Dealers earn Rs170bln ‘own money’ on cars in last five years: research

ISLAMABAD: The automobile sector of Pakistan made undocumented transactions worth Rs150 billion to Rs170 billion during the last five years under the head of additional charges, also known as 'car own', paid to the car dealers to get an immediate delivery.

Pakistan Institute of Development Economics (PIDE) Islamabad, in its research, revealed that annually, around 80 to 90 percent of passenger vehicles are sold at 'own' which means at least Rs 150-170 billion has been paid as own on cars in the last five years.

"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," according to the PIDE research report.It said only three major players assemble a handful of automobiles in Pakistan including Honda, Indus Motors and Pak Suzuki Motors, with new entrants such as Kia, Hyundai, MG, Changan and Proton yet to make their mark. The report observed 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 constant gap in demand and supply of vehicles in Pakistan had given birth to a phenomenon of car own.

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.

Such a situation created an opportunity for the dealers to earn commission in the middle of the supply chain.

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 one million vehicles in the last five years.

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 emphasizes increasing the local production of vehicles as the first step in eliminating own money from the automobile industry.

It also called for regulations focusing on creating a market structure that facilitates all market players and does not tilt to one side only.

it also urged the government to play 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.