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High import duties deter used car trend, spawn monopoly - Naveed Yaseen - 04-18-2009 08:27 AM
By Faryal Najeeb
KARACHI: The cost of cars in the local market continue to rise despite declining international prices and petroleum prices, as high import duties have discouraged used cars from entering the country and have created a monopoly in the market for local car assemblers.
All Pakistan Motor Car Dealers Chairman H M Shahzad said that prices of cars had began to incline in Pakistan when, during the 2008 budget policy, the government announced a significant increase in the custom duties and a 50 per cent hike in regulatory duties which had led to total import duties rising from 130 per cent to 260 per cent on imported vehicles.
Furthermore, he stated that the depreciation percentage on a vehicle’s value had been reduced by the government from two per cent to one per cent. Shahzad explained that this move had totally discouraged used cars from entering the country which left little choice for customers, who eventually had to turn towards buying new cars.
He said that this way local assemblers of cars had managed to get a monopoly in the market and lack of car financing and impact on sales did not affect them as they continued to hike prices to cover losses by reducing sales.
The car dealer expressed that all over the world car values were falling and Pakistan was going in the opposite direction. Citing examples of India and South Africa, he said that in India Suzuki Maruti Bharat1 was worth Indian Rs148,000 whereas the local equivalent Suzuki Mehran was worth Pak Rs450,000. Similarly, he said that in South Africa, cars were now being handed over to customers on zero per cent down payment and with special offers like free fuel for a month. “These methods are being carried out to encourage consumers to purchase motor cars during these times of global recession whereas in Pakistan, the customers are being exploited,” he continued. Shahzad lamented that there was no check and balance from the government to control the increasing car prices. He said that the new inconsistent government policies had also discouraged cheaper cars entering the country. “The government is looking at the benefit of local assemblers than the masses,” he said. The car dealer said that already car prices had hiked three to four times in the past year even though Pakistan only had assemblers and not manufacturers. He commented that some cars value had inclined by as much as Rs500,000. The dealer was of the opinion that car prices can only be brought under control if the government intervenes and limits car prices.
All Karachi Motor Dealers Association Zonal Chairman Aaijaz Ahmed said that the major reason of increasing car prices in the country was sheer monopoly of car assemblers due to lack of competitors in the form of reconditioned cars. He went on to say that local assemblers were also fleecing customers as the quality of cars had been reduced.
Ahmed said that whilst local assemblers had an agreement with the government to use only Japan made auto parts, they were in fact using parts made in China, Indonesia and Taiwan which he stated was a fact that it could easily be proved if customers made a mechanic or a car expert check their parts. He further expressed that the concept of own money had also not diminished in the country and in fact was transforming into a highly successful undocumented racket.
“All over the world, the general practice is that buyers pay 10-20 per cent down payment when buying a car. In Pakistan, customers have to pay a high amount of ‘bribe’ in addition to the down payment to obtain a zero meter car,” he commented. He stressed that if the government wanted to increase car sales again and control the skyrocketing prices, then it should intervene and allow used cars to enter the country once again while at the same time also placing a price limit on the assemblers.
On the contrary, an employee of a local assembler firm, Shoaib, defended the local assemblers as he said that due to increasing cost of doing business by the day, it had become essential for the assemblers to increase the prices of their cars. He said that the overhead expenses were becoming a burden for car assemblers while imports had also become expensive because of rupee falling against the dollar as well as high import taxes. He further said that car sales had also dropped significantly by 46 per cent according to the latest reports and hence the additional costs had eventually been put on the customers.
http://www.thenews.com.pk/daily_detail.asp?id=172988