‘Prohibitively expensive’ — how car prices have shot up in Pakistan

Owning a car is a common goal. But for many Pakistanis, it may be an unattainable one.

Amid rising inflation and the highest cost of living in Asia, the prices of new cars have soared by 90% on average over the last three years.

The most popular model in the 660cc category used to cost Rs1.6 million in 2021. Three years later, its price has shot up to Rs3.2 million.

The most popular model in the 1,000cc category used to cost Rs1.97 million in 2021. This year, it’s priced at Rs4.2 million.

Similarly, the prices of cars in the 1,300cc, 1,500cc and 1,800cc categories have all increased.

President All Pakistan Motor Dealers Association Haji Muhammad Shehzad told Nukta car prices have increased in the range of 100% to 125% in the last three years.

He attributed this partly to the decline in the Pakistani rupee’s value against the US dollar. “Local car assemblers import CKD and SKD kits, and as the US dollar strengthens, the cost of production goes up.”

In FY24, Pakistan imported $1 billion worth of automobile CKD/SKD kits, compared to $2.4 billion in FY22. But the imports became more expensive — in June 2022, one dollar was equal to Rs204; by June this year, one dollar was worth Rs278.44.

A significant tax — up to nearly 40% — on vehicles and a policy of protectionism that limited indigenization have also contributed to the hike in car prices, he added.

Meanwhile, consumers have stayed away from auto financing, with figures for March plunging for the 21st consecutive month. Overall, auto financing stood at Rs240 billion in March, compared to Rs368 billion in the previous fiscal year, according to data from the State Bank of Pakistan.

Expensive financing due to a 22% interest rate — which was cut at the tail end of the previous fiscal year — high monthly loan instalments, and the unbearable prices of vehicles, coupled with consumers’ thin buying power and the SBP’s curbs on financing to reduce imports, have collectively impacted car demand as well.

In fiscal year 2020-2021, 234,180 cars were sold. In fiscal year 2023-2024, this number stood at just 81,577 — a 15-year low.

Auto assemblers have advocated for a reduction in interest rates to single digits to revive the auto sector and called for the government to engage with business stakeholders in crafting a five-year industrial policy aimed at enhancing production and exports.