Dec 13 - 19, 2010

The import of used cars are likely to up from current 3600 units to five thousand units following relaxation of age limits from three 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 was 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 and Gulf Economist that government may relax duty depreciation rate from 1 percent/ month to 2 percent per month that would make imports of 1-2 year old vehicles even cheaper. 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 reduce the demand of locally manufactured cars in the market.

In fact, relaxing age limit of used cars from three to five 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 percent duty depreciation allowance, at 1 percent/ month, that was previously capped at 36 percent 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 percent price was hiked by local automakers since June 2007 excluding taxes and not adjusted for new model launches. Yen was appreciated by 106 percent during the period. The government raised customs duties and imposed 50 percent RD on imported cars that would still be applicable, while market dynamics are opposite of 2003-08 when capacity constraints of local automakers created supply deficit. Besides, 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. (AB)