Fulfilling a Sri Lankan vehicle dream
By Madhusha Thavapalakumar
If you conduct a poll amongst the people who on a pre-pandemic day would rush to the office before nine in the morning, soon after getting off at the Maradana Railway Station or the Pettah Bus Stop, asking them what their goal in life is or what they want to achieve next in their life, among many responses like “I want to save money for my wedding, for my education, for my sick parent’s heart surgery” would also be responses like “I want to build a house on my own” or “I want to buy a vehicle”.
Buying a vehicle is a dream for the majority of Sri Lankans out there. Sometimes, more than one generation has to save up to afford a four-wheel. Sometimes, the house has to be mortgaged to afford a vehicle. And in some instances, the entire salary has to be spent on vehicle leasing.
It was extremely hard for one to simply save up and buy a vehicle due to the whopping import tax that was imposed on vehicles before the pandemic. After the pandemic, it has become much more difficult with the import ban the Sri Lankan Government imposed on vehicles in order to avoid a possible foreign exchange crisis. Needless to say, before the $ 1.2 billion influx in the form of loans and the International Monetary Fund (IMF) Special Drawing Rights (SDR) till mid-last week, official foreign reserves were around $ 2.8 billion – less than two months of import cover.
Going back to the vehicle ban, it has become even more difficult to find a vehicle to buy now as effectively, as they are not being imported, and making hay of this situation, a strong second-hand vehicle market has been formed, making it much worse for a potential vehicle buyer to afford a car or a van or even a bike, for that matter. As the Government is adamantly firm in its decision of not allowing the importation of vehicles, at least for another year, in the face of a weaker reserve position against which global agencies are warning, vehicle owners who are willing to sell their vehicles have almost doubled – or in certain instances more than doubled – the actual price of their vehicles.
For example, a 2015 Toyota Prius is Rs. 8-9 million today whereas it was around a mere Rs. 5-6 million range, a 2020 Honda Grace EX Sensing is Rs. 14-15 million today whereas it cost Rs. 7-8 million before the pandemic, and a 2016 Toyota Prius Fourth Generation is Rs. 10-11 million today and used to be in the range of Rs. 8-9 million. A 2016 Toyota Viz was in the range of Rs. 3.5-3. 8 million but is now in the range of Rs. 6-7 million, a 2014 Toyota Aqua was Rs. 3.8-4.2 million but now costs Rs. 5.8-6.2 million, a 2015 Suzuki Wagon R was around Rs. 3.8-4.2 million and has shot up to Rs. Rs. 5.8-6.5 million today, a 2019 Honda Dio costs Rs. 0.2-0.3 million and it is almost Rs. 5 million today, a 2015 Suzuki Alto P/S Safety today is Rs. 3 million and it used to be Rs. 2-2.5 million, a 2017 Toyota KDH 201 Super GL today is Rs. 15-16 million and it was just Rs. 9 million about 18 months ago, and a 2019 Toyota Land Cruiser Prado TRJ 150 Tx costs Rs. 60 – 70 million today whereas it was only Rs. 25 -33 million before the pandemic. Apart from this, even a Bajaj three-wheeler is now Rs. 0.8-0.9 million, shot up from Rs. 0.3-0.4 million pre-pandemic. Mind you, today’s prices are for a second-hand vehicle, and certainly not an unregistered one.
To get a better idea of the rationale behind a double-fold hike in vehicle prices, Market Mine spoke to a couple of second-hand vehicle sellers on the condition of anonymity, and the responses were quite fascinating. One of them told us that he worked hard, saved up for years, and yet had to obtain a loan to buy the vehicle that he has put out for sale today – double the price he bought at. He is of the view that if he sells his car now, he can make an impressive return from it, meaning he can earn twice what he spent on that vehicle and invest it in something else like real estate, as he could wait another year or two to buy a vehicle.
Another person who used to be an importer of vehicles stated that now he has almost lost his business and has to depend on second-hand vehicles to make a living, adding that they have no choice but to sell them at a much higher price.
Of course, the basic economics is that when the demand is higher than the supply, a price increase is obvious; yet, since the percentage of the price hike is somewhat arbitrary, irrational, and unregulated, we contacted Minister of Trade Bandula Gunawardana. When asked whether any measures would be taken to regulate the prices, Gunawardena stated that unless a consumer takes this issue up with the Consumer Affairs Authority (CAA) and lodge a complaint, the Ministry will not be able to address this issue.
“Without a complaint, we cannot do anything. Now the problem is certainly not about how to bring down vehicles. It is about how to bring down fuel, medicine, and other important items while also desperately finding US dollars, given our current reserve position,” he stated.
Meanwhile, we also spoke to CAA Executive Director Thushan Gunawardena, who noted that they have not received any complaints so far pertaining to the arbitrary hike of prices in the second-hand vehicle market.
“It is not an essential item. The market has to stabilise on its own. If we are to regulate the vehicle prices, then the open economy concept will collapse. The Government will try to keep price controls to a minimum number of goods and services. It is highly unlikely that vehicles will be a part of a regulatory framework. Even if people lodge complaints, there is hardly anything we could do as the CAA, unless the Government will announce it as an essential item,” Gunawardena briefed.
Price controls, which are government-mandated minimum or maximum prices set for a good or service, can be both good and bad for an economy. They eliminate monopolies and make goods affordable within the reach of consumers. However, price controls are also known for creating excess demand in the market or a shortage of supply. The CAA Executive Director believes that letting the vehicle prices go back to their original ranges on their own would be the best solution, which could be expected to happen once the Government decides to permit vehicle imports once again. Till then, buying a vehicle would certainly be only a dream for many out there.