Rising car prices – Has the Government demolished the Auto industry?

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The government of Pakistan Tehreek-e-Insaf (PTI) won the general elections of 2018 on 25th July last year and took charge on 18th August 2018. It’s almost a year to that and so we decided to analyze where the automobile industry stood at the time when PTI government took over from the interim tenure and where does it stand now!

Everyone is well aware of the sky-rocketing prices of cars and motorbikes which seem out of control at the moment. When we talk about the price hike, the first thing that comes to our mind is the devaluation of our currency frequently and considerably. However, it’s not the only reason due to which the automobile sector has stumbled in the last year or so. There is a chain of inconsistent policies that has dented the overall face of the auto sector. Besides depreciation of rupee against the US dollar, the government left no stone unturned in imposing additional duties and taxes on the automobiles. It all started from the vision of the government to bring all the non-filers into the tax net by charging them that extra bit of penalty on the purchase of the automobiles. It urged thousands of people to start filing their income tax returns. However, things started getting wayward with the introduction of duties and taxes like Federal Excise Duty (FED). The government in its first move imposed 10% FED on all locally assembled cars of 1700 cc and above engine capacity. Later on,  it was changed in the finance bill. The inconsistency in the policies remained consistent though and in a similar turn of events, the government decided to impose FED on all categories of cars in the finance bill 2019-20 to be implemented from 1st July 2019. The rate of FED as per the category of vehicles is listed below:

Ever since the introduction of the Automobile Development Policy (ADP) 2016-21, many foreign auto giants expressed their interest in the local sector. Many of them got the Greenfield status to manufacture their cars in the local market by setting up their plants in collaboration with local investing companies. The incentives offered in the ADP ensured a level playing field in the local sector and the auto giants started constructing their production plants with long-term plans. However, the recent developments in the policies seem to disrupt their survival in the country. The new players were considered to be uplifting the competition and thus enhancing the quality of vehicles but it’s not the case anymore. Even the existing auto manufacturers are finding it difficult to survive in the current situation due to the high cost of production and low profits owing to declining sales. The purchasing power of the consumers is dented to a great extent and keeping an old car is not even a joke now. Toyota Indus and Honda Atlas have already announced to halt their production partially as their inventories are piling up due to low volumes of sales.

The depreciation of rupee against the US dollar has been substantial over the last year, forcing the automakers to surge the prices of their products. At the time the current government took charge last year, one US dollar was equivalent to 127.75 Pakistani Rupees. Over the past 12 months, it went through several fluctuations and went up by 25.56% as it currently stands at Rs.160.41 as on 6th August 2019.

The rise in the prices of cars and motorbikes is understandable in these circumstances but shall come at a certain rate. It is worthy to mention here that there is a certain portion of a vehicle which is produced locally whereas some portion is being made through imported material. Still, there is a percentage between local and imported portion about which the consumers are not yet aware of. Neither the government nor the auto manufacturers are willing to bring that to the table so that the rate of increase in the prices of cars remains a mystery. Only the imported portion should undergo the impact of the rising rate of the US dollar but unfortunately, the companies pass it on to the entire vehicle which is unfair on the consumer’s side. As for now, we know that the US dollar has appreciated by 25.56% ever since the PTI government took charge. Perhaps it would be interesting to look at the rate of increase in the prices of cars and motorbikes from local manufacturers in the country.

Note here that all the below mentioned old prices of vehicles relate to the time when the government took the charge last year in August whereas the new prices are the current prices as of 7th August 2019. All the prices of vehicles mentioned in this article relate to ex-factory prices. Beginning with one of the largest Japanese auto giants in the country, Pak Suzuki has the most diversified lineup of vehicles, particularly in the entry-level segment. It has held on to the largest market share in Pakistan over the years. Suzuki Mehran, after a record production for 3 decades was finally discontinued by the company in the first quarter of this year. Therefore, the rate of price hike of both the variants of Mehran stands at 9.10% and 9.88% respectively. For this particular reason, it has been excluded from the total average increase of the manufacturer. Further on, Suzuki APV 1.5L went through the maximum increase of 43.09% during this tenure followed by Wagon R VXR at 34.61%. Similarly, Cultus VXR variant was jacked up to 30.22%, the most among its other two variants. Vitara GLX 1.6 now costs 31.66% more than it did at the time PTI formed its government. The overall average increase in the products of Pak Suzuki was recorded at 29.15% when rupee devaluated by 25.56%. The complete list of old and new prices is attached below.

