Auto Sector Outlook: Challenges & Forecasts
Pakistan’s auto financing sector witnessed a sixth consecutive month of growth, reaching Rs271.2 billion in May, yet faces notable challenges. This primary_keyword surge, fueled by lower interest rates and increased vehicle leasing, is complex by policy shifts and rising concerns over secondary_keyword used car imports. Specifically, the potential impact of new regulations on local manufacturers and consumers is considerable.The government’s decision to allow older used car imports and introduce a new energy vehicle levy creates further uncertainty within the industry. As predicted by analysts, the road ahead includes potential market distortions. News Directory 3 provides critical insights into these shifts and their implications for the sector. Discover what’s next for the Pakistan auto sector.
Pakistan Auto Financing Growth Faces Policy Shifts, Import concerns
Updated June 22, 2025
KARACHI, Pakistan – Auto financing in Pakistan continues to climb, hitting Rs271.2 billion in May, a rise from Rs263.3 billion the previous month. The increase marks the sixth consecutive month of growth, fueled by lower interest rates. However, the current figures remain below the peak of Rs368 billion recorded in June 2022.
The State Bank of Pakistan’s (SBP) reduction of the policy rate from 22% to 11% since June 2024 has boosted interest in vehicle leasing, especially for smaller vehicles. Analysts predict this trend will continue, but structural and policy challenges remain.
Mohammed Sohail, CEO of Topline Securities, said auto financing should continue its recovery, driven by economic stability, lower inflation, and reduced borrowing costs, despite recent budgetary measures.
Mashood Ali Khan, an auto sector expert, said the growth in auto financing is a positive sign, especially with the current Rs3 million cap on auto loans. Khan suggested the SBP increase the limit to Rs6 million to help lower-income buyers. He noted that stricter lending terms, including shorter repayment periods and higher down payments, still make car leasing difficult for many.
Auto loans rise to Rs271.2bn in May, but policy shifts and used car imports pose serious risks to local industry
Khan also expressed concern about the government’s decision to allow commercial imports of used cars up to five years old starting in September 2025, a move tied to commitments under the International Monetary Fund (IMF) program. These imports will face a 40% regulatory duty, which will decrease gradually to zero by July 2029. All types of used vehicles, including motorcycles, will be allowed.
Khan urged the government to restrict financing for used cars older than five years to prevent market distortion, given that financing for used vehicles is already available. Despite assurances to local manufacturers before the FY26 budget, Khan warned that IMF-driven policies could harm the domestic auto industry.
While the sector saw a 39% year-on-year increase in sales of cars, SUVs, pickups, and vans, totaling 126,226 units, the outlook remains uncertain after September 2025 due to potential policy changes.
The new NEV (new Energy Vehicle) Adoption Levy 2025, designed to reduce reliance on internal combustion engines, adds further pressure. The levy imposes a 1% tax on vehicles with engines up to 1,300cc, 2% on 1,301-1,800cc, and 3% on engines exceeding 1,800cc.Insight Securities estimates this levy could increase vehicle prices by Rs44,790 to Rs596,970, depending on engine size.
Companies like Honda Atlas Cars and Indus Motor are expected to be most affected by this policy, while Sazgar Engineering may see less impact due to its focus on hybrid electric vehicles.
The government also announced the National Tariff policy (2025-30), which proposes eliminating additional customs duties over four years, regulatory duties over five years, and phasing out the Fifth Schedule of the Customs Act 1969 within five years.
What’s next
The Pakistan auto industry faces a period of significant change as it navigates new policies, import regulations, and the growing demand for new energy vehicles. The coming months will be crucial in determining the long-term impact on local manufacturers and consumers.