By Moaaz Manzoor

Limited access to consumer financing continues to constrain car ownership and demand in Pakistan’s automobile market, affecting both consumers and domestic vehicle manufacturers.

According to a study on Pakistan’s automobile industry conducted by the Centre of Excellence in Competition Law at the Competition Commission of Pakistan, restricted availability of vehicle financing has played an important role in shaping the growth of the country’s automotive sector.

The report notes that affordability is a critical factor influencing automobile demand in Pakistan. Because vehicle prices remain relatively high compared with average household incomes, many consumers depend on bank financing or leasing arrangements to purchase cars.

However, access to such financing facilities has remained limited in recent years due to macroeconomic pressures and financial sector conditions.

The study explains that high interest rates and inflationary pressures have increased the cost of borrowing, making automobile loans less accessible to many consumers. When borrowing costs rise, financial institutions tend to tighten lending conditions, which reduces the number of buyers able to finance vehicle purchases.

As a result, consumer demand for new vehicles weakens, affecting sales volumes and production levels in the domestic automobile industry.

The report highlights that automobile demand in Pakistan is closely linked to the availability of consumer credit. In many international markets, a significant share of vehicle purchases is financed through banks or leasing companies, allowing buyers to spread payments over several years.

In Pakistan, however, the limited availability of such financing options has slowed the expansion of the automobile market.

The study also notes that the domestic automobile industry already operates below its installed production capacity. Constrained consumer financing further limits demand, preventing manufacturers from achieving higher production volumes.

Lower output affects production planning for assemblers and reduces the scale at which manufacturing facilities operate.

According to the report, expanding access to consumer credit could help stimulate demand in the automobile market by enabling more households to purchase vehicles.

The study suggests that stronger coordination between financial institutions and regulatory authorities could support the development of financing schemes aimed at improving vehicle affordability.

Because the automobile sector is closely linked with Pakistan’s large-scale manufacturing industry and multiple supplier sectors, changes in vehicle demand can have wider implications for industrial activity.

The report concludes that improving access to consumer financing will remain an important factor in determining the future growth of Pakistan’s automobile market and its broader manufacturing ecosystem

Credit: INP-WealthPk