Auto Financing Hits Lowest Point in 16 Months

Jawad

27 Nov 2023

290

Auto Financing Hits Lowest Point in 16 Months

In yet another update on the fluctuating landscape of the country's auto industry, the third revelation within a month underscores a persistent downturn. Previous reports highlighted sharp declines in car sales and Completely Knocked Down (CKD) imports, and the focus now shifts to the domain of auto financing.

In a noteworthy trend, outstanding auto loans in Pakistan have sustained a continuous decline for the 16th consecutive month, culminating in figures reaching Rs264 billion by the end of October.

Root Causes:

This signifies a 3 percent decrease on a month-on-month basis and a significant 23.5 percent decline year-on-year. The evolving dynamics are attributed to a series of economic measures implemented by the State Bank of Pakistan (SBP) aimed at addressing inflation and external imbalances.

The pinnacle for auto loans in the country was noted at Rs368 billion in June 2022. However, over the past 16 months, a substantial drop of Rs104 billion has occurred, equating to a 28% decrease. The SBP's monetary policy tightening played a pivotal role in this downturn.

Correlation with Auto Sales:

The decline in auto loans aligns with a sharp decrease in the sales of cars, light commercial vehicles, vans, and pickups. Sales plunged by 44 percent to 27,163 units during the first four months of the fiscal year 2023, compared to 48,573 units in the same period the previous year.

Industry Challenges:

Challenges faced by assemblers, exacerbated by frequent production halts due to parts shortages resulting from SBP restrictions on opening letters of credit for imports, have further contributed to the decline in the auto market.

The imposition of an upper limit of Rs3 million on auto loans, coupled with a reduction in payment duration, has added to the discouragement surrounding auto financing. Despite some Korean and Japanese assemblers responding to rupee appreciation by reducing prices (excluding Pak Suzuki Motor Company Ltd), the overall market remains sluggish.

As the auto financing landscape grapples with these challenges, stakeholders are vigilantly monitoring for signs of recovery and assessing the potential impact on the broader economy.

Auto Financing Outstanding Auto Loans Auto Financing in Lowest Point Auto Financing Down Trend Pakistan Auto Financing

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