Free Market and the CBUs

The recent use of word ‘Free Market’ by PAMA has sparked a debate regarding the correct implementation of this term in the auto industry of Pakistan. This comes on the back of government’s instructions to initiate a forensic audit of new car prices in Pakistan which are now being frequently revised at an interval of less than 3 months.

According to Pakistan Automotive Manufacturers Association (PAMA) the government cannot rationalize car prices in the country which has a ‘free market’, therefore it is the market that decides car prices, not the state. In a free market however, prices are determined by demand and supply dynamics, but its not the case with the auto industry of Pakistan.

In a truly free market, the government will eliminate all duties and tariffs on imported vehicles which would generate healthy competition in the market. Ever since, imported CBUs have heavy-duty levies on them which protects and safeguards domestic players from any significant competition. Even the import of used-cars has been restricted, absence of which has always resulted in more frequent price hikes of locally assembled new vehicles. Presence of used JDMs have kept prices of new cars in check and has always provided much needed variety in small & budget car segment. Amusing as it might sound, more than a decade-old used cars with no warranty and after sales support are considered a threat to brand new local assembled cars sold in the country.Optra

A brand new fully loaded Chevrolet Optra 1.6L with factory-fitted CNG at PKR 10.49 lac only (year 2006/07)

If we look back at the not-so-distant past, car buying options for the masses during the Musharraf regime without a definite auto policy were much more diverse compared to what it is today. In the name of competition, newcomers which enjoy Greenfield incentives have mostly introduced super-expensive crossovers well beyond the reach of masses while primarily targeting the elite class, ensuring thick profits in least number of vehicles sold without the need to generate volumes.

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