The middle class dream of owning a car is going up in smoke

Anik Azizur's family bought a Toyota Axio in September 2022. 

Not long ago, a reconditioned Axio would cost about Tk17-Tk18 lakh. But by the time Anik decided to buy a 2011-model Axio, new models were hard to afford.  

So they went for the 2011 model – a second-hand car; and yet they had to pay more than Tk14.50 lakh for the car. Procedures (such as BRTA name transfer) came with additional costs. In total, they spent around Tk15.20 lakh on the purchase. 

"If not for the latest hikes in the car market, we would get this car within Tk10-Tk11 lakh.  In the current market, the new Axios are selling at around Tk27 lakh," Anik told The Business Standard. 

Saikot Roy, a car enthusiast, said that his family bought a Toyota Auris back in 2019 for around Tk22.5 lakh. "But the current hybrid ones sell for at least Tk33 lakh for a five-year-old model [reconditioned cars]," Saikot said. 

Toyota's Allion and Premio are among the most popular brands among the Bangladeshi middle class, but Toyota stopped producing these cars in 2021. As a result, their price increased in the auction market. 

"Back in 2019, its starting price was about Tk30 lakh. It would eventually reach Tk40 lakh after grades, etc. But now the cars' starting price is about Tk40 lakh. If you want to have it cheap, you will struggle to find one at Tk37-Tk38 lakh." 

The price may reach up to Tk50 lakh now," said Saikot, adding, "The Prius car that we bought used to start at Tk22 lakh before, but now you won't find them below Tk25 lakh." 

The price hike of cars and questions of affordability of the middle class have resurfaced after recent data by the Bangladesh Reconditioned Vehicles Importers and Dealers Association (BARVIDA) revealed that overall automobile sales dropped 44% in the first six months of 2023. 

As per the data, the sales of reconditioned cars – the go-to option for the middle class – have plunged the most. This begs the question, to what extent have the middle-class car dreamers been impacted and how are they faring? Additionally, how is the car market absorbing the price hike jolt?

Dr Mustafa Kamal Mujeri, Executive Director at the Institute for Inclusive Finance and Development (InM) and former Director General of Bangladesh Institute of Development Studies (BIDS) said that the regular flow of the economy has been disrupted in recent years, resulting in inflation, increased dollar price and other macroeconomic troubles. 

"Issues have been there in the economy for the last two years, which has now only exacerbated; especially the high inflation that never persisted for so long before," Dr Mujeri said. 

"Cars have become a necessity now for moving in a city like Dhaka, since public transport in this city is in shambles.  So the middle class opts to buy a car as soon as they can. But [now] because of the inflation, the middle class cannot fulfil this desire," he said. 

"The middle class is a big customer of reconditioned or second-hand cars. This is why the market for second-hand or reconditioned cars has also nosedived," Dr Mujeri added. 

In the capital's Khilgaon region, Kazi Motors sells used cars. Mithu, an executive at Kazi Motors said that rising car prices have impacted their sales volume in recent years. 

"Our crisis is that the used car dealers are raising prices beyond what we intend to sell them for. As a result, I am not getting enough cars [to sell] in the first place," Mithu said. 

"Our customer base shrank significantly. Since I ask for Tk12 lakh for a product which I sold at Tk10 lakh earlier, the customer base automatically shrinks." 

We met Engineer Amalendu Das at Kazi Motors who had just purchased an old Toyota Rush 2008-model car for TK13.20 lakh. 

When asked if the price was more than what he intended to spend on a car, Amalendu said, "The car I bought was not entirely within my target; but nothing really works according to your wish," he added. 

"You know how prices are going up in the market - if you can work on this budget, you go for it. Or you don't. This is not medicine that I will die if I don't take it. I will not drive a car if I cannot afford it. The math is simple for me." 

Sharif, an executive at nearby SA Car Centre - where we waited to interview customers for some time but found none - said that car prices have increased dramatically ever since the Covid 19 pandemic. 

"The middle class buys Axio, Axio Fielder, Allion, Premio, etc. All of their prices have increased by Tk2.5 lac to Tk3 lac, in the case of second-hand cars. Take the 2014-Axio for example. We sold one at Tk19 lakh recently, but not long ago we sold it for Tk16-Tk17 lakh," Sharif said. 

Mohammad Shopan, a senior executive at Xoom Autos in Baridhara said they have seen these changes in the last two years. 

When the dollar rate increased, product cost also increased, since what you bought at Tk80 has now become Tk120. When a product value increases like that, import taxes increase as well. 

"Suppose you could buy a car for $1, which was Tk80. Now that you spend Tk120 on the same thing, not only is the price of the car increasing, but you are also paying higher taxes on it. This is squeezing you from both sides," Shopan said. 

Shopan said that the middle class prefer reconditioned cars in Toyota Axio or Aqua if it is within their budget, which used to be Tk13.50 lakh to Tk14 lakh till 2020. 

"Now, after the Covid 19 pandemic, some people have no money as businesses collapsed or they lost their jobs. So the market went down. Many stopped their business. And when the market regained, the product values increased," explained Shopan.

Shopon added, "Maybe the interest rate was reduced, but the complicacy surrounding car loans increased. The middle class usually don't have a huge amount of cash in hand. They have to think a lot while making a decision on a car. As a result, car sales came down significantly." 

"To be frank, a group of people completely left the idea of purchasing reconditioned or brand new cars." 

Amalendu doesn't think the increase in second-hand car prices is logical, since the dollar crisis or LC issues impact reconditioned cars, and shouldn't impact the used car market. 

"This is rather a syndicate of the sellers. They are trying to say that instead of having to pay a lot of money on a reconditioned car, why not spend an additional Tk2 lakh on a second-hand one," a frustrated Amalendu said. 

Another data by the Bangladesh Luxury Car Importers Association (BLCIA), however, found an intriguing rise in the sales of luxury cars such as BMW, Mercedes-Benz, Audi and Lexus in Bangladesh by 300% in 2023. 

When the middle class struggles to fulfil their basic dream, Dr Mujeri said, this data only establishes how inequality has soared in Bangladesh. 

"It shows that a group in our society gathered so much wealth that nothing like inflation and other macroeconomic ills can hold them back. They compete to exhibit their wealth. Their competition to exhibit wealth has been going for some time, and this will only go on in the future," Dr Mujeri said.