Auto slump

PAKISTAN’S car industry is in deep trouble. The last fiscal was one of the worst years the industry has ever seen. Its sales decreased in FY23 by almost 56pc to 126,879 units from a year ago. The plunge in car sales is driven mainly by three reasons. First, the demand for auto loans, historically a major driver of car sales in the country, is declining significantly because of the State Bank’s enhanced requirements and soaring interest rates. This is already showing in the drop of Rs75bn in the outstanding auto loan portfolios of financial institutions to Rs293bn at the end of the last fiscal year. Secondly, the restriction imposed by the central bank on the import of CKDs and parts to slow down the dollar outflow meant that the industry produced fewer units last year compared to the previous one. Thirdly, the huge increase in prices due to the rapid exchange rate depreciation and record headline inflation has put even the cheapest car out of the reach of most people. Analysts agree that it is likely that industry sales will remain suppressed over the next couple of years, even after the import restrictions on the assemblers have been fully lifted.