Splendid auto financing under trying economic times.

Byline: Khalil Ahmed

Since key policy rate is at 7 percent for the next two months with the hope that the discount rate would remain in single digits for at least a year or two to spur the economic growth, auto financing seems to capitalize on it. Banks are working at full throttle to lure customers for auto financing which is reminiscent of halcyon days of auto sector. In fact this is an opportunity for the auto sector to recoup the losses incurred in the first half of the preceding calendar year by virtue of lockdown and outbreak, which stifled the auto sector to the hilt. There is no denying the fact that the appreciation of dollar and the spike in the discount rate result in the deceleration of the share of financing for auto sales. There are instances in the not-too-distant past when there was double digit deceleration in the auto financing in the wake of higher interest rates. So the situation at this juncture with low interest rates is rather tremendous for the auto sector and for the financial institutions as well.

Undergoing a drop of up to 72% in automobile sales in the wake of lockdown, there were jitters across the auto sector because of non-production days at many assembling units, plant shutdowns, unsold inventories and employee furloughs etc. There was uncertainty with dismal anticipation for the second half of the preceding calendar year. However, the situation turned up in an entirely contrary way leading to record orders and getting back to normality in no time.

Here are the grievances of the customers who want to avail auto financing, however, they have to pay exorbitant amount even when the discount rate is at 7%. It grieves the customers that the government is indifferent to multiple price increases by car and bike assemblers. Numerous reasons are quoted right from the depreciation of the local currency to the spike in taxes by the government. If the auto industry is swamped with taxes such as the federal excise duty ranging from 2.5 to 7.5 percent and additional customs duty on raw material imports etc., the same would be passed on to the customer who is the actual victim. There is simple economic rule, which the relevant authorities need to comprehend is 'the more the sales, the more the production leading to whopping generation of taxes for the coffers of the government'.

Looking at the ramification of the auto financing during these turbulent economic times, one could gauge that auto financing might backfire as well...