was short and sweet and unclear!
We are an import heavy economy unfortunately. Almost everything we get is “dollar heavy”. The main take away from this very unclear article is the companies are basically saying “you all want it so badly, I will put what ever price I want”.
The CKD kits imported have a dollar value, that value/amount is not changing. If a company got a CKD Kit in $10,000, it is still $10,000. The devaluation of the PKR caused the prices to rise. Now that the PKR is gaining, the costs should come down. It will come down and is coming down in other (imported) items of daily use.
The only thing clear from this very unclear “article” is that the companies are simply letting us know they are unwilling to take it back. And as long as they have people to support their rhetoric, both in the private sector and in the government (for the right price), the sky is the limit for them.
But they must keep sight of a simple truth; the bigger they are the harder they fall OR the higher they go, the bigger will be the crash when they come crashing down.