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Tuesday, May 21, 2024

Car Financing Sees 22nd Consecutive Month of Decline

SBP data shows car financing plunges for 22nd month, down 23.7% YoY to Rs. 236 billion, while personal loans surge by 30.7% to Rs. 116 billion, highlighting auto sector challenges.

For the 22nd consecutive month in 2024, car financing experienced a steady decline, dropping by 23.7 percent year-on-year to Rs. 236 billion by April’s end, down from Rs. 309 billion in the previous year. According to data from the State Bank of Pakistan (SBP), consumer financing for house building also decreased by 3.3 percent to Rs. 206 billion during the same period.

The auto sector has faced significant challenges for nearly two years, with automobile sales plummeting to 79,575 units in the first 10 months of the current financial year, compared to 115,381 units during the same period in the previous year. This decline in sales can be attributed to rising car prices, expensive auto financing, and diminished consumer purchasing power.

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Although some car assemblers offered discounts on registration and other charges in recent months, the overall growth in the sector remains sluggish, largely due to the persistent high cost of cars.

In contrast, personal loans on credit cards surged by 30.7 percent year-on-year to Rs. 116 billion by April 2024. However, overall credit issued to end-users (consumer financing) declined to Rs. 803 billion in April 2024, marking a 7.5 percent year-on-year decrease.

These trends emphasize the hurdles confronting both consumers and the automotive sector, emphasizing the urgency for interventions to tackle affordability concerns and boost market demand. The contributing factors to this scenario encompass elevated interest rates, rising car prices, regulatory constraints on loans, and heightened taxes on imported automobiles.

Read more: Automakers’ Price Cuts Spark Debate Amidst Slowing Demand in Pakistan

Addressing these hurdles is key to revitalizing the automotive sector and ensuring its long-term prosperity.