Speaking to importers and owners of car showrooms across Dhaka and Chittagong, it is quite evident that the pandemic has shifted the dynamics of the automobile business around the country. Being one of the most hard-hit industries during the pandemic, the new budget is not helping these businesses either.
With a significant increase in advanced tax on sedans and utility vehicles after the 2020-2021 budget, the automobile market has witnessed quite a setback which is evident when we look at the figures provided by BRTA.
There has been a sharp decline in the number of vehicles registered in all categories—registration of private cars fell 26% and buses fell around 32.5% compared to last year. The highest fall in the number of registrations can be seen in the case for trucks and other heavy vehicles at 43%, where only 3,900 trucks have been registered across the country.
These figures might not depict the accurate situation of the automobile business as BRTA has been closed for months due to the pandemic, contributing to these low figures. There are vehicles in the pipeline waiting to be registered. The owners of the showrooms and dealerships have said the sales dropped significantly, to 20% of pre-pandemic times in many cases. However, the last few months did show signs of positivity according to them with a slight increase in sales.
The government has also encouraged the imports of vehicles that are environmentally friendly. The finance minister AHM Mustafa Kamal proposed to reduce tariffs on microbus imports which sheds some light on the gloomy automobile import business.
The most sold vehicles are the mid-range models such as the Toyota Axio, Fielder and Aqua as sales for the more expensive upper-grade cars have dropped. Many importers have been seen importing ambulances for the first time to keep the sales figures up.
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Opportunities in the market
The automobile market in Bangladesh has seen significant growth in the last decade but is still among the lowest when it comes to vehicles owned. In comparison to the other south Asian countries, Bangladesh ranks lowest at 2.5 vehicles per 1000 people. The highest being Malaysia at 897 vehicles per 1000 heads.
Previously, it has always been seen that the Bangladeshi car industry relied heavily on reconditioned cars. According to the industry insiders, there has been a shift in the consumer mindset for which the interest in brand new cars has exponentially increased.
Even though there are options to go for Chinese, Indian, Malaysian cars among many, consumers are mostly interested in Japanese vehicles because of their brand reputation and recognition. The reduced-price difference between brand new and reconditioned cars thanks to the import duty structure is one of the prominent reasons why a shift in demand can be seen.
Many showrooms across the capital are now more concerned about recouping the cost of trade, and not making a profit. “Clearing out our stock is the main goal right now,” says Zobair Sadek, director of Bismillah Car Center—one of the renowned car importers of the country. “We are keeping our showrooms open at the moment, making sure social distancing rules are maintained.” Across these outlets, it was common to see signs of wearing a mask and nobody is allowed in without one. “We have taped the entrance of the showrooms, so people can’t randomly just walk in,” he adds.
When asked about his take on the new budget and how it is going to affect the reconditioned car market, he said the annual tax for registered vehicles is extremely unfavourable for the business to prosper.
As the increase in advance tax has discouraged people to go for new purchases. Currently, a sedan with an engine capacity of up to 1500cc is subject to Tk25,000 (from Tk15,000 previously) to up to Tk2,00,000 for cars and SUVs with an engine capacity exceeding 3500cc. Though the import tax on cars did not change which is to some extent a piece of positive news for the car business. “We were hoping the AIT for 1.5L (1500cc) cars would lower at least, as at the current rates many buyers are discouraged to buy cars affecting our business massively,” says Sadek.
Source - BRTA
Members of BARVIDA (Bangladesh Reconditioned Vehicles Importers and Dealers Association) have contacted government officials and representatives regarding this matter but it was in vain as the advanced tax rates remained the same.
International market
Compared to other parts of the world, Asia resisted the decline well with only a 10% decline in production. Whereas in Europe the production fell by 21% and South America witnessed a worse decline at 40%. One of the major reasons being shortages in raw materials such as steel and microchips due to disruption in supply on a global scale for the pandemic. However, the situation got a bit better towards May this year.
According to Dhaka Tribune’s report on June 3, the finance minister also proposed a 10-year tax exception for companies that manufacture automated vehicles in Bangladesh in the budget FY22. “I propose to provide tax exemption to companies that engage in the production of three and four-wheelers, subject to fulfilment of certain conditions,” he said.
This is likely to encourage local companies to get into the industry more aggressively. Currently, Pragati assembles cars designed by Mitsubishi and PHP Motors have started to manufacture cars made by Proton a Malaysian car company. Earlier this year, Fair group announced the setting up of a Hyundai car manufacturing plant. All of which is an extremely good sign for the country as finally Bangladesh is set to become part of the global supply chain in the car industry, but this also means that once the local manufacturers start marketing their brands, the importers are worried that they might be thrown under the bus in the process.
