Highlighting the ebbs and flows observed in the country’s auto industry, this is a third update in a month which reveals the continuous downtrend. Previously, we reported on the sharp decline in both car sales and CKD imports, and now attention turns to the realm of auto financing.

In a noteworthy trend, outstanding auto loans in Pakistan have seen a continuous decline for the 16th consecutive month, with figures reaching Rs264 billion by the end of October.

The Reason

This marks a 3 percent decrease on a month-on-month basis and a substantial 23.5 percent decline year-on-year. The shift in dynamics has been attributed to a series of economic measures taken by the State Bank of Pakistan (SBP) to address inflation and external imbalances.

The peak for auto loans in the country was recorded at Rs368 billion in June 2022. However, over the past 16 months, there has been a significant drop of Rs104 billion, equating to a 28% decrease. The SBP’s tightening of monetary policy played a pivotal role in this downturn.

The decline in auto loans corresponds with a sharp decrease in the sales of cars, light commercial vehicles, vans, and pickups. Sales plummeted by 44 percent to 27,163 units during the first four months of the fiscal year 2023, compared to 48,573 units in the same period the previous year.

The Challenges

Challenges faced by assemblers, exacerbated by frequent production halts due to parts shortages resulting from SBP restrictions on opening letters of credit for imports, have further contributed to the decline in the auto market.

The imposition of an upper limit of Rs3 million on auto loans, along with a reduction in payment duration, has added to the discouragement surrounding auto financing. Although some Korean and Japanese assemblers, excluding Pak Suzuki Motor Company Ltd (PSMCL), responded to rupee appreciation by reducing prices, the overall market remains sluggish.

As the auto financing landscape continues to navigate these challenges, stakeholders are closely watching for signs of recovery and the potential impact on the broader economy.