THE CAUSES OF RISE OF LOCAL CAR PRICES IN

PAKISTAN

The economy of Pakistan has seen countless ups and downs since the birth of the nation
and the struggle is still ongoing. Analyzing the trends of the current decade exhibit an
upsurge in the prices of locally manufactured cars which can be attributed to several
factors.
From an economical perspective, considering the theory of supply and demand, which
defines the effect that the availability of a particular product and the demand for that
product has on its price, each factor can be pondered upon objectively. Generally, low
supply and high demand increase price. In contrast, the greater the supply and the lower
the demand, the price tends to fall. However, when demand increases and supply remains
the same, the higher demand leads to a higher equilibrium price and vice versa.
The quality of public transport in Pakistan is in an inevitable need of an upgrade which, in
turn, compels people to look for other options. People are deviating from the older means
more and more every day and with the launch of private companies such as Uber, the
demand for cars has been positively affected. This mode of transport has proven to be much
more reliable, efficient and cost-friendly to the common man. These businesses also support
the growing entrepreneurship spirit and since the youngsters are now more inclined
towards earning their own money, they are benefitting from it too, thus, increasing the
demand for newer cars.
The rising prices of fuel has been a very problematic matter for Pakistan, since the increases
in petrol or CNG prices is often unprecedented and so people are exploring fuel efficient
ways of conveyance. The locally assembled cars are such engineered and are perfect for use
in Pakistan. The competent design of these cars have successfully attracted countless new
customers and contributed enormously to the rise in demand of cars.
Although the increased prices typically result in lower demand, different products respond
to demand differently, with some products' demand being less sensitive to prices than
others. Economists describe this sensitivity as price elasticity of demand; products with
pricing sensitive to demand are said to be price elastic. The price elasticity of cars could be
corresponded with the lack of other affordable alternatives in the market.
When consumers explore possible options, one of the main alternatives are the imported
cars, which are far more durable and fuel-efficient too. But the major drawback is the all
over expense which composes of shipping fee, high duty and bulky taxes which, altogether,
make these cars nearly unaffordable by the public and they consequently opt for the locally
assembled ones again.
The increased prices can be directly accredited to the production cost of these vehicles too,
which has risen significantly and has its own list of causes that accordingly affect the price of
the final product. The causes include the ascension of wage rate, incentives offered to the
workers and per unit cost of electricity consumed in the making.
Upholding the escalation of prices, a leading Japanese car assembler told Dawn that even
though Pakistan’s auto sector has successfully achieved indigenisation in most of its
operations, however, on-the-ground capacity of local parts manufacturers and car
assemblers is restricted to the production of auto parts and components like tyres,
batteries, interior trim, wheel rims, seats, steel metal parts, rubber, lighting accessories and
plastic parts, he continued. The assembler said the auto industry has been endeavouring
hard to achieve a maximum indigenisation level but these locally produced parts and
components are based such raw materials such as resin and metals, which are imported at
higher prices from the other countries owing to a weak local currency, coupled with steadily
increasing costs of such procurements.
Local auto vendors claimed to have achieved localisation level in cars of up to 70pc but
rising imports of semi- and completely-knocked kits create doubts over high local contents
in cars. Country’s parts imports swelled to $518 million in July-Feb 2017-18, up 24pc from
$417m in the same period of FY17. In 2016-17, imports rose to $674m from $518m in 2015-
16 and $483m in 2014-15.
Sources said the local contents in new models like Suzuki WagonR, Suzuki Cultus, Suzuki
Swift and Honda BRV etc are very low and their thriving sales lead to larger amounts of
imported parts.