Auto sector was passing through severe crises
before 1999 due to low demand & resultantly non-performing at
optimum capacity. Though there was an ample potential available in the
market for financing auto products but the presence of a few financial
institutions were not enough to feed the market.
Usually there are two principles behind the concept
of financing arrangement, when a person/business does not have enough
cash outlay for an outright purchase but future cash flows allow to
meet subsequent obligations or when cash flow saving is the objective
instead of cash outlay.
City Bank was the pioneer in consumer banking but
due to their conventional financing approach, only a little market was
explored. Though various leasing companies were also in the market but
a major change had been observed when Askari Leasing started its auto
financing product "asKar" in 1999 with relatively aggressive
approach from its competitors already in the market. asKar was
introduced as non conventional weapon tailored for semi documented
& non documented segment in the market. Idea was rightly conceived
& it received tremendous response from the market. Success of the
product also opened a new window for other players in the market. In
the era of 2002-2004, consumer financing especially auto financing was
talk of the town.
Entrance of new players in the market not only
created an atmosphere of competition but also equally benefited the
borrowers. As a result financing of auto products substantially
increased the demand for personal and commercial use of vehicles in
the country. Local auto manufacturing plants not only achieved their
optimum capacity but also made various expansions and replacements to
meet the growing demand of the industry. Another factor that further
added to this trend was lowering of interest rate by the government in
2004 which further increased direct and indirect flow of the market
towards auto products in the country. Auto sector in Pakistan has
marked tremendous growth during the past few years & this growth
is a legitimacy of aggressive public demand for auto products in the
GDP contribution of the sector has been visibly
improved. All these favorable trends also contributed a lot for allied
industry and as a result demand of fuel/CNG, spare parts, skilled
labor, workshops, and auto insurance has been reasonably increased.
Similarly, respectable revenue has also been generated for the
government in shape of sales tax, registration & route permit
Suzuki & Toyota both brands grabbed major
market share, especially Suzuki Mehran came up as hot selling brand in
the light vehicle category. Cars belonging to Honda family also
attracted their selective market and made respectable profits. Besides
these local brands, some imported personal use brands i.e. Mitsubishi
Lancer, Chevorlet, used Mercedez & Land Cruisers were also
slightly absorbed in the market. In commercial use category, branded
vehicles of Hino, Nissan & Sind Engineering were hotly demanded by
the market whereas used imported chassis of Hino & Nissan were
slightly absorbed in the market. Local new entrants in commercial
fleet "Zabardast" of Adam Motors & Star Truck of Delta
Innovations also attracted & showed their presence in the market.
Presently, auto financing has become a regular
feature for almost every financial institution, besides their other
conventional arms. These banks/NBFIs are playing a vital role by
providing financial facilities for the purchase of personal and
commercial use assets to their borrowers. More realistically, if it is
said that the financial institutions revived this sick industry, it
will not be wrong. No doubt due to all these positive signs an
economic activity in the country has been started for some past years,
but it seems that the entrance of financial institutions and to some
extent speculators (person who is not a real purchaser of a product)
have put this sector to an abnormal growth whereby many questions
arise in mind with respect to the future of this sector in the light
1. Is our local auto sector capable enough to meet
the prevailing demand in the market with an affordable price for a
2. Is the quality of the vehicle produced up to
mark in growing demand scenario?
3. Does our infrastructure allow such large volume
4. Do financial institutions need market
segmentation & differentiation of product for their profitability
& continuous support for the sector?
5. How can speculation be eliminated from this
sector to eradicate artificial shortage.
As far as first question is concerned, no doubt
speculative buying and change of trend both lead any product to an
abnormal growth until enough supply is not provided to end the
situation. Low interest rate regime served as incentive for automobile
products & auto financing emerged as a new trend in the market
which visibly increased the demand of auto products in the country.
