A closer look

Rising Car Prices

Reasons behind Rising Car Prices 

Taking a quarterly roundup of car prices of the past few months, one may think that it may just be another profiteering tactic by the automobile industry to fill up their pockets but after taking a closer look, this is definitely not the case.

After giving a careful analysis of the recent hike in car prices, it didn't come as a surprise that there are so many underlying forces tugging the prices in an uncertain direction. Automobile giants like Kia Motors with many others were left to face the consequences of the sudden price surge in the sector.

Being one of the most remarkable success stories of the Pakistan automotive industry, Kia Motors Site has garnered this status by keeping the standards intact with Global Kia guidelines. To cement the brand reliability even further, Kia Motors has maintained a consistent price list since day one and were the first to lower the prices when govt lifted duties last year. For this reason, Kia Motors Site is one of the most trusted 3S dealerships in Pakistan and had raked some great reviews for its outstanding sales and after-sale services.

With prices soaring high, consumers are searching for more options in Kia variants that are relatively pocket friendly. Kia Rio is one of the highly anticipated Kia in the Pakistani market. Kia Rio's price is starting from 26,00,000 PKR and will provide a good alternative for Kia fans. Kia Niro is another variant that is most inquired about by car enthusiasts. Its launch is expected in 2023 and will be available in three trims, Kia Niro hybrid, Niro EV (Electric Vehicle), and Niro plug-in hybrid.

Kia Cerato is another Kia variant that has captured much attention due to its sporty looks and features. This car is known by various names in different regions like Kia Forte, Kia K3, and Kia Spectra but is commonly known as Kia Cerato. Another most awaited variant is the 5th generation Kia Sportage ”NQ5” which will be launched in mid-2023. Whether car prices decline or shoot up, serious buyers will always find ways to upgrade their drive to a better and bigger model.

Since Kia car prices are revised depending on whether the model is upgraded with a new variant or a major design change in the current model. Given the current skyrocketing prices that made Kia Motors Site to suspend their car bookings and halt future bookings for some time. The general public notion of the monthly revision in car prices has resulted in a deep nose dive in car demand and sales which alerted industry analysts to review the underlying factors resulting in this alarming price surge.

1. Increased Raw Material Costs

Steel constitutes a major portion of automobile prices and since international steel prices have surpassed historical highs in the past few months with almost Rs. 20,000/ton increase, the inflated Kia car prices were inevitable. The automobile industry is now going to downhill due to an unprecedented and sudden spike in the cost of raw materials. According to the Chairman of the Pakistan Association of the Automotive Parts and Accessories Manufacturers (PAAPAM), the prices of steel are likely to go up further across the world and Pakistan needs to brace for an impact as well. Steel prices had already risen to 50-60 percent in the past year and this new addition is only going to add more to the Kia car costs. Either way, the increased steel prices have knocked down the automobile industry and Kia dealerships in Pakistan are taking the burn for that.

2. The Steep Increase in Freight Charges

When a customer books an SUV crossover like Kia Sportage, the delivery time is estimated to take up to a few months but when the car is not delivered within the specified time, clients pin that on the dealerships. Little do they know that the booked vehicle goes through so many checks just to arrive at the delivery point.

These checks come with the cost as parts and accessories are imported and are a major factor influencing the prices of Kia cars. These expenses used to be a nominal part of the car cost but with the ever-increasing inflation rate, analysts are emphasizing this segment of the cost more now. The main factor behind this surge in shipping rates is tension between Ukraine and Russia, the scarcity of containers has caused shipping companies to surge their prices. The war gave an almost 500-700 percent price hike in freight charges.

This has also resulted in shipping delays which in turn made Kia Motors postpone deliveries as they were facing delays from the shipping companies. These delays in car deliveries are beyond the control of any automobile dealership as the whole world is facing the burn of supply chain hiccups. Many customers blame dealerships but in actual it's the shipping companies that are responsible for this setback. This tightening of freight route charges has sent down the car dealerships including Kia, Toyota, Honda, etc in a shockwave as they clearly know that resurgence from such a global price escalation will take months (or probably even more)

3. The Semi-Conductor Scarcity

The year was also scarred by the global semi-conductor chips shortfall. This kept Kia Motors along with other automobile brands Like Toyota, MG, and Honda from increasing sales despite high vehicle demand.

Take Kia Sportage for instance, even though the vehicle is the best-selling SUV in Pakistan with an astounding sales figure since launch but Kia Motors was unable to book further or launch the new variant for their most in-demand vehicle.

According to the World Economic Forum, the chip shortfall initially disrupted automobile production as all the major functions like interior lighting, blind-spot detection, seat controls, and other steering functions were controlled by this device. This chip, which is essential to several modern-day vehicles, has added another layer of expense to the already expensive cars and led to booking suspension for many highly demanded models like Kia Picanto AT, Kia Stonic, and Kia Sportage in Pakistan. To say the least, there was little anyone could have expected than the situation we are now in.

4. Rupee Deflation

Car prices are not consistent since the rupee-dollar parity is inconsistent with the historic low of Rs.202.3 per US dollar in May 2022 alone. With this drastic devaluation in the last few months, it may not come as a surprise that with so many factors at play, car prices were meant to shoot up. This sharp drop in rupee value has pushed Kia Motors and other car brands to move into local production but the associated costs are not presenting a feasible outlook.  

Almost all luxury vehicles like Kia Sportage, Kia Sorento, and Kia Stonic require imported mechanical parts which, after reaching the port are then assembled in Pakistan. But with the recent import restrictions, the prices are racing towards uncertain levels. 

The rupee devaluation was immediately reflected in the Kia, Honda, Suzuki, and Toyota cars price list and for all other automobile brands as well. Price for Kia Sportage jumped five lacs in the past few months, price for Kia Picanto went up three lacs, price for Kia Sorento moved a few lacs, price for Kia Carnival (GLS+) shifted from Rs.10,499,000 to Rs.11,499,000. Toyota Fortuner jumped a million in their car price. This is not just the case with Kia cars but this decline in rupee value resulted in a superfluous increase in ex-factory prices for all car brands. 

5. Taxes & More taxes

Taxes have almost doubled and were ultimately reflected in prices for Kia Sportage, Kia Sorento, and other in-demand vehicles. The price for Kia Sportage went up five lakhs in the last few months alone. Other car dealers like Honda, Toyota, MG, Suzuki, and Hyundai have revised their prices to adjust for increased taxes in the final price. The numbers are pretty clear for everyone and it shows how directly duties and taxes impacted car prices. There are way too many taxes in Pakistan and this is the primary reason that Kia cars are unusually expensive here as compared to other countries. It was no surprise that with the increase in sales and withholding taxes, the price list for all car brands was revised repeatedly. In all of this, Kia Motors Site is left to listen to the rant and rave of their customers since they are naive to these price dynamics.

Recently, Capital Value Tax (CVT) has been reduced from 2% to 1% by the Federal Board of Revenue in the finance bill for the year 2022-23. In addition, CVT is levied for cars worth above 5 million. Even though the CVT percentage has decreased but car prices had skyrocketed so high that this relaxation by the government will make no difference to the already high car prices.

Needless to say, with a car passing through so many channels before reaching Kia Motors dealership, it becomes so ridiculously expensive. Just do a simple math and it's easy enough to understand that with all these costs adding up, Kia dealerships do not get much from the increasing vehicle prices, it only adds to their list of expenses.     

Kia Motors Pricelist 2022 ⏐ Kia Pakistan ⏐ Kia Official