Fleecing the Buyers: On-money

Anyone buying a new car in Pakistan is faced with the specter of ‘On Money’. This is the ‘premium’ you have to pay to get immediate delivery of a new vehicle. I do not know where the term originated, but my guess is that it refers to money ON top of the price that you have to pay – hence On Money. This is just an example of another peculiarity of this country in moulding the English language to suit the local requirements. Having lived abroad across three continents I have never come across having to pay a premium to buy a new car from a dealer / distributor. The Recommended or Suggested Retail Price is what you paid, unless you could negotiate a discount. On the surface it would appear that the On Money is unaccounted for money, which goes direct into the pockets of the dealer, evading taxes in the process. The fact that the manufacturers are not discouraging or banning this practice means that they are aware of it and condone it. The Government does not even bother to regulate the sector in this regard and in the process it is the hapless customer who has to dole out the extra money to buy the car.

Walk into any dealership of Toyota, Honda, or Suzuki and you would immediately be told that there is a three- to six-month wait period for delivery of the vehicle, unless you want to pay the On Money and get delivery today. Honda has recently launched a new seven-seater crossover by the name of BR-V. When I checked, they were booking the vehicle with a deposit of Rs.1 Million, and there were neither any vehicles available for viewing or test drive at the dealership, nor were there any brochures for the vehicle. The consumer is basically required to blindly hand over Rs.1 Million to Honda for a vehicle that is effectively not there. Not a particularly innovative marketing strategy. Suzuki on the other hand marketed two new imported vehicles the Vitara and the Ciaz and both are available for viewing in their showrooms with Vitara available for immediate delivery at the control price.

While the consumers in Pakistan have been provided sub-standard vehicles, when compared to the same international versions, they also have to dole out a higher price and on top of it On Money. Truly a sad state of consumer exploitation by the manufacturers in Pakistan. On the other hand one can see the hefty profits being made by these same manufacturers with utter disregard for the hapless consumer. For the year ended June 30, 2016 Toyota Indus reported a profit of Rs.11.45 Billion. Honda Pakistan reported Rs.3.5 Billion in profit for 2016. Pak Suzuki had profits are in the region of Rs.6 – 8.0 Billion annually. A look through the annual reports of these three automotive giants in Pakistan shows a great deal of emphasis on code of conduct, financial management, and corporate governance. Yet in reality and in comparison with global automotive standards the consumer is getting sub-standard products, with compromised automotive security standards at much higher prices. And to top it all, as if the profits being made are not enough, the consumer is being made to pay On Money.

Anyone who wants to import a vehicle can now get it delivered in 45-60 days and provided you use a reputed importer you can get a decent three up to year old car or five year old SUV. These vehicles have much higher specifications, with enhanced security features, when compared to the locally manufactured vehicles. That is the reason that we see so many of these vehicles on the roads, as consumers are opting to ignore the locally manufactured higher priced vehicles.

As per a news item published recently an informal market survey revealed that if buyers book Toyota Corolla Xli or Gli models, they will get the vehicles delivered in July while Toyota Grande and Altis would be delivered by April or May. Premium on Corolla Xli is Rs.135,000 while on money on Corolla Gli ranges between Rs.170,000-180,000.

The delivery time of Honda Civic is August if it is booked now. As a result, buyers are paying Rs.150,000-200,000 to dealers to get instant delivery and in some cases the premium on Civic has swelled to around Rs.250,000. Those booking Honda City now would get delivery in May to August period depending on the model. The on money on the Honda City hovers between Rs.100,000-150,000.

The delivery time for Suzuki Mehran is three to four months and dealers are charging Rs40,000-45,000 as premium for ready availability. In the case of Suzuki Mehran consumer are getting an unsafe, badly built, thirty year old vehicle at a premium of around Rs.50,000. Similar premium and delivery time exists for Bolan and Ravi. Premium on Suzuki Wagon R is Rs.120,000 as its delivery time is between five to six months. The imported Suzuki Ciaz would be delivered in three months on booking and Vitara is available for ready delivery at the Retail price.

In contrast to neighbouring India the prices of vehicles are as follows:

Consumers in Pakistan are being forced to pay higher prices than in India, with much less variants available and with lower safety specifications. The On Money is nothing more than a bribe that the consumers are being forced to pay to get immediate delivery of the vehicle. The fact is that the vehicle is available and it is only the apparent insatiable greed of the dealers that is forcing consumers to pay the On Money. The manufacturers have turned a blind eye to all this and have not implemented any procedures to stop this practice. The government has also not devised any policies to deal with the menace of On Money. Just as in all the other walks of life where you have to navigate through the morass of institutionalized bribery to get your work done, the consumer has to dole out extra (unaccounted for) funds to purchase a vehicle being manufactured in Pakistan.

Safety standards are virtually non-existent for automotive consumers in Pakistan, unless you can afford a high end imported brand. It is a miracle that some of the top-end locally manufactured models are providing 2 front airbags and 5 seat belts. The lower end models including the popular Honda City have no airbags. There is no desire on implementing global safety standards, as the bottom-line profits appear to take precedence over such ‘minor’ issues. The consumers continue to be fleeced if they opt to get their vehicles serviced through the authorised dealers, who have higher-than-market charges for routine servicing.

The news about other manufacturers potentially looking towards Pakistan is a welcome sign. There is news that Hyundai, Renault, Nissan and Volkswagen are evaluating the market to introduce their vehicles. FAW is another low cost option that appears to be making in-roads into the sector, with considerably higher safety features than Suzuki. All these manufacturers will provide more choice for the consumers and perhaps raise the bar for the existing manufacturers in Pakistan. The efforts by Honda and Suzuki to introduce newer models are perhaps a reaction to the increasing competition in the industry. One hopes that the consumer will have better options in terms of safety standards, comfort and pricing.

Pakistan needs to ensure that consumer safety is foremost and that the locally manufactured vehicles are meeting international safety, comfort and build standards. Asking consumers to pay hefty prices and premiums on vehicles that can at best be described as sub-par is unfair and exploitative. Phenomenal levels of profits are being generated by the manufacturers, and it is high time that they take the value of human life into account and provide a product that justifies the prices being charged. Perhaps there is a need to set up a consumer watchdog or advocacy group to contest the rights of the hapless consumers. It is high time that the consumers get a fair deal and receive the quality that they are paying for.

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