Car Buyers Not Taking Costly Leasing Ride

Do you know the reason why does Car Buyers Not Taking Costly Leasing Ride? For the tenth consecutive month, the total amount of outstanding vehicle loans decreased, falling by 16% to Rs308 billion in April from Rs368 billion in June 2022.

According to data released by the State Bank of Pakistan (SBP) on Saturday, auto loans decreased by 2.83 percent from Rs317 billion in March.

Given the rising SBP policy rate, which is currently 21 percent as opposed to 7 percent in March 2020, auto leasing by private banks has been on the decline.

Since the central bank’s decision to restrict the import of totally knocked-down kits in July 2022, which caused frequent factory closures and delays in-car deliveries, the auto industry has been under pressure.

Nevertheless, assemblers persisted in delivering significant price shocks despite factory closures, blaming the rupee’s decline versus the US dollar. In addition, the SBP also implemented a number of restrictions, such as a Rs 3 million upper limit on auto loans, in an effort to reduce the sales of expensive cars and the length of time that they are repaid.

Unpaid vehicle loans decrease by Rs60 billion in 10 months.

“I think the auto financing will remain at a low ebb for at least the next six months,” said Mohammad Sohail, CEO of Topline Securities, “until the return of political stability and clearance of the IMF’s loan.”

According to him, the rate at which auto finance has been dropping for the previous ten months may alter in the months to come as individuals begin to realize that the scenario regarding vehicle price increases and the political and economic climate is unlikely to improve. “Only those who can afford the financing will go for it,” he said.

According to Mr Sohail, the percentage of sales of all vehicles that go toward auto loans has decreased from 40 to 60 percent to 20 to 30 percent.

Some market observers, however, contend that car leasing is essentially nonexistent because monthly payments have increased in tandem with the interest rate’s ongoing increase.

According to a private bank employee who deals with car leasing, many new businesses have stopped giving their high-paid workers brand-new cars.

“Our bank used to get financing of 350-400 cars a month for a few months as opposed to 90-100 vehicles currently in, which are mostly used locally made low engine power cars of less than ten years old model,” he said.

Sales of automobiles, jeeps, vans, and pickup trucks fell by 80% year over year and by 52% month over month in April to 4,463 units. Sales dropped by 50% year over year to 114,868 units in 10MFY23.

At the same time, local assemblers’ imports of fully and partially assembled kits fell by 51% in 10MFY23 to $682 million from $1.4 billion in the corresponding period last year.