Carmakers mull price increase amid rising costs

KARACHI: Automakers are likely to raise prices for some car models to mitigate the impact of rising commodity costs and currency depreciation, industrial officials said on Wednesday.

“We expect car prices going up five percent to seven percent from November 1,” an industry official said.

Ali Asghar Jamali, CEO Indus Motor Company, which manufactures and sells Toyota vehicles in Pakistan, said the manufacturers could increase prices “anytime now” as they “were holding prices” for sometimes.

Industry officials said manufactures’ input costs went up severely, mainly on account of weakening of rupee.

“Up to 80 percent of the cost of assembling of an average car is directly impacted by the movement in rupee value as almost 80 percent parts of some vehicles are imported,” said analyst Arsalan Hanif at brokerage Arif Habib Limited.

Rupee reached a new record low on Wednesday, selling at 173.45 against the dollar in the interbank market to continue a slide that saw it lose more than 13.5 percent since May.

Hanif said car price were last hiked last year when dollar stood at Rs165.

“The carmakers would have passed on the increase in the cost of manufacturing to consumers already by now if the government had not restricted them,” he added. “It’s not just the dollar rate that has gone up; price of steel has also increased significantly and it is auto industry’s main raw material, while freight costs have also gone up at least fourfold.”

The government slashed sales tax earlier this year on cars below 1,000cc and cut additional custom duty and federal excise duty, which led to a reduction of car prices by up to Rs400,000 in some models. Impact on most cars remained between Rs60,000 and Rs200,000. The stated purpose of the policy was to provide cheaper cars to the public and help the auto industry increase its numbers to improve economies of scale.

However, the car companies started flexing their muscles within a couple of months of reduction in duties and taxes, which did not go well with the government.

The ministry of Industry and Production threatened the carmakers it would fix prices and demanded of them to share their structure of costing with the government.

One of the new entrants, Changan even increased car prices citing increase in freight cost and steel prices. But it was forced by the government to take back the price hike. Analyst Waqas Ghani at JS Global said the steel’s international prices had gone up, which got amplified in Pakistan amid dollar price hike and freight cost. “At the beginning of the year, the price of steel stood at $868/ton in January and it now stands at $1,010/ton; while locally it was selling for Rs142,500/ton, and it has now reached Rs207,500/ton,” said Ghani.