Own-money on cars jumps to historic high in Pakistan
The own-money on cars have gone up and there are a few cars, which have even been selling above Rs1 million than the actual company price. It’s because some car buyers want to get the vehicle immediately.
Car companies in Pakistan are facing supply chain issues due to rising prices of steel and other raw materials, the choking of shipping lines, and the consequent hike in the freight cost. It has forced the delivery period of cars to expand, pushing the own money amount to a new high.
Own money is an illegal price an investor charges from a buyer, who wants to buy a car immediately. It is above a car’s actual price. It normally happens in Pakistan’s car segment, where car assemblers sometimes take months to deliver a car. It is known as the delivery period.
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Amid the supply-chain issues of the industry, the delivery period has gone up from three months to over six months in some cases. Some companies have even stopped accepting orders.
Shortage of parts
According to a Suzuki car dealer, the 1000cc Cultus car was facing shortage of a car part called selector, which has forced the company to suspend booking of the car. Pak Suzuki sells the highest number of cars, being the biggest player in Pakistan's auto industry.
Auto sector analyst at BMA Capital, Taha Madani said that there are reports that many Kia’s Sportage compact SUVs units have been assembled to the last bolt but still remain unfinished because they lack semiconductor chips, and the company cannot deliver them to buyers.
The new Honda City’s automatic variant will make buyers wait till March if they order/book it now. The Malaysian company Proton is also struggling to deliver cars as the auto industry in Malaysia has been shut down due to the pandemic. Its Pakistan affiliate wasn’t receiving the parts it needs to assemble and eventually deliver a car from the parent company in Malaysia.
All Pakistan Motor Dealers Association Chairman H.M. Shahzad said that the own-money on new cars in Pakistan has been peaking at the moment.
“All the benefits government has given to the auto industry has been eroded by the rising own-money menace, which has reached historic high,” Shahzad said.
“Yes the own money has gone up,” said Mohammad Aamir a car dealer at Khalid-bin-Walid Road. “But it continues to fluctuate just like the stock market. It never remains the same. A few days ago, it went up but today it has slightly come down.”
Also read: Government mulls fixing car prices in Pakistan
Madani said that the auto industry was facing multiple supply chain problems.
“There’s a global shortage of semiconductor chips and it has disrupted the auto industry not just in Pakistan but in other countries as well,” said Madani.
Cars have evolved significantly over time and now they depend greatly on semiconductors for the computer management of different controls such as ignition timing, eco-idle systems, or fuel-efficiency.
Madani added that the increasing dollar rate, the increasing cost of cost and raw materials and the supply delays have also been affecting car companies’ production.
Car dealer Anjum Rizvi said that the industry has always faced the own-money issue.
“This problem has persisted and it will continue to do so,” he said. “There’s apparently no stopping to it.”
He added that the new compact SUVs or crossovers such as Kia Sportage, Hyundai Tucson, Glory 580 Pro and MG-HS had own-money up to Rs700,000 per unit. The price of these cars falls between Rs4 million and Rs6 million.
According to another car dealer, own-money on MG-HS even went up to up to Rs1 million a few days ago but it has come down to Rs700,000.
All auto companies deny there is any own-money involved in the sale of cars; however, a simple investigation by SAMAA Money reveals that car companies’ authorized dealerships offer buyers quick delivery of cars in exchange for own-money.
An authorized car dealership of a major company was contacted for a car, which has a delivery period of three months. The dealership offered to deliver the car at own-money of Rs135,000 for a standard variant and Rs150,000 for the top variant.
“You can immediately get the car but you may not have the choice of colour,” said an official at the dealership.
Anjum Rizvi said that there are people who book a car and when it is delivered to them, they tell the dealership to sell it for them on own-money.
“Authorized dealerships are the place where all car dealers reach out to when demand comes for a new car that needs to be delivered immediately,” he said.
The government has been trying to curb the menace of own-money. It was planning to penalize companies, who took more than two months to deliver a car. But according to sources, the plans were still on paper.
The demand for cars has gone up after the government enforced price reduction in July this year by reducing taxes. However, cart markets were rife with chatter that car companies are flexing their muscles to hike car prices.
A brief survey of the market by SAMAA Money suggest that own-money on a select few cars was as follow:
Suzuki Alto Rs100,000-Rs125,000
Changan Alsvin Rs150,000
Toyota Yaris Rs75,000
Hyundai Elantra Rs150,000
Honda City (Expected) Rs300,000