A report by the Pakistan Institute of Development Economics (PIDE) has revealed shocking details about the “ON Money” culture. The research shows that automobile consumers pay more than Rs. 35 billion annually, which is surprising considering Pakistan is an underdeveloped country.
The ON Money or premium is a black-market premium collected predominantly by car manufacturers, new car dealers, investors, and inside traders.
How Does it Work?
Two primary reasons behind the spread of this culture in Pakistan are advance bookings and low supply of vehicles. According to Economics theory, monopolists will supply less than demand, which means they retain spare capacity. By this practice, the car companies only produce 200,000 units a year, although they can produce 400,000 units. And this ensures a shortage of cars in the local market.
The report further said that when the government allows car import, even if in baggage scheme, the car companies lobby to restrict imported cars so that excess demand remains in the market, yet they fail to increase production. Even at a higher duty compared to local cars, the imported used vehicles are quite famous and immediately kill the ON Money.
As per the research, when the government stops imports, the local companies have a field day. They will not increase the production but rather expand the bookings. The companies will collect excess orders, leading to a long wait for the consumers, which results in the menace of ON Money. As a result, the buyers book cars with no guarantee of availability date and no price guarantee.
ON Money has become more profitable than the property business in Pakistan. The report mentions that if the current ON is 5% on a car with an average delivery time of three months, the investors make over 22% in a year. The cronies are heavily involved in this business as Rs600 billion is tied up in the market, which shows how profitable this so-called business is.
Current ON Money on Different Cars
Here is the current ON on different cars to give you an idea about this menace in the local market.
