As bank funding declined for a 13th consecutive month in July 2023, the auto industry was once again plagued by a shortage of vehicles and rising interest rates. Dawn reports that from Rs. 293.7 billion in June, the total amount of car loans decreased to Rs. 285.2 billion.
According to data from the State Bank of Pakistan (SBP), auto finance reached its highest level of Rs. 368 billion in June 2022 before declining as a result of rising interest rates, which are currently at 22%. Demand restraints and growing vehicle costs are further factors contributing to the reduction.
Sales of local assemblers were harmed by SBP’s shorter payback terms and increase of the car loan maximum to Rs. 3 million.
According to Fahad Rauf, head of research at Ismail Iqbal Securities (IIS), bank loans are being hindered by the 25% interest rate after Kibor plus and SBP attempts to limit auto demand. He further stated that new bank-purchased automobiles are not increasing during net retirement, citing SBP data.
According to Rauf, there are numerous expectations that the interest rate would increase or remain steady as a result of rising inflation and worries about further increases in vehicle prices as a result of the rupee’s depreciation.
With no indication of a significant decline in interest rates, pricing, or rupee-dollar stability, he predicted that the auto industry would continue to be in crisis through December and that the sales scenario would even stay worrisome during the first half of 2024.
The CEO of Indus Motor Company (IMC), Ali Asghar Jamali, asserted that this is the worst economic crisis ever for the auto industry. Plant closures and significant job losses in the industry occurred in 2023 as a result of regional, global, and import restrictions on CKD kits.