Though our local manufacturers were not fully ready to face the
situation in the past but after passing 3 to 4 years it seems we are
still on the same road where we started. No sincere efforts by the
government and private auto sector to resolve this situation led to
price hike & many other issues. Extra ordinary delay in delivery
time for a new vehicle with 100 % up front payment has created another
bad element i.e. premium money (an additional amount asked for ready
delivery with respect to vehicle demand and its marketability).
It has been observed that most of the local auto
manufacturers are taking 06 to 08 months & in some cases around 10
months for delivery of their new vehicles with 100% upfront payment.
For example if we take the delivery schedule of Suzuki Mehran VX CNG
by Pak Suzuki Motor Co.Ltd. we see the vehicle's ex-factory price is
Rs. 345,000/- whereas it is available with a dealer at a price of Rs.
415,000/- or more for instant delivery, which clearly shows that the
manufacturer capacity is not enough to produce a vehicle in a
justified time to avoid bad elements like premium from the market.
This behaviour can be observed with all brands in the market,
difference is the premium with respect to marketability & delivery
time of a brand. In the case of Corolla an additional amount of more
than Rs. 150,000 is demanded by the dealers for prompt delivery of a
Present delivery time by the local manufacturers is
totally unjustified and allows bad elements like premium in the
market. After 100% payment and delivery of the asset with this
timeframe is totally unjustified, immoral and against the basic
consumer rights. All these facts are good enough to prove that
manufacturing capacity of our local vendors is not matching with the
growing auto demand in the country. Similarly, now a days a new
practice has emerged that dealers are not taking out right bookings or
asking black money of Rs.20 to 30 thousands reasoning short of the
quota or closing of booking by the manufacturer. As per law of demand
low manufacturing capacity with aggressive demand lead to over
pricing, which throws out a large segment of common purchasers from
the market & their dream of a car cannot come true till the time
situation changes or some other alternative comes.
It is also important to mention here that in our
neighboring country Suzuki Mehran is being manufactured at around
Rs.150,000, which is a big question mark for all relative quarters in
the government. Current trade policy signal for foreign imports in the
country is the one step to end this issue but efforts should be made
for more auto plants in the country, which will result an economic
activity and reduce severity of unemployment in the county as well.
Financing of auto products has become a permanent feature in the
market, which demands more plants in the country instead of imports to
save the country's foreign reserves.
As far as second question is concerned, quality of
a vehicle with respect to its performance and material used is another
question mark with some vendors who are frequently changing their
prices with reasoning some external factors but totally ignoring value
of the money return to their customers. If we compare an old model of
a specific vehicle with its present version, this can be easily proved
that some vendors are producing only quantity to avail maximum benefit
of the situation ignoring what they are delivering to their customers.
As far as third question is concerned our
infrastructure is not fully supporting present volume of vehicles in
the country and there is an immediate need for more roads &
expansions of existing roads especially in populated cities. Increase
in auto products result heavy traffic and increase in traveling time.
Non awareness of basic traffic rules & irresponsible attitude of
traffic authorities both lead to another mess. Development of existing
infrastructure is the one solution, whereas ban on older vehicles more
than five years is another option to end severity of the issue.
Regarding fourth question, I think yes because auto
financing is now facing regurgitate scenario & financial
institutions need to rework their long tem strategies with respect to
their market share and consistent growth. Non availability of lending
products of banks & especially leasing companies in rural areas
adversely affects the market potential there in shape of
ex-Pakistanis, agriculturists & farm owners, that can be explored
more effectively with the presence of such products there. Similarly,
there is an immediate need for product differentiation exclusively
catering to business executives, corporate employees, owners of SMEs
& financing of light commercial use assets to fresh & small
earning segments of society on relatively soft terms.
As far as fifth question is concerned, speculation
can only be eliminated from the market by providing enough supply of
the vehicles as per demand because we have already seen the results of
fresh bookings on national tax number basis. Another way to remove
these elements from the market is awareness of society, which should
not be expected at least 50 years or more in our prevailing situation.