Karachi —The import of used cars is likely to up from current 3600 units to five thousand units following relaxation of age limits from 3 to five years.
The move to allow import of used cars may not help reduction in prices of local cars in the face of sharp swings in exchange rates against major currencies during last three years. It may be mentioned that Japanese Yen appreciated by 106 percent in just three years leaving no room for the local assemblers to absorb the increase but to pass on to the customers.
Informed sources told Pakistan Observer that government may relax duty depreciation rate from 1% / month to 2% per month that would make imports of 1-2 year old vehicles even cheaper. It was materialized this move could pave way for import of another 2,000-3,000 units in the financial year 2011 taking the number to 7000-8000 of imports. Consequently import of used cars to that tune could eat into the share of local assemblers and hence shrink the demand of locally manufactured cars in the market.
In fact relaxing age limit of used cars from 3 to 5 years linked with an objective to dilute dominance of local automakers and plug the trend of continuing price hikes. This will also allow importers to fully claim the 50% duty depreciation allowance, @ 1% / month, that was capped at 36% due to age restriction and hence further lower their cost.
Hence increasing age limit may not be causing a serious dent to sales of local automakers as 36-65% price hikes by local automakers since June 2007 excluding taxes and not adjusted for new model launches is lower than Yen appreciation by 106% during the period, the government raised customs duties and imposed 50% RD on imported cars that will still be applicable, while market dynamics are opposite of 2003-08 when capacity constraints of local automakers created supply deficit. Besides that the imported vehicles themselves have become expensive due to growing demand from other countries. All automakers expanded in the growth phase and, excluding Indus that is benefiting from strong Corolla, both Pakistan Suzuki Motors and Honda cars are now operating below capacity at thin margins.
Since majority of used car imports are below 1,000cc engine size the assemblers of economy cars may face a sales decline, sources added.