- The rate reduction fuels optimism, but high car prices, stringent financing rules, and inflation still curb demand
- New investments propel Pakistan’s auto industry towards sustainability and electric vehicle leadership
Interview with Mr. Shaham Ahmad  — Honorary Secretary, ICMA Pakistan
PAGE: Tell me something about yourself, please.
Shaham Ahmad: I am a Fellow member of ICMA and a member of the current National Council of the Institute for the three-year term from 2024 to 2026. The Council has nominated me as the ‘Honorary Secretary’ of the Institute in which capacity I am responsible to look after those affairs of the Institute as envisaged in the CMA Act and Regulations. Furthermore, I have been nominated by the ICMA National Council to the Board of Governors of the Pakistan Institute of Public Finance Accountants (PIPFA), on which I am serving as its Joint Secretary.
I held the office of the Chairman of the Karachi Branch Council (KBC) of ICMA during 2013 and 2014 and have also been heading the CPD Committee of KBC for quite a long time. In this role, I took several initiatives to promote and strengthen Institute’s relationship with the corporate sector. Currently, I am visiting faculty at several renowned business schools and academic institutions like SZABIST, MAJU, and PAF-KIET and playing role in imparting professional education to the younger generation.
The CMA professional degree, coupled with my practical experience of working for almost over twenty years in the private sector, has helped me to perform the role of a teacher and mentor.
I am presently working in a senior executive finance position in Pakistan’s leading automobile manufacturing company where I have been employed since 2002.
PAGE: Do you presume the cut in interest rate from 22% to 17.5% will boost auto sales?
Shaham Ahmad: The recent reduction in interest rates from 22% to 17.5% is indeed a welcome move for the auto sector and may bring some much-needed relief to automakers. However, while this step is positive, the broader dynamics of the market must be carefully considered. On one hand, lower interest rates have already started to generate cautious optimism among stakeholders, especially with small car buyers showing renewed interest in financing options. Car financing is presently being allowed at interest rates around 15%, however, with somewhat stringent conditions. The decline in the Karachi Interbank Offered Rate (KIBOR) has also contributed to a slightly more favorable market sentiment.
Yet, it is important to note that structural hurdles, such as the State Bank’s stringent financing restrictions — the cap on loans above Rs3 million and the reduced repayment tenor — still pose significant challenges. These regulations, while aimed at controlling demand, have unfortunately limited accessibility for many potential buyers, particularly those looking at mid- to high-range vehicles. Moreover, the high prices of locally assembled cars remain a pressing issue. Even with more affordable financing options, the economic realities faced by the average consumer — from rising inflation to surging electricity bills — make it difficult for many to justify such a significant financial commitment.
For many households, the choice between monthly auto loan installments and covering essential living costs like utilities has become increasingly difficult. From a long-term perspective, the path to sustained growth in auto sales will likely require more than just lower interest rates. A more holistic approach is needed, one that includes easing financing restrictions and addressing the affordability of vehicles. Being associated with the auto industry, it is my viewpoint that returning to single-digit interest rates, alongside longer loan repayment periods, could restore consumer confidence and drive sales more effectively.
Until these conditions are met, the market may continue to struggle with subdued demand. In summary, while the cut in interest rates is a step in the right direction, the road to recovery for the auto industry will require addressing a combination of macroeconomic challenges, policy adjustments, and improving consumer confidence. The true impact of this rate cut will depend on how quickly these broader issues are resolved, and whether the industry can adapt to these changing conditions.
PAGE: Are the prices of locally assembled vehicles still unaffordable?
