ISLAMABAD: A Pakistan Institute of Development Economics (PIDE) research study has revealed that car consumers paid Rs150 to 170 billion in undocumented transactions as "own money" in the past five years in Pakistan.
This research, led by Dr Usman Qadir, senior research economist, and Mohammad Shaaf Najib, staff economist of PIDE, Islamabad, said every year around 80 to 90 percent of passenger vehicles are sold at "own", which means at least Rs150 to 170 billion has been paid as own on cars in the last five years in Pakistan. These transactions remain undocumented.
The own money is premium charged over and above the price of vehicles by dealers in exchange for immediate delivery of cars due to shortage existing in the market.
Pakistan's automobile sector is a fast-growing sector owing to robust demand and a large population of 220 million people. The auto industry is the quintessential oligopoly, with only three major players assembling a handful of automobiles: Honda, Indus Motors, and Pak Suzuki Motors, with new entrants such as Kia, Hyundai, MG, Changan and Proton yet to make their mark.
The constant gap in demand and supply of vehicles in Pakistan has given birth to a phenomenon unique even today to the Pakistani automobile market known as the "own money"; PIDE research says.
The report further explained that in the early 2000s, when car sales in Pakistan rose sharply, aided by the banks' introduction of car financing services, the demand and supply gap widened. The number of buyers increased rapidly, while vehicle production capacities did not significantly increase to match this rise in demand, resulting in an increased waiting period for the delivery after booking the vehicle. An opportunity to earn commission was created for those in the middle of the supply chain.
The research further describes that during the last five years, consumers have paid at least PKR 30-34 billion yearly as "own" charges, over and above the actual cost of the vehicle. This means that at least PKR 150-170 billion worth of undocumented transaction have been made in terms of "own money".
According to the PIDE research, a number of automobile companies are selling their cars in the country, with some of them still not locally produced. The research has identified low production levels as the major cause behind own charges in the industry.
Pakistan produced less than even 1 million vehicles in the last five years. To put things in proper perspective, the research highlights some comparative trends. Morocco produced twice as many cars, Turkey manufactured over six times more vehicles, and Brazil's production remained nearly 13 times more than Pakistan during the last five years.
The research emphasises increasing the local production of vehicles is the first step in eliminating own money from the automobile industry. Regulations must focus on creating a market structure that facilitates all market players and does not tilt to one side only.
The government is urged to take up its role as the regulator and protect the rights of consumers as well by crippling the unchecked power at hands of automobile companies and dealers, added the research.
Copyright Business Recorder, 2021
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