Originally published at: https://www.pakwheels.com/blog/rising-dollar-hits-used-car-market-bang/
The climbing trend of the US dollar against the Pakistani rupee has adversely affected the used car market in the past few months as nearly 250 showrooms have been close down in the provincial capital of Punjab.
The car imports declined by nearly 80% since the federal government changed its policy regarding the import of cars. The situation became even worse as the dollar climbed insanely in just a matter of few months which left the potential buyers with very little affordability and the business became very less profitable for the importers in the country. The last two months, in particular, have dropped a crisis bomb on the car market. Lahore is second on the list of used car sales after Karachi with huge showroom markets on Jail Road, Samanabad, Maulana Shaukat Ali Road and Defence. A number of them imported reconditioned Japanese cars which are well-known for their comfort, safety, and reliability in comparison to the locally manufactured vehicles. But the current situation has become a nightmare for the importers.
Moreover, the buying power of the consumers, due to massive inflation, has reduced considerably over the last six months or so. As a result, the sales of used local and imported vehicles have dropped by nearly 30%. The whole industry gets affected as the spare parts business also receives a significant blow with the decrease in car sales. There were more than 1200 showrooms in Lahore at the beginning of 2019, and we are already down by nearly 250 of them. If the current economic situation prevails, there is a good chance of losing even more of them in the future. The sudden drop in car sales has resulted in the loss of billions for those involved in this business.
The prices of these imported cars have gone beyond the purchasing power of the consumers. In just a few months, the prices of 660cc vehicles have increased from around Rs.1 million to almost Rs.1.6 million. The prices of used imported vehicles of 1000cc engine capacity have reached nearly Rs.2 million from Rs.1.5 million. On average, the prices of cars ranging from 1000cc to 1800cc and above have increased from Rs.200,000 to nearly Rs.500,000. According to the used car dealers, one showroom had the average of selling almost 8-9 cars every month, which has also reduced to as little as 2-3 cars. The inflation due to the depreciation of rupee against dollar has forced them to think of their survival in the market as they are unable to pay their rents in the provided number of sales. The rented space of a car showroom on average costs roughly around Rs.200,000 to 300,000 which is hard to meet in the prevailing situation. Most of the showrooms have even started to scrutinize their staff, which already doesn’t exceed more than 4 or 5 persons. Most of those running this business had started searching for car buyers who were never the case in the past when the dollar was around Rs.100.
The government’s policy to discourage the import of cars is good for the local industry, but the rising price of the dollar has equally affected the prices of the locally manufactured car. Therefore, it leaves the consumers with no choice in the market, which remains a point of concern. The current scenario is horrible for the existing as well as new entrants in the auto industry of Pakistan. All the auto manufacturers are struggling to sustain their car prices in the market hence reducing the profits margins for them.
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