Pakistan’s car industry has long been beleaguered by the illegal concept of paying a premium – commonly referred to as ‘own money’ – that has increased the prices of the cars in an already inflated automobile market, shunning out most of the buyers. Despite the unrealistic and unfair hike, the sales are seeing an upward trajectory.
The latest government regulations and incentives to produce more vehicles have led to increased sales of vehicles in Pakistan. The latest data suggest that for the 7-month calendar year 2021, the industry sales increased 106 per cent, with total sales at 162,356 units compared to 78,683 units sold in the corresponding period in 2020.
A Pakistan Automotive Manufacturers Association report said that the production of cars stood at 15,325 units during the first month of the fiscal year 2021, an 85.1 per cent year-on-year increase from the production of 8,280 units in the month of July 2020. The production of jeeps and SUVs also jumped by 66 per cent but this expansion in production has done little to undo the culture of own money.
The own money is an illegal premium that a dealer charges from a prospective car buyer. The premium is charged on top of the car’s original retail price. With the automobile companies extending the delivery period of cars up to several months, the dealers find themselves in a prime position to exploit the customers who can pay the illegal own money.
Consumers say that those who refuse to pay the own money face late deliveries while people who agree to pay premiums get their cars right away. Some reports suggest that automobile dealers charge up to 1 million rupees for some cars.
Earlier in August, MG Motors Pakistan faced accusations of defrauding its customers in Pakistan due to the long delivery delays since it started selling. Customers say that cars were booked for Rs. 2 million in advance, which makes up for billions of rupees in the booking alone to the company, given the volume of the orders. In January alone, about 1000 MG vehicles were booked from Islamabad alone. Some customers say that the repeated extensions in delivery timelines are down to the issue to own money as well. They say that if one cannot pay the premium, the company will just keep moving the delivery date forward.
In response, MG said that the global automotive industry is struggling with a historic challenge of a serious shortage of semiconductor chips. The company said that the scarcity of the chips was beyond anyone’s control and all of the automobile orders across the world are getting delayed.
While the supply chain issues are valid, the real issue is the delivery of cars out of turn to the people who can pay the premium. The real problem with the scourge of own money is that the automobile dealers wield the power and serve the people willing to pay the premium. Meanwhile, the premiums for cars like KIA Sportage, Hyundai Tucson, and MG Crossovers stand at Rs 700,000 while the own money on cars like Toyota’s Corolla, Altis, and Hilux is charged at the rate of about Rs 300,000-400,000. Not everyone can pay these amounts on top of the actual price of the car.
The government has taken notice of this issue and earlier in July, Federal Minister for Industries and Production Khusro Bakhtiar said the government would charge from Rs50,000 to Rs200,000 tax where the first registration is not in the name of the person who booked the vehicle. Bakhtiar said that the manufacturers will have to pay KIBOR+3% mark-up for deliveries beyond 60 days. The minister said that the regulating authorities will limit the maximum upfront payment on booking to 20% of the invoice value at the time of booking.