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How do those who invest in new vehicles through booking in Pakistan earn profits?

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How do those who invest in new vehicles through booking in Pakistan earn profits?
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      In Pakistan's unique automotive market, investors or individuals who book new vehicles often look to earn profits primarily through a phenomenon known as "own money" or "premium." This practice is a direct result of the chronic demand-supply gap and other market inefficiencies. Here's how those whoRead more

      In Pakistan’s unique automotive market, investors or individuals who book new vehicles often look to earn profits primarily through a phenomenon known as “own money” or “premium.” This practice is a direct result of the chronic demand-supply gap and other market inefficiencies.

      Here’s how those who invest in new vehicles through booking in Pakistan typically try to earn profits:

      1. Selling with “Own Money” (Premium):
        • The Core Strategy: This is the most common and significant way profits are made. Due to long delivery times for new cars (sometimes months or even over a year, depending on the model and demand) and limited production by local assemblers, there’s a strong demand for immediate delivery.
        • How it Works:
          1. An individual or investor books a new car from an authorized dealer by paying the initial booking amount.
          2. They receive an estimated delivery date, which is often far in the future.
          3. Before the car is delivered, or immediately upon receiving it, they sell the booking or the newly delivered car to an eager buyer who is unwilling to wait for the official delivery period.
          4. This buyer pays the original car price plus an additional amount, known as “own money” or “premium,” for immediate delivery.
          5. The “investor” pockets this “own money” as profit.
        • Factors Contributing to “Own Money”:
          • Long Delivery Times: This is the primary driver. People need cars quickly for personal use, business, or rental purposes.
          • Limited Production Capacity: Local manufacturers often operate below their full capacity, leading to a shortage of vehicles.
          • High Demand: A growing middle class, rising income levels (at times), and changing lifestyles fuel demand.
          • Frequent Price Increases: Automakers in Pakistan frequently increase car prices due to currency devaluation (Pakistani Rupee depreciating against the US Dollar, as many components are imported), rising input costs, and new taxes. An investor booking a car at an older, lower price can sell it at a higher “market price” (inclusive of “own money”) when prices inevitably rise by the time of delivery.
          • Speculation: The expectation of “own money” itself fuels more speculative bookings, further exacerbating the demand-supply imbalance.
          • Government Policies/Taxes: Changes in government duties, taxes (like GST hikes), or import policies can instantly make existing bookings more valuable.
      2. Rental Business / Ride-Hailing Services:
        • Some investors purchase multiple vehicles, not for immediate resale with “own money,” but to establish or expand a car rental business or to operate them through ride-hailing platforms like Uber or Careem (though these platforms might have specific vehicle requirements and profitability varies greatly based on driver performance, fuel costs, and maintenance).
        • This is a longer-term investment where profit is earned through monthly rental income, but it involves operational costs and management.
      3. Capitalizing on Price Fluctuations (Less Common for New Bookings):
        • While “own money” is about immediate demand for new cars, some might try to profit from general car market trends. If they anticipate a significant price hike or a supply crunch, they might book a car with the intention of selling it later at a higher official price (if allowed by booking terms) or with an even higher “own money” premium.

      Impact and Criticisms:

      This “own money” phenomenon is widely criticized in Pakistan for several reasons:

      • Exploitation of Consumers: It forces genuine buyers to pay inflated prices.
      • Market Distortion: It creates an artificial demand and contributes to price instability.
      • Unfair Practices: It raises questions about ethical business practices within the automotive industry and dealership networks.
      • Tax Evasion: The “own money” component is often transacted unofficially, leading to undeclared income and tax evasion.
      • Hindrance to Local Industry: While local assemblers often benefit from the high demand, the practice of “own money” also highlights their failure to meet market demand efficiently, leading to consumer dissatisfaction and calls for increased imports or production.

      The government and regulatory bodies have attempted to curb the “own money” practice through various measures, such as requiring buyers to be filers (taxpayers) for car purchases, increasing booking periods, and making it harder to transfer bookings, but the underlying supply-demand gap and economic instability often lead to its persistence.

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