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Automobile sales in Bangladesh fell by almost 44 per cent in the first six months of 2023 compared to the same period last year, according to Bangladesh Road Transport Authority (BRTA) data.
The decline was driven by a number of factors, including difficulties in opening letters of credit (LCs) faced by car importers, the ongoing foreign-exchange reserves crisis and higher cost of vehicles, said the sector insiders.
On top of this, inflation is also putting a strain on consumer spending, making it more difficult for people to afford to buy new cars.
The BRTA data showed that 5,330 cars were registered in the first six months of the current calendar year, down from 9,394 in the same period last year.
Car import data over the past couple of years also support the dull trend in the local auto business. The number of vehicle imports fell to 6,612 in the first half of 2022, from 15,153 in the second half of 2021.
The decline in automobile sales is a clear-cut sign of the economic challenges facing Bangladesh. The country's foreign exchange reserves have been falling in recent months and inflation is rising.
Inflation climbed to a 12-year high of 9.02 per cent in the recently concluded FY23, while the forex stocks stood at US$ 29.944 billion in mid-July from a record US$ 48.6 billion in August 2021.
Mohammed Shahidul Islam, secretary-general of the Bangladesh Reconditioned Vehicles Importers and Dealers Association (Barvida) and chairman of auto seller HNS Group, said that difficulties in opening Letters of Credit (LCs) and local currency devaluation are significantly impacting car sales and imports.
He suggested that the automobile import duty structure should be reformed to boost sales, calling for transforming the country from an import-based to a manufacturing one.
He pointed out that when the economy is in bad shape, businesses inevitably face crises. Conversely, during good times, car businesses experience significant development.
According to a research published in 2021 by the Policy Research Institute of Bangladesh, Bangladesh has only 3 cars per 1000 population, in contrast to Malaysia's 897 cars per 1000 and Myanmar's 129 cars per 1000. Vietnam's car ownership per person is three times that of Bangladesh.
Despite the low car ownership rate per capita, Bangladesh maintains a policy of comparatively higher duties on automobile imports, along with elevated registration and maintenance costs.
As a result, car ownership in the country is considered a luxury, even with rising demand for reconditioned cars.
HNS Group, one of the country's top auto importers, witnessed a 30 to 34 per cent decline in the first half of the current calendar year compared to the same period last year.
The cost of vehicles, including cars, has increased by 20 per cent due to the taka's devaluation against the US dollar. Besides, the government raised all types of fuel prices to a record high in August last year, ranging from at least 42 per cent to the highest 51.7 per cent.
However, Islam insisted that cars are no longer a luxury.
While talking to the FE, another car seller Abdul Haque, the managing director of used car importer and retailer Haq's Bay Automobiles Ltd, also mentioned that the dollar crisis is significantly impacting both car imports and sales.
According to Haque, car dealers continue to encounter challenges in opening LCs, suggesting that only the Bangladesh Bank can provide an amicable solution to them.
Haque, a former president of Barvida, said a vicious circle is at play, manipulating the US dollar against the Taka. To break this ferocious syndicate, he recommended that the dollar rate remain open and uniform.
Humayun Kabir Chowdhury, managing director of Tijarah Car Bazar, reported a substantial drop in car sales during the last six months of the current calendar year.
On average, Chowdhury was able to sell 3 to 5 units of cars per month during this period. He said that people are mostly purchasing different car brands in the price range of Tk 2.0 million to 2.5 million.