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Tuesday December 06, 2022

EDB evaluating increase in cost claimed by automakers

May 12, 2022

KARACHI: Engineering Development Board (EDB), the automakers’ regulator, has said it was now evaluating cost increase details shared by original equipment manufacturers (OEMs) that were summoned for a meeting to justify frequent increase in car prices.

EDB General Manager (Policy) Engr Asim Ayaz said that reasons for price increase were discussed with the auto assemblers. “The assemblers said increase in dollar rate, raw material cost, shipment cost, and utility cost were the reasons (for the frequent price increase of cars).”

To a query whether EDB was satisfied with the OEMs response, he said that their claims were “under process of evaluation”.

Meanwhile, a day after the meeting, Pakistan Automotive Manufacturers Association (PAMA) released an official letter to the EDB telling reasons for frequent price increase.

“We are pleased to share the factors which have severely impacted the cost structure of the vehicles manufactured locally since July 2021,” read the letter.

“The value of the rupee is constantly depreciating and there is no respite in sight. Freight has skyrocketed to a phenomenal degree and become a crucial factor in price increase. FED increased, wage increased, utilities increased,” read the letter.

The letter further added that the KIBOR rate has also been increasing. “Until recently it was less than 10 percent, now it is hovering around 15 percent,” it added.

The PAMA letter further said that within six months, there has been about 70 percent increase in the prices of steel products, while the price of aluminium has also increased.

“Due to production cuts by China, there is shortage of supply and the price of this metal has substantially increased in the international market. (Moreover), the prices of resins and thermoplastics have increased by about 50 percent in recent months,” the letter read.

PAMA also submitted suggestions regarding the menace of on-money.

“Keep the guideline flexible for the amount of partial payment and the delivery period. Provide a range from 20 percent to 100 percent partial payment and let each company select according to their market dynamics,” PAMA suggested to EDB.

“Late delivery period penalty be enhanced from 60 days to 90 days. Reduce KIBOR +3 percent rate to KIBOR only. Because the SBP policy rate has been increased to 12.25 percent, which is quite substantial and heavily affects profitability,” it added.

The meeting on Tuesday was called after the government took notice of frequent price increases by the assemblers.

For the second time in less than two years, the government threatened regulatory measures against auto assemblers, which might include fixation of prices under the Price Control Prevention of Profiteering and Hoarding Act, 1977.

They were asked to share their cost structures and justify price increases or face regulatory measures.

Some of the assemblers have declined to share their cost structures, and said that it was classified information.

However, they have come forward to explain the reasons for frequent increase in prices.

Sources in the industry said that the Ministry of Industries and Production has asked EDB to hold a follow-up meeting soon to assess whether the auto industry was involved in profiteering and raising car prices more than the increase incurred in cost.

EDB sent letters to 11 assemblers, some of whom did not turn up to attend the meeting on May 10.

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