Is buying a car in Pakistan absurdly expensive? That was the first thing that came into my mind once I decided to change my old car. Like many people my age, I wanted to have a perfect, shiny, reasonable, and beautiful car. However, when we went out to research the prices, we were amazed to see the prices were talking to the roof! Whether the models were assembled domestically or cars imported from other countries, the figures did not cut. This got us curious: Why are cars expensive in Pakistan? Right there, you find that there isn’t just one cause; in fact, several factors cause the price to rise. Everywhere, forces are on an upward rise right from exchange rates, which are skyrocketing, to excessively high import duties, and most of the time, the goods we desire are produced internationally.
However, now it is time to break down the top 10 reasons behind this affordability crisis and understand why owning a car feels more like a luxury than a necessity in Pakistan.
1. Exchange Rate Fluctuations
The exchange rate is another factor that significantly contributes to Pakistan’s high cost of cars since it is volatile. Due to political instabilities and economic crises, the Pakistani Rupee is often seen swinging against the US Dollar, Euro, and Japanese Yen. Because most car parts and sometimes even complete vehicles are imported, any change affects the price of cars.
For instance, between the fiscal year 2020-2024, the Rupee declined more than 40 percent against the Dollar. It increased the cost of imported cars in Pakistan. It placed upward pressure on locally assembled vehicles in Pakistan because these cars also source a significant portion of their parts overseas.
2. Heavy Import Duties
There are high tariffs and taxes on imported automobiles. When applied to imported cars in Pakistan, these duties may go up to 50 to 200 percent of the car’s value, depending on the engine capacity and model.
For example:
A car that costs $20,000 in international markets would attract over PKR 6 million after taxes and duties in Pakistan. These taxes make owning brands such as BMW, Audi, or even middle-sized SUVs difficult for many.
3. Lack of Local Manufacturing
Although locally assembled cars in Pakistan are gaining traction, no carmaker has a complete manufacturing plant within the country, and they have to import what is referred to as Completely Knocked Down (CKD) kits. These kits are imported, and taxes are on them, which is the reason behind the high prices of cars in Pakistan.
Moreover, companies like major giants like Indus Motors (IMC), Honda Atlas Cars, KIA Lucky Motors assemble their vehicles locally but depend on foreign suppliers for crucial components, making local production less cost-effective.
4. Limited Competition
Pakistani automotive market players, including Suzuki, Toyota, Honda, etc., have always been limited. While brands like KIA, Hyundai, and Changan have entered the market, the lack of competition still results in:
There are few choices for the customers. Increased the ability of automobile manufacturers to set higher prices on their products. Suzuki car prices in Pakistan are still higher even though the company is strictly concerned about the economic class price strategy. Suzuki has most of its marquee in the small car class.
5. High Production Costs
Local automakers face high production costs due to:
- Expensive imported materials.
- Socio-Economic Factors that affect operations: Reduced efficiency resulted from suboptimal management of the production processes.
- Adherence to outdated technology.
All these factors directly add up to the cost of locally assembled cars in the country, resulting in high costs compared to vehicles imported from other countries.
6. Economic Instability
Economic instability leads to:
- High product prices and, thus, the cost of production.
- Less purchasing power for the customer.
This cycle is responsible for the continued high prices of cars in Pakistan because manufacturers always have difficulty balancing the costs of making cars and making profits.
7. Low Sales Volumes
Automakers cannot harness economies of scale because they fail to sell as many car units annually as their counterparts in other countries. As a result:
- Variable costs on a per-unit level do not decrease.
- These costs are, therefore, shifted to the consumer.
8. Poor Infrastructure for Electric Vehicles (EVs)
Although implementing cost-effective transmission and distributed generation through Electric Vehicles is possible, the charging station problem is absent in Pakistan. Short of encouraging the manufacture and purchase of electric cars, the market stays entrenched in internal combustion cars, maintaining high prices.
9. Rising Freight and Logistics Costs
Reasons why cars are expensive in Pakistan also include:
- Fluctuating freight charges due to global supply chain disruption have gravely affected car prices in Pakistan. For example:
- Since 2020, shipping costs for vehicles and parts have doubled.
- If there are any delays in the supply of the raw materials, then production takes a pause, which also incurs more costs.
10. High Taxes and Levies
In addition to import taxes, a number of other levies raise the cost of cars considerably in Pakistan. These include sales tax, withholding tax, and federal excise duty, all of which significantly increase the cost of the car at various points in the supply chain. For example, sales tax raises the final cost for customers, while federal excise duty directly affects automotive companies, who frequently pass the expense on to consumers. However, withholding tax imposes a direct tax on buyers, particularly those who are not Federal Board of Revenue (FBR) registered (Non-Filers).
11. On or Own Price
Another big reason is probably 98.9% of local dealerships, brokers, and even authorized dealerships charged an additional 30 to 40% more on the invoice rate. For instance, if a New Suzuki Swift has an invoice of PKR 4,719,000/= they charged an extra nearly 1,50,000/- to 2,00,000/- on it on the name of ready stock, limited stock, color availability, and more similar reasons. This thing always plays a crucial role in the final high cost of cars.
Impact of High Car Prices on Consumers
The high prices of cars in Pakistan have led to:
- The over-dependence on motorcycles for transport and the populace’s increased use of public transport.
- Market growth in the used car segment.
- Restricted mobility for middle-class people and their families.
How Can the Industry Improve?
- Promote Local Assembling: The opportunity to encourage production facilities in the territory can also decrease imports and lead to cost savings.
- Introduce EV Incentives: Promoting the use of EVs in the marketplace can foster a competitive and environmentally sustainable choice.
- Reduce Import Duties: This is true, especially because tax reductions on cars and their components can promote automobile accessibility.
- Encourage New Entrants: Opening the market to more competitors can drive innovation and price reduction.
Conclusion
When buying a car in Pakistan, one might feel like he has stumbled into a never ending fight at the top of a hill after learning the reasons behind the high prices of vehicles in Pakistan. Everything from fluctuations in the exchange rate to high import duties adds extra costs to the high cost of cars in Pakistan. No matter if the vehicles are locally assembled or imported in Pakistan, the fact remains the same and that is, all identical vehicles cost a lot of money in Pakistan for numerous reasons that impact the automaker and the consumers. Moreover, local dealers and even dealerships charged more money for “Own” or “On”. This thing also saturated our Automotive industry. The government of Pakistan must give attention to the Auto Policy where they should introduce some criteria or eligibility to control car prices.