In an interview with the Dhaka Tribune's Shohel Mamun, President of the Bangladesh Reconditioned Vehicles Importers and Dealers Association (BARVIDA) and Director of the Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) Habib Ullah Dawn explains how government import and duty policies create an unstable reconditioned car market
What are the challenges one has to face in the business of reconditioned cars?
Bangladeshi people are mainly dependent on reconditioned cars because such cars are economically viable for most of the middle class. On the other hand, the reconditioned car market has a big potential as a growing industry that can also generate thousands of crores of revenue for the government each year.
However, there are some major challenges for businessmen in this industry. One is discriminatory duty policies by the government that make the market unstable. The government changes the duty policy every year, but the import policy is set for three years. We recommend setting integrated import and duty policies for three years. If the government does not set duty policies for three years, car business owners as well as customers both become anxious at the time of the annual budget. This is the main cause of an unstable market.
Around 90% of people buy a car by taking a loan from the bank, so we also demand the reduction of the bank interest rate for car loans. Currently, people are getting car loans with around 10 to 12% interest rate, but this should be a single digit number.
Moreover, the car loan cap is a maximum of Tk 40 lakh. Our recommendation is that the cap should be raised to Tk 80 lakh.
Political unrest also causes a market collapse sometimes.
For example, car sales had fallen to 7,000 during the time of the last political turmoil. Now it is above 20,000 within five years because of political stability.
How do government policies impede the business instead of supporting it?
We always face trouble during the budget period because sometimes the government increases the import duty which increases prices. Because of this, people tend to hurry up and buy a car before the budget comes into effect.
If the government has an integrated duty and import policy, we can avoid such a situation.
Who are the customers?
It is true that car sales are increasing day by day owing to an increase in the purchasing capacity of middle class people. The middle class is the main customer of reconditioned cars.
People buy cars due to the lack of high standard public transport and affordable prices.
The lack of proper public transport is important because buying and maintaining a car is a huge expense compared to travelling in public transports.
App based transportation platforms like Uber and Pathao also contribute to the boost of car sales.
Loan or cash, which kind of sale dominates the market? How can cars be made more affordable for users?
The vast majority of people purchase cars using bank loans. Generally, a bank provides 50% of the price of the car with the condition that the car is registered under the bank’s name.
I think that banks should provide up to 75% of the total price as a loan, because around 98% of people who take car loans return the money in time.
What are the advantages of reconditioned cars compared to brand new ones?
As per our internal study, around 90% of car users prefer reconditioned cars.
Here, we can point out three issues. The first is that around 99% of reconditioned cars are imported from Japan. A car which has already been used in Japan has a better quality and is proven to be strong. A brand new car never moves until it is sold.
The second point to consider is that reconditioned cars provide the same facilities as a new car, but at a much lower price.
Finally, the resale value of a reconditioned a car is comparatively higher than that of a brand new car in Bangladesh because reconditioned cars have a lower depreciation.
Does Bangladesh have a mechanism to manage environmental hazards after the expiration of a car’s lifespan?
Bangladesh does not have any such initiative, but we suggested the government to ban cars more than 20 years of age from city roads.
However, the government does not follow through because they can earn more revenue while car owners pay the taxes and fees.