Shares of four listed Pakistani carmakers nose-dived on Thursday following a government decision to cut import duty on small cars and possibly lift a ban on used cars.
According to Dow Jones Newswires, Prime Minister Zafarullah Jamali’s government, which has been under pressure from consumers to improve the supply of cars, said duty cuts on popular 800cc cars are expected to take effect before the national budget in June.
There are four major players in the Pakistan car industry – Pak-Suzuki Motor Co., Indus Motor Co., which assembles Toyotas, Honda Atlas Car and Dewan Motors Ltd., which assembles Hyundai and KIA models.
Shares of the four companies fell 5% on Thursday – the lowest limit for the day in early trade, Dow Jones said.
According to the report, the decision to cut import duty was made after the local carmakers had failed to meet soaring demand. There were long delays in the delivery of locally-assembled cars to customers, and a high premium existed on the black market for spot delivery of vehicles.
“There was a supply and demand crisis in Pakistan because of a substantial increase in buying of cars on the back of lower interest rates on car financing,” said Mohsin Ahsan, an automobile analyst at Global Securities, told Dow Jones.
Pakistan’s car sales rose almost 50% on year to 61,852 in the last fiscal year ended June 30, as low interest rates, cheaper bank loans for car purchases and surging remittances from overseas fuelled higher sales.
Output is expected to climb to 100,000 cars in the current fiscal year that ends June 30, analysts told Dow Jones.
Analysts reportedly say the move to cut import duty on cars was expected, but lifting the ban on used cars is likely to hurt the local industry.
Mohsin told Dow Jones plans to lift an 11-year ban on the import of used cars is likely to derail growth in the domestic industry.
“Unless you have a proper pricing mechanism, it is very difficult to manage transparent imports of used cars,” he said.
The Cabinet said it has formed a committee to decide on the models of the used cars and the terms of their imports.
Mohammad Sohail, research head at Investcap Securities, told Dow Jones he expects the government to come out with a balanced policy before the national budget.
Pakistan car assembly is dominated by Japanese models, and almost half of the parts are manufactured locally, Dow Jones said.