The demand for auto financing has continued to decline for the 17th consecutive month in November, falling 24.4% year-on-year and 2.6% month-on-month to Rs 257 billion, as consumers faced exorbitant costs of financing, higher interest rates, and a significant increase in car prices over the past one and a half year.
The State Bank of Pakistan (SBP) attributed the downward trend in auto financing to its macro-prudential measures, which aimed to moderate vehicle loans by increasing the down payment required and reducing the maximum financing term. The SBP also tightened the import of completely knocked down (CKD) vehicles by requiring banks to obtain its approval in advance.
Another factor that deterred consumers from buying new cars was the devaluation of the rupee against the US dollar, which increased the production costs for automobile manufacturers and led to higher car prices. The inflationary pressures also eroded the purchasing power of consumers, who faced a record 22% interest rate set by the SBP.
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The auto loans reached their peak of Rs 368 billion in June 2022 and have since dropped by Rs 111 billion.
The slump in auto financing was reflected in the dismal car sales figures released by the Pakistan Automotive Manufacturers Association (PAMA). Overall, in the first five months of the current fiscal year, car sales by the members of PAMA were recorded at 33,638 units, down 50% YoY compared to 67,104 units in 5MFY23.
Other segments of the auto sector such as bike, tractor, truck and bus also witnessed a decline in sales in November due to higher prices and low demand.
An analyst said auto financing may continue to decrease till January or March 2024 when the central bank was expected to make a first cut in its benchmark policy rate, which currently stood at the record high of 22%.
