The auto industry in the local area is buzzing with talk of a new cycle of prices increases. The last price hike scandal occurred in July of this year, after the massive US dollar (USD) exchange rate increase which soared to the rate of Rs. 240 per USD.
In light of another depreciation in PKR against USD The past is certain to happen again very soon.
So so far, Hyundai and Chery have increased the cost of their cars, with other companies set to follow. However, will these price increases be higher than they were before? Let’s take a look and discover.
Why Prices Are Going to Rise
The 2nd of September USD exchange rate started rising in a steady manner following an announcement to reinstate the International Monetary Fund (IMF) agreement. Over the past two weeks, this increase has been constant, taking the rate to nearly R$. 240.
With the recent decline of PKR against USD The past is most likely to be repeated very soon.
So so far, Hyundai and Chery have raised the price of their cars, with others expected to follow suit. But will these price increases be higher than they were before? Let’s take a look and discover.
Why Prices Are Going to Rise
The 2nd of September USD exchange rate started rising in a steady manner following the return to the International Monetary Fund (IMF) agreement. Over the past one month, the rate has been constant, taking it to close to the rate of. 240.
The last time that the USD rate reached this level was on July 28 ,the day on which major car makers raised the price of their cars. In a recent conversation with ProPakistani, an acclaimed expert in economics Arslaan Asif Soomro revealed:
With the USD increasing to the mark of Rs. 240, prices for cars will likely rise again. But, the global prices for commodities might further decrease, providing enough cushion for car makers to ensure that margins are maintained.
With the similarity between the two timelines, alarm bells are ringing warning of upcoming price increases in the automobile sector.
How Much Are They Rising?
From the end of July to the beginning of August, car manufacturers raise prices between 15% and 20 to 20 percent..
Following the USD value falling against the PKR, the companies reduced prices by 50% from the earlier price hike. In simple terms when a car’s value was raised by Rs. 500k at the beginning, companies reduced them by the amount of Rs. 250,000 when the exchange rate increased.
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According to market reports, car manufacturers had increased costs based on forecasts of the USD rate could increase to the rate of Rs. 250. Recent reports also give the same grim outlook that could cause automakers to raise the cost back to the levels of July.
Auto Industry in Chaos
The PKR decline coincided with transition of the regime in Pakistan which put the country’s economy in a tidal wave. After that, the cost of all products, including cars started to rise as inflation broke all records.
In addition to the problems in the wake of the announcement, the government announced a total prohibition on imports from the auto industry including knocked-down completely (CKD) kits as well as fully constructed-up (CBU) kits.
While the government has reinstated imports from the auto sector and has increased taxes to hinder sale of premium automobiles and SUVs. Additionally it is the State Bank of Pakistan (SBP) has imposed restrictions on auto financing, which has dealt a an enormous blow to car sales.
In addition, automakers are experiencing massive reductions in production because of the delay in approval of those letters of credit required for the clearing of CKD imports. The low production has caused extended delivery times, which has slowed the demand for cars.
The sales have been in a downward trend in the last couple of months because of rising costs and declining demand. The restrictions on imports as well as delays in delivery along with price hikes and cuts in production could aggravate the problem.