The highly anticipated first-ever locally-assembled 660cc Alto was launched by Pak Suzuki in June 2019, just a couple of months ago. Therefore, we have separated the car from the rest of the existing models. In just two months of its launch, the prices of all its variants have already been jacked up once by the manufacturer. Alto VX got costlier by 13.61% whereas VXR and VXL AGS variants were raised by 12.44% and 10.65% respectively. This rate of price hike is not justified at all by Pak Suzuki as per the rate of depreciation of the rupee. The introductory price of Alto might have been just a marketing tool used by the manufacturer and once it got going with the bookings, the price hike was announced. Otherwise, as much as a 13% price increase could not be a justification for the devaluation of the currency in such a brief period.

As we move to the high-end cars in the country, Honda Atlas is one of the leading names in this segment. The automaker manufactures cars over 1300cc engine capacity, none of which now costs anything less or equivalent to Rs.2 million. Only 12 months ago, as many as 5 out of 6 variants of Honda City were under the 2 million price bracket which is not the case anymore. The company has passed on the impact of depreciating currency on the consumers in the harshest way possible as we record an overall average increase of 31.85% which is also more than Pak Suzuki. It’s notable here in the table that the rate of increase in prices of Honda City decreases as we move from base version to the top of the line variant. City 1.3 i-VTEC got costlier by 33.54% as compared to City Aspire 1.5 A/T which was increased by 29.82%. Similarly, the prices of two 1.8L variants of Civic were increased by 34.62% and 36.37% respectively. Civic 1.5L RS Turbo is not mentioned in the table because it wasn’t a part of the production when the government took over as it was reintroduced by the manufacturer later on. The top of the line variant of BR-V was hiked by 29.99% which is most in its models.

Another manufacturer with a leading market share in the high-end cars in Pakistan is Toyota Indus with its popular sedan Corolla. There are as many as 9 variants of Corolla being produced in Pakistan as of now. Ever since the new government is formed in the country, the prices of all of them were raised from 27.91% to 32.64%. On the other hand, the prices of Hilux Single Cab were increased by a maximum of 30.32%. The three trims of Revo also got costlier by a maximum of 23.17% for the G 2.8 A/T variant. Fortuner 2.8 Sigma 4, however, leads the pack with the highest rate of increase by 34.11%. The total average increase in the prices of Toyota Indus cars was recorded as 29.09% which is marginally less than any of the other member of big three.

Al-Haj FAW is no more a new entrant in the auto sector of Pakistan as it now offers a lineup of 3 models under 7 variants. The company’s highest-selling FAW V2 also got the highest rate of increase in price by 24.50% in the tenure under review. FAW Carrier is produced in three variants as deckles, flatbed, and standard which got costlier by 17.07%, 16.88%, and 16.68% respectively. Moreover, X-PV also underwent a maximum increase of 14.64% in its dual A/C variant. The total average increase in the prices of its vehicles is 16.08% which is much less than the leading auto manufacturers already discussed above.

The Motorbike manufacturer entered the four-wheel category last year as it rolled out its most anticipated locally assembled 800cc United Bravo as a competitor of Suzuki Mehran at that particular time. It was introduced at a price tag of Rs.850,000 in September 2018. As of now, its prices have increased by 8.82% and now comes in Rs.925,000 in the local market.

The consumers have rather turned vulnerable in this period and forced to move to the two-wheelers. Unfortunately, motorbikes have also been on the receiving end of the current economic slowdown process in the country. However, the rate of increase in motorbikes prices have rather been on the lower side as compared to cars.

Pak Suzuki produces several motorbikes in the country in competition with its main rival Atlas Honda. The price of Suzuki GD-110S is raised by 14.48% in the period under review. The high-end 150 cc motorbikes of Suzuki also got costlier during the last 12 months. The prices of GS-150 and GS-150 SE were hiked by 16.66% and 12.35% respectively whereas GR-150 now costs 13.10% more than the old price. The total average increase in prices is 14.14%.

Atlas Honda is one of the leading motorbikes manufacturing brand in the country with a wide range of motorbikes in all categories. The highest-selling CD-70 of Atlas Honda now costs 12.80% more. Similarly, CG-125 is one of the most favorite motorbikes of the consumers, which got costlier by 11.36% in this tenure. The total average increase was recorded as 13.45% which is less than Suzuki motorbikes but more than Yamaha.

The popular model of Yamaha 125 cc comes in three variants i.e. YB-125Z, YBR-125, and YBR-125G. All of them got costlier by an average of 10.70% in the 12 months of the current government.

