Last month’s locally assembled automobile sales were at their 17-month high, and surely, avoiding higher withholding taxes in the upcoming month was a good enough reason for car buyers to hasten their bookings. In July when new taxes were implemented, lower sales; lowest in fact in six months are a reflection of that. However, July’s sales of roughly 8,500 units are actually up 69 percent from the same month last year, which is a particularly low base to compare from.

The dwindling began in FY23 and followed well into FY24 as automobile assemblers contended with supply shortages and demand marred by inflated prices, subdued purchasing power, and expanded cost of financing. Borrowing through banks was also deliberately curtailed by the SBP by the regulator tightening the prudential regulations for car financing. This was done to serve the singular purpose of reducing demand for imported parts and CKDs, in order to cut down on imports. It worked. That together with the L/C crisis led to factory shutdowns and production halts across automobile companies. As a result, volumes shrank 54 percent in FY23 and 18 percent in FY24 year on year. Compared to FY22—which happened to be a volumetric peak for the industry at large—volumes in FY24 shrank 63 percent.

It isn’t over yet. There aren’t many demand drivers in play. Despite loosening the monetary policy, the government is not ready to unclasp its spending belt lest demand catapults and inflation rise. SBP is maintaining a cautious stance, and all that boils down to a still tightened monetary policy over the upcoming months and watching the current account like a hawk. New tax measures and renewed interest of the FBR to capture new tax pockets—thus far failing to do the same—may affect spending power in the upcoming year.

The two segments that will continue to find demand are coincidentally at the lowest and highest ends. Alto sales continue to flourish, at the lowest end, compared to other models arguably due to its relative affordability and the fuel average it provides, particularly when used commercially in the gig economy. Even used imported cars have become more expensive than before, and not measuring up to what Alto has to offer. In FY24, Alto’s share in total passenger cars was 44 percent. On July 24, the share is 49 percent.

Meanwhile, the shares of SUV/LCVs have grown too. On July 24, this was 32 percent of all automobile sales which is significant enough, and higher than any month since April 23. New models and new assemblers have entered and managed to grab a small but important share of the market.

As the cost of borrowing comes down, car demand may improve in the coming months, but likely not across all model offerings. FY25 may not follow the same pattern of demand as FY24 or FY23, but the struggle is not over so far as the market pie is concerned.