Car financing reviving up sales

KARACHI: A report, ‘Car Financing in Pakistan’ by Carmudi looks into the current and future state of the flourishing car financing market and how consumer attitudes towards credit have transformed in recent years, increasing car sales.
A statement issued Wednesday said that the findings in the report were based on studies by governmental institutions and authorities and interviews with financial institutions, car dealers, and banking experts throughout Pakistan.
A 2014 study, conducted by Nielsen, said that 78 percent of respondents in Pakistan plan to buy a new or used car in the next two years. Results from the report also showed that 89 percent of Pakistani respondents plan to upgrade their vehicles when they are financially sound.
Further, the report states that car sales in Pakistan peaked in FY2012, reaching over 157,000 units, and are beginning to increase once again along with the rise of consumer lending amidst the healing economy. Declining oil and commodity prices in the international market have also impacted car sales, while increasing the demand for car financing in the country.
Between July 2014 to March 2015, consumer financing saw a growth of 6.4 percent (Rs16 billion), down from 9.8 percent (Rs21.5 billion) in the same period of the previous year. Due to the high demand for new car models and amended regulations permitting banks to provide financing for vehicles older than nine years old, auto loans posted a 20 percent increase, up from 17.8 percent the year before. Increased income per capita, improved agricultural sector and the improvement of the economy also contributed to the healthy growth in consumer credit, particularly in the auto sector.
Consumers in Pakistan belong to two schools of thought when it comes to financing: Conventional banking and Islamic banking that is interest-free, restricts riba and gharar (speculative income). Despite Islamic banking being considered an ethical way of banking from both consumer and the Islamic point of view, most millennials in Pakistan do not object to following conventional bank practices when applying for loans.
Based on the micro and macro-economic indicators, political stability, and increase in foreign investment in Pakistan, with a market of nearly 200 million people, the economy is predicted to further stabilise. Auto demand in the country will rise following the expected income per capita increase. Given the right environment and low car financing rates, the car financing industry in Pakistan will continue to grow.
“Car Financing is an integral part of the auto industry and the recent trend is giving a positive outlook to both consumer financing and automobile Industry. We see more and more people asking us about lease and financing options and it’s very healthy to see financial institutions come up with new offerings,” commented Raja Murad Khan, Managing Director of Carmudi Pakistan.

Auto sector earnings surge 130 percent
The automobile assembling sector comprising Pak Suzuki, Honda Car and Indus Motors has posted a 130 percent growth in earnings for the year ended June 30, 2015
“Two key factors attributable for the notable sector performance are higher volumes - up 31 percent - and exchange rate parity - JPY down 13 percent, which resulted in massive growth in sector earnings,” Ahmed Lakhani at Arif Habib Limited said on Wednesday.
Higher demand and lower yen factor lifted earnings of auto assemblers for FY15, up 130 percent to Rs16.035 billion compared to Rs6.977 billion previously.
Furthermore, falling commodity prices also enabled margin accretion for the sector, with steel and crude prices down by 20 percent and 33 percent respectively.