 

The story doesn’t end here as we look at the petroleum prices in the country at the time when the PTI government took over the charge as compared to the current prices. It’s not only the prices of automobiles that have turned the industry upside down but running a vehicle on the road isn’t a walk in the park anymore. The impact of the current economic slowdown process and depreciating rupee have also been passed on the consumers in a vulnerable way as petroleum prices hit the record mark. Petrol prices currently stand at Rs.117.83 as compared to Rs.95.24 with an increase of 23.71%. The high-speed diesel also went up by 17.29% from Rs.112.94 to Rs.132.47. The prices of light-speed diesel are nearing a century as well at Rs.97.52 with an increase of 29.38%. Kerosene oil now costs Rs.103.84 per liter after a rise of 23.67%.

The below-attached table shows the average increase in the prices of cars from different brands as compared to the devaluation of rupee against the US dollar. Honda Atlas holds the last position as its price hike was the maximum among all the auto manufacturers under review.

Similarly, the chart for the average price increase in the motorbikes from various brands is attached below.

It is pertinent to mention here that the increase in the prices of cars is also contributed by several additional taxes and duties such as FED. Nonetheless, the buying power of consumers of the automobiles is dented tremendously. The government needs to formulate a consistent plan to address the issues faced by the local auto sector. Instead of imposing new taxes and duties, the government should regulate the price hikes from different manufacturers as per the contributing factors. There should be a level-playing field for all the auto manufacturers to enhance the competition and move towards a better future of the automobile industry. Another question remains unanswered whether the auto manufacturers will decrease the prices if rupee gains value in the future? If you have anything to add to the story, mention in the comments section below. Stay with PakWheels for more similar statistical updates from the automobile sector of Pakistan.

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21 Comments
  1. Ahsan says

    Before the pti govt the dollar rate is Rs 104 = 1 dollar
    and the petrol rate is also very low
    when this donkey imran come the country is going to downward and inflation is very high.

  2. Dr Faisal says

    v bad language sir. differing is ur right but this language is not commendable.

  3. MMS says

    Excuse me please check the dollar rate on the election day and the day IK government came in power. The dollar rate was already in range of 120-130 PKR

  4. abdul latif says

    Dollar rate on election day was high because of care taker govt which used all the proxies to make sure imran khan won the election so don’t blame previous govt for that. Pti has not only demolished the 60 years old properties but also broke the auto industry as well as rest of the economy only a fool can defend imran khan and pti govt. Pti set out to destroy rich people from day one rich people are infect back bone to the economy

  5. Sami says

    I could have agreed with you, but calling anyone as “donkey” or whatever is the deal breaker for me. I don’t support PTI anymore and infact now I support PMLN.but we should use logic rather than abuse to convey our message.

  6. Ahsan says

    what is bad in the language oh find a another way to degrade
    this is not a bad language cannot match knowlegde talk me

  7. Hassan Nazeer says

    I am not PTI support but lets accept that When PTI govt came current account deficit was 20 bn $ which was 2 bn $ when PMLN came, trade deficit was 39 bn $ when PTI came it was 11 bn $ when PMLN international debt was 96 bn $(annual debt servicing 15 bn $) when PTI came it was 60 bn $(annual debt servicing 6.4 bn $) when PMLN came, So in a nutshell when PPP left the total reserves were 6.2 bn $ and liabilities were 19.4 bn$ (2 bn $ current account deficit, 11 bn $ trade deficit , 6.4 bn $ debt servicing). When PMLN left with reserves of 8.5 bn $ and liabilities were 74 bn$ (20 bn $ current account deficit, 39 bn $ trade deficit , debt servicing 15 bn $). No govt. can afford 74 bn $ besides this all your national assets were pledge to get heavy loans, there was 1.3 bn Rs. circular debt, all public sector institution had huge deficit and the bail out you got was less then 15 to 17 bn $ for 3 years terms(IMF 6 bn$ in three years, China 2.5 bn $, KSA 3 bn $, UAE 2.5 bn $, Qatar 2 bn $, and expected may be from world bank 2 bn $). In this situation govt. has no choice but to impose more taxes and to reduced subsidies and losses.

  8. Muhammad Aamer says

    WHERE IS PRINCE PEARL????????

  9. Syed Imran says

    A very misleading article.

    If the car industry cannot provide better products to the consumer; they can shut down by all means. The big 3 only “assemble” the cars. Any manufacturing is relegated to trivial items. In addition to that; the products do not have safety features of any sort.

    Prices are more or less in line with foreign countries. The Honda city base model costs around 54K AED in the UAE which is approximately 2.3MIL PKR.

