In 2021, buckling under the pressure of a rising import bill, soaring inflation, and shrinking reserves, the State Bank of Pakistan (SBP) in its abundant wisdom decided to impose extensive limits on automotive financing. The loan tenure was reduced to 5 years, the equity requirement was raised to 30 percent (from 15%), and financing on new and used imported vehicles was banned. To the surprise of no one, sales plummeted, and car financing began to plateau. At the time, SBP had already started to tighten the monetary policy which continued its ascent for a year, and remained constant for another 12 months.
High interest rates quashed any semblance of demand for car financing resulting in a prolonged period where banks were receiving more payments against loans, than extending fresh loans. It has now been five months since the rate started to come down, and auto financing is witnessing a slow revival. Car sales are also recovering, up 51 percent in 5MFY25 year on year, landing at over 50.7K units, up from 34K units in the same period last year. Of this, 38.5K were passenger cars, 8.5K were SUVs, and 3.78K were LCVs.
This is an impressive jump for the industry, except it is compared to a very low base of FY24. Barring last year, FY25’s sales are thus far lower than every year since FY13. Average monthly sales are just not growing as exuberantly as one would associate a growth number of 50 percent with. This is despite a major shake-up in the industry that brought in new players, and new models to the front. And it’s because the interest rates are not low enough, car prices are still far higher than the current buying power, and SBP’s tightened prudential regulations pose a large thorn in the road for loan seekers.
The only real change that has happened in the past two years—and which will invariably continue in the years to come—is SUVs and LCVs taking up more space in the market as new players launched their models. In 5MFY25, the share of LCVs and SUVs has grown to 24 percent, from 23 percent last year, and 14 percent on average between FY11 and FY23. These volumes do not include a number of companies that don’t report their official numbers but have launched new vehicles in the same vehicle range (Changan, Kia, etc.)
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