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In the face of growing expenses, automakers are considering raising prices

KARACHI: According to industry officials, automakers are expected to hike prices for some models to offset the impact of growing material costs and currency devaluation.

“We anticipate a 5% to 7% increase in automobile costs beginning November 1,” an industry executive stated.

The manufacturers might raise prices “anytime now,” according to Ali Asghar Jamali, CEO of Indus Motor Company, which produces and sells Toyota automobiles in Pakistan, because they “were holding prices” for a while.

According to industry officials, manufacturing input prices have risen dramatically, owing mostly to the rupee’s depreciation.

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“The change in the rupee value directly affects up to 80% of the cost of manufacturing an ordinary automobile because nearly all elements of some vehicles are imported,” said analyst Arsalan Hanif of brokerage Arif Habib Limited.

The rupee hit a new low against the dollar on Wednesday, selling at 173.45 in the interbank market, continuing a slump that has seen it lose more than 13.5 percent since May.

Last year, when the rupee was at Rs165, Hanif claimed, automobile prices were increased.

“The carmakers would have passed on the increase in the cost of manufacturing to consumers already by now if the government had not restricted them,” he added. “It’s not just the dollar rate that has gone up; price of steel has also increased significantly and it is auto industry’s main raw material, while freight costs have also gone up at least fourfold.”

The government slashed sales tax earlier this year on cars below 1,000cc and cut additional custom duty and federal excise duty, which led to a reduction of car prices by up to Rs400,000 in some models. Impact on most cars remained between Rs60,000 and Rs200,000. The stated purpose of the policy was to provide cheaper cars to the public and help the auto industry increase its numbers to improve economies of scale.

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However, the car companies started flexing their muscles within a couple of months of reduction in duties and taxes, which did not go well with the government. The ministry of Industry and Production threatened the carmakers it would fix prices and demanded of them to share their structure of costing with the government.

One of the new entrants, Changan even increased car prices citing increase in freight cost and steel prices. But it was forced by the government to take back the price hike. Analyst Waqas Ghani at JS Global said the steel’s international prices had gone up, which got amplified in Pakistan amid dollar price hike and freight cost. “At the beginning of the year, the price of steel stood at $868/ton in January and it now stands at $1,010/ton; while locally it was selling for Rs142,500/ton, and it has now reached Rs207,500/ton,” said Ghani.

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