  10. Dr Faisal says

    I have long had this observation about pakistani auto car manufacturers that they have provided us though cheap but v poor quality cars with very few options and facilities. Mostly monopolistic hegemony prevailed upon the consumers.
    Look at suzuki mehran……. made in the same way from 1989…….but the price kept growing with no facility added. same goes for toyota corolla……only honda continually makes an effort to make a more beautiful or comfortable car than before.
    And these companies and their networks at sales end have deliberately encouraged ON ……..fleeecing the customers yet again.

  11. Dr Faisal says

    Plus when we r making so many parts here why does the dollar hike effect the whole pricing system……

  12. Mateen Javaid says

    These car manufacturers are fraudsters in our nation, they are looting their customers and customers are letting them, they produce multiple cars of same model with same chasis engine number and sell them in diffrent parts of pakistan, while they sell many cars…the tax is given against only one car while 5-20 cars are sold against that one car, they are big time tax evaders while we are being grinded , they are caught now so they are making noise, chor machaye shor

  13. mohsin malik says

    I dont think the writer is supporting the big three, rather he is painting the bigger picture which is getting clearer and clearer every day.
    We all need to understand that there is a pricing mechanism, and GOP/MOP is party to that and after agreement the prices of these cars are fixed. In this unfortunate country which is run by Babu’s they dont know how to audit the costing submitted by 3 bigs, and then ofcourse they get thier palms greased by tons of money hence they look the other way and the prices and equipment is dictated by the assemblers.
    There is no Deptt of Transport who issue the SOP’s for all type of vehicles assembled in a particular country.

    Please realise, that there hundreds of vendors inthis industry who are in dire starits and thousand have been layed of and if the sales continue to drop thousand more will be job less.

  14. Syed Obaid says

    And why don’t these car manufacturers reveal their profit margins?? Why no one asks for it?
    They are cheaters and always look for excuses to increase price and later play victim.

  15. H__3 says

    Toyota Indus, Honda Atlas and Pak Suzuki are all Public Limited Companies. Read there annual reports if you know how to

  16. Syed Obaid says

    I have no interest, whatsoever, in reading “there” annual report.
    Make it easy for the dumb ones like us, and reveal their margins here. Go ahead!

  17. H__3 says

    You asked yourself mate that “wHy DoNt ThEy ReVeAl….” – that’s what I was referring to. All financial results are available on their websites (and their auditors’). Indus’s profit during 2018 was Rs. 3.3 billion. Peanuts for a market of 200 million people. I am not disputing that “thEy mAy bE ChEatErs” but try and be analytical with your thought process. Backup with solid argument and facts and figures. Love

  18. Syed Obaid says

    Having read your first reply, i expected just this quality of answer. You don’t even understand the difference between margin and profit in industrial terms but here you are throwing away free advises on solid arguments. Try controlling your urge to speak specially in the matters that you don’t truly understand.

    I’ll make it easy for you, what % do they make on every unit sold?? Don’t tell me the billions because that makes no sense here.

  19. H__3 says

    Classic case of whataboutery.
    Let’s all pay our taxes so that our country’s financial woes are reduced.
    A: buT WhAt abouT PoLiTiCiANs, GeNeRaLs, iNdUstRiaLisTs. WhY DonT ThEy pAY tAxEs.

    They do actually. Have you looked at the tax directory for the parlimentarians.
    A: I dO noT NeEd tO. I kNoW thEy arE aLl cRooKs bEcAuSe I rEad tHat oN a MeMe that I SaW on DaDDy’s IPAD.
    As you very candidly acknowledged that you are dumb – I am not surprised at all if you are asking for profit margin on ‘EaCh uNiT sOld’. Theoretically, it can easily be calculated if you know the net profit and number of units sold – which even a dumbo like you will acknowledge is public information but what does it even prove? If there a regulatory “pRoFiT mArGin %” that they have to follow? What started with why don’t they reveal their profit margins to I havE no InTerEst in ReAdIng “there” (haha I caught a typo) will most likely end up with another childish argument.

    They say that arguing with an idiot makes two of them, so I’ll just leave you alone on this one.

  20. Syed Obaid says

    Long speeches with formulae but not a word on margin. And this is coming from someone who has faith in annual reports, so give me a number, what % is it?

    Sarcasm goes above your head; i won’t bring some more. Life is already hard on you, may it treat you better and may you learn sticking to point in your future arguments. Until then keep feeling high.

  21. Asad Malik says

    Supporting PML-N which is the main cause of this inflation and devalue ruckus is disappointing Mr Sami.PTI is trying to manage the economy while PML just replaced previous debt with more debt.Do some proper research and observe Hasan Nazeer answer.

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