Burgeoning car prices have created a fuss in Pakistan. After back-to-back hikes in new car prices, consumers have also been left with no choice in the used cars section.
As per the Bloomberg report, used cars in Pakistan are a huge source to yield profit for the sellers – gaining more value than money.
Karachi-based analyst firm “Optimus Capital Management” (OCM) has called Pakistan “an unusual place” where a car purchased five years ago for Rs. 2 million can be sold in the used car market at Rs. 3.2 million today – meaning, a profit of 60%.
Citing the Pakistan Institute of Development Economics (PIDE) report, it is also pointed out that investors purchase a batch of new cars and sell them with whooping “On money” – a black-market premium. According to the report, automobile consumers pay more than Rs. 35 billion annually.
Automobile experts have held the shattering economy responsible for the rising car prices and related market scenarios. According to frontier markets investor Tundra Fonder AB, similar trends can be witnessed in the countries facing the same fortunes of regular currency devaluation.
“In most of our markets, which have relatively stable currencies, we didn’t notice this factor. But Egypt has similar characteristics to Pakistan’s automobile industry,” says Mattias Martinsson, Tundra Fonder’s chief investment officer.
Fake Car Shortage
As per the report, “car assemblers have a capacity of 400,000 units but produce only 200,000 a year, ensuring a shortage prevails in the market.” This is how monopolist’s supply less than market demand in a way to keep a low supply of vehicles. The reason behind the sin is “ON Money” – a black-market premium collected by car makers, dealers, and inside traders.
And, this is not the first report unveiling this story. Earlier, the Public Accounts Committee reported the same. Concerning “ON money” and late deliveries, committee members, purported that dilly-delaying is just a tactic to earn more in the name of “ON.”