Shaham Ahmad: The prices of locally assembled vehicles in Pakistan are still unaffordable for many people despite some improvement in sales. Several key factors contribute to this:
a) High Borrowing Costs: Although the State Bank of Pakistan has recently lowered interest rates, auto financing has not significantly recovered. High borrowing costs and fiscal policies have reduced demand for auto loans, with financing dropping to Rs. 227.3 billion in August 2024, down 18.25% year-on-year, making it harder for consumers to afford new cars.
b) Increased Production Costs: The prices of locally assembled cars continue to be high due to rising production costs. Contributing factors include fluctuating exchange rates, an increase in government taxes from the last budget—which has led to higher sales tax—the imposition of additional customs duties, withholding tax, Federal Excise Duty (FED), and Regulatory Duty (RD). Additionally, higher inflation intensifies these costs, making new cars unaffordable for many buyers.
c) Sales Figures and Affordability Challenges:Â Affordability is intimately linked to disposable incomes. Though there is some recovery in production and sales, it is far from the figures of recent years. The July-Sept 2024-25 figures are 20,768 units, whereas earlier in July-Sept 2021-22, they were 51,752 units. As such, the uplift is still not as much. Many consumers are now opting for used or imported cars, which offer more affordable alternatives. Currently, over 60% of vehicle transactions in Pakistan involve second-hand cars, highlighting the demand for budget-friendly options.
d) Limited Market Recovery:Â While there has been year-on-year growth in car sales, this is mainly due to low sales figures from last year. Overall, the market remains weak, and small monthly increases in sales haven’t translated into greater affordability.
PAGE: Do you agree with the perception that industries that typically support auto sales have halted new vehicle purchases for employees, and several banks have closed their car financing departments during the last two years?
Shaham Ahmad: Yes, I agree with the perception. Over the past two years, industries that traditionally drive vehicle sales, such as banks and large corporations, have largely reduced or halted new vehicle purchases for their employees. This trend can be attributed to several economic factors. First, high borrowing costs have significantly dampened demand for auto financing. Despite recent interest rate cuts by the State Bank of Pakistan, auto financing has continued to decline, with loans dropping from Rs. 368 billion in June 2022 to Rs. 227.3 billion by August 2024. With interest rates still relatively high, many companies and individuals find it increasingly difficult to justify financing new vehicles. Furthermore, rising production costs driven by fluctuating exchange rates and reliance on imported parts have made locally assembled vehicles unaffordable for many consumers. Since the market recovery is still limited, many may opt to defer vehicle purchases. As a result, industries are adopting a more cautious approach to large-scale acquisitions, prioritising cost-cutting measures amid ongoing fiscal pressures. Additionally, several banks have responded to the decreasing demand by closing their car financing departments, as seen in the continuing downward trend in auto loans for 26 consecutive months. Without access to competitive financing options, both businesses and individuals are finding it harder to justify the purchase of new vehicles.
PAGE: What is your perspective about foreign investment in auto sector?
Shaham Ahmad: Foreign investment in Pakistan’s auto sector is experiencing remarkable growth, creating promising opportunities for sustainability and innovation. During recent policy periods, several new foreign investments have materialised, resulting in the establishment of seven new companies and the revival of an existing one, with additional permissions expected. However, there may be delays due to idle capacity across the entire auto sector. The ADM Group plans to invest $250 million in manufacturing electric vehicles (EVs), beginning with a charging network and advancing to production, offering a range of 300 kilometers per charge. This initiative aims to meet the increasing demand for eco-friendly transportation. Regal Automobiles has also obtained a license from the Engineering Development Board to locally assemble the Seres 3, Pakistan’s first electric SUV, with production set to commence soon in Manga Mandi, Lahore. Additionally, Dewan Farooque Motors Limited is partnering with ECO-Green Motors Limited to produce electric hatchbacks, enhancing the variety of EV options available in the market. Furthermore, in August 2024, Chinese electric vehicle giant BYD announced plans to establish a production facility in Pakistan, collaborating with Mega Motors to introduce three EV models. This investment is part of the second phase of the China-Pakistan Economic Corridor (CPEC 2.0) and positions Pakistan as an emerging hub for electric vehicle manufacturing, aligning with the economic and sustainability objectives of both countries. Overall, these investments represent a significant shift toward electric mobility, offering local consumers more sustainable transportation options while potentially lowering fuel costs and improving energy efficiency.