ISLAMABAD: Every year around 80 to 90pc of passenger vehicles are sold at “own” which means at least Rs150 to Rs170 billion have been paid on purchase of new cars without documentation in the last five years in Pakistan.

Under this transaction, a buyer pays an extra amount of money to get a new vehicle from the dealer instead of going for booking it and waiting for months. The own money is premium charged over and above the price of vehicles by dealers in exchange for immediate delivery of cars due to shortage existing in the market. Such as transaction remains undocumented.

This was reported in a research conducted at the Pakistan Institute of Development Economics (PIDE), Islamabad. The study was led by Dr Usman Qadir, Senior Research Economist, and Mohammad Shaaf Najib, Staff Economist.

Pakistan’s automobile sector is the fast growing sector owing to the robust demand and a large population of 220 million people. The auto industry is the quintessential oligopoly, it added. Only three major players assemble a handful of automobiles: Honda, Indus Motors and Pak Suzuki Motors, with new entrants such as Kia, Hyundai, MG, Changan and Proton yet to make their mark.

A buyer pays an extra amount of money to get a new vehicle from dealer instead of booking and waiting for it

The constant gap in demand and supply of vehicles in Pakistan has given birth to a phenomenon unique even today to the automobile market known as the “own money.”

The report explained that in the early 2000s when car sales in Pakistan rose sharply aided by the banks’ introduction of car financing services, the demand and supply gap widened. The number of buyers increased rapidly while vehicle production capacities did not significantly increase to match this rise in the demand, resulting in an increased waiting period for the delivery after booking the vehicle.

An opportunity to earn commission was created for those in the middle of the supply chain.

The research report said during the last five years, consumers have paid at least Rs30-34 billion yearly as “own” charges over and above the actual cost of the vehicle. This means that at least Rs150-170 billion worth of undocumented transactions have been made in terms of “own”.

According to the research, a number of automobile companies are selling their cars with some of them still not locally produced. The research identified low production levels as the major cause behind own charges in the industry. Pakistan produced less than even one million vehicles in the last five years. To put things in the proper perspective, the research highlighted some comparative trends. Morocco produced twice as many cars, Turkey over six times more vehicles and Brazil’s production remained nearly 13 times more than Pakistan during the last five years.

It emphasised increasing the local production of vehicles is the first step in eliminating own money from the automobile industry. Regulations must focus on creating a market structure that facilitates all market players and does not tilt to one side only. The government has been urged to take up its role as the regulator and protect the rights of consumers as well by crippling the unchecked power at hands of automobile companies and dealers.

Published in Dawn, November 7th, 2021