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Own Money-a termite eating away govt’s efforts to reduce car prices

Own Money, an illegal premium charged by dealers in Pakistan, is once again skyrocketing, with reports suggesting that it has even touched Rs1 million in recent days. The inability of the supply of cars to match the demand is being blamed upon many reasons in the country.

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Pakistan’s car industry has long been plagued by the own money (premium), unfairly increasing the prices of the already inflated prices of automobile cars for most of the buyers.

Despite the latest push by the new regulations and incentives to produce more vehicles, which has led to increased sales of vehicles in Pakistan.

According to the latest data, for the 7-month calendar year 2021, the industry sales increased 106 per cent, with total sales at 162,356 units compared to 78,683 units sold in the 7MCY20.

For the first month of the fiscal year 2021, total cars production according to Pakistan Automotive Manufacturers Association stood at 15,325 units, up from 8,280 units produced in the same month of last fiscal year. This shows an increase in production of cars by 85.1 per cent year-on-year for the month of July.

Likewise, the production of jeeps and SUVs has jumped 66 per cent, and this impact of increase was felt throughout all types of vehicles.

However, this increase was not enough to undo the prevalence of own money from the Pakistani market, as consumers have been complaining that they are facing late deliveries, and the people who pay premiums are getting their cars on the spot.

It is worth mentioning that own money is an illegal price a dealer charges from a buyer, who wants to buy a car immediately. It is above a car’s original retail price. It has been a common practice in Pakistan’s car industry, where the delivery period of cars by companies can extend up to months, enabling dealers to exploit people who can pay.

There have been reports in the media that there are some cars where the premium has gone up to 1 million to get the car as soon as one pays.

Read More: MG Motors Pakistan accused of defrauding customers

Reasons for the delay

In August, MG Motors Pakistan was accused of defrauding its customers in Pakistan. The company had been facing delivery delays since it started selling its crossovers in the country, however, never has the company been blamed for fraud.

“The 70-80 cars booked in January were booked with Rs2 million advance given to the company, and that makes up for Rs2 billion in the booking alone to the company”, a lawyer who is a victim of late deliveries told Bol News. He added that in January alone, 1000 MG vehicles were booked from Islamabad.

The lawyer Qasim Amjad also told the host that his original delivery date was for June, and constant postponement has led to new dates. Amjad said that that the company claims that his car will be delivered by September or October now.

However, the lawyer is not alone, and people claimed then that unless one can’t pay Own Money, the company will keep moving the delivery date forward for most people.

However, MG responded to this saying, “One historic challenge of serious shortage of semi-conductor chips is being faced by the global automotive industry right now. This is beyond anyone’s control and deliveries are being delayed for all brands.”

MG is not alone in facing this problem of shortage.

Read More: Government taking steps to eradicate own-money in auto sector

An analyst at BMA Capital told Samaa news that there are reports that many Kia’s Sportage compact SUVs units have been assembled to the last bolt, but remain unfinished because they lack semiconductor chips, and the company cannot deliver them to buyers.

Similarly, the new Honda City’s Aspire variant will make buyers wait till March 2022 if they order/book it today, while other models have delivery dates of January and February next year as well.

The Malaysian company Proton is also struggling to deliver cars as the auto industry in the country has been shut down due to the pandemic, leading to delays in the delivery of parts the company needs to assemble vehicles and eventually deliver a car from the parent company in Malaysia.

While some blame it on the supply chain issues, others argue that it has always been a problem that persists in our auto industry. Cars like KIA Sportage, Hyundai Tucson, and MG Crossovers are experiencing premiums up to Rs 700,000.

Similarly, the own money on cars like Toyota Fortuner is between Rs700,000-900,000 followed by Rs300,000-400,000 on Corolla, Altis, and Hilux by the same company.

Thus, reports from the market suggest that the advantages offered by the government to bring the vehicle prices down and make them more affordable for the people will soon disappear in the light of the global supply disruptions, semiconductor shortages globally, and increased raw material prices globally.

People who protested the MG’s late deliveries said on media that they do understand the supply problems, but then why are the people who pay Own Money being given cars before those have booked them earlier, and argued that cars should be delivered according to the booking order.

Government’s steps to eradicate Own Money

On 7th July Federal Minister for Industries and Production Khusro Bakhtiar said the government has taken measures to promote the automobile industry by reducing the prices of vehicles.

The minister said the government has introduced measures to deal with the issue of “Own Money”, adding that the government would charge from Rs50,000 to Rs200,000 tax where the first registration is not in the name of the person who booked the vehicle, while it would also impose the compulsory payment of KIBOR+3% mark up by manufacturers on delivery beyond 60 days, discouraging them from delivering vehicles for more than two months.

Read More: Aliya Malik shares a snapshot of Pakistan’s upcoming Auto Policy 2021-26

In addition, he said that the maximum upfront payment on booking would not exceed 20% of the invoice value at the time of booking.

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