Auto manufacturers to demand increased prices as dollar shoots up and sales target get inversely affected

Auto manufacturers to demand increased prices as dollar shoots up and sales target get inversely affected

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KARACHI: The free dip of the rupee this year against the US dollar will be impacting many industries amongst which auto industry will be one of the worst affected as it is bracing for weak demand.

All major auto manufacturers have elevated car prices three to four times since December 2017 and with Tuesday’s historic 7.5% steep fall in the rupee’s value, it is largely expected that it will again coerce them to demand increased prices.

The rupee has lost 26.67% of its value over the past 10 months.

“One official of an auto manufacturing company has already said that if the dollar value crosses Rs130, they will be forced to hike car prices. Today [Tuesday], it did and what would be happening is largely understood that car prices will also jump up,” JS Global Research analyst Ahmed Lakhani told The Express Tribune.

Lakhani stated that the automobile industry expected a dip in sales volumes as apart from the rupee depreciation, the gradual increase in interest rate was massively hurting auto financing. The key interest rate has gone up by 275 basis points to 8.5% in the last nine months.

“Ban on purchase of new vehicles by non-filers of tax returns has also been reinstated, which has brought down car bookings by 30%. Moreover, several new entrants into the auto industry have also planned to start operations, so margins are certainly going to fall,” he added.

A source in the industry said the car replacement cycle – average time for a car buyer to replace his vehicle with a new one – would increase.

“For instance, if a person replaces his car with a new one after five years, under present circumstances, the person will buy a new vehicle after 10 years,” the source said and added it would force companies to give up expansion plans as when the delivery period under present circumstances dropped to two months from six, then why would they spend on expansion.

It would hamper economic activity within the country, especially the auto industry, the source added. 

 

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