Author Archives: savaiz

The ‘All New’ Honda City

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img_gallery01What I don’t understand is that why do Honda meed ‘so many’ sedan brands? If Accord is a class apart & in the same league as Toyota Camry then why are City & Civic cutting into each other’s market share? Conceeded that City started as an attempt by Honda to make a ‘budget’ sedan but isn’t that like Suzuki’s job?

The introduction of City (which is neither cheap nor expensive @ Rs.1.139M for 1.3L M/T & Rs.1.399M for 1.3L A/T) has ‘only’ allowed Suzuki to rias its products’ prices so that City is no at par with Liana and we being a nation ‘riased on a Suzuki’ will trust a Suzuki more while viewing the ‘reduced’  price of a Honda brand (City) with suspicion.

I myself (& those like me) have driven a Japanese-assembled Mitsubishi Lancer for about four years & it is yet to be taken to a garage so I will Insha Allah buy another Lancer once the current lease ends in May next year.

So the question is: WHOSE MARKET HAS THE CITY MOST ADVERSELY AFFECTED? I think its CIVIC’s which is (despite local-assembly) still priced slightly below the Lancer. (CIVIC 1.8L VTi Oriel @ Rs.1.734M to Mitsubishi Lancer’s 1.6L GLX @ Rs.1.899M – both M/T models).

I think Toyota has got it right. Instead of 2 brands they have ‘sub-brands’ within Corolla Brand such as Altis & 2.0D. (Altis of same displacement as Civic is a lot cheaper i.e Rs.1.639M while Altis 1.8 M/T SR is also priced below Civic VTi Oriel i.e. Rs.1.724M).

All manufacturers/marketers do make up their own names for similar technologies to ‘differentiate’ otherwise similar products. As far as I am concerned they all have engines, doors, windows, Steering, Gears & brake/clutch/accelarator pedals what else is there to have.

The Art of Leasing a Car – How secured is an insured leased car?

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Insurance is the only method with which one can ‘reclaim’ some of the expenses incurred in obtaining & using a car. It is adviseable to have complete car insurance even when the car is not leased but in case of leased car the owner of the asset (bank) makes it mandatory for its customers to get complete car insurance. So what does complete car insurance mean?

Complete or ‘full’ insurance as it is sometimes called covers all expenses of repair using original parts for any number of accidents but offcourse there is a catch. The amount for which the vehicle is ‘covered’ reduces due to ‘depreciation’ of car’s value.

Who determines the depreciated value you ask? The insurance companies have a ‘fixed’ 10% annual depreciation as a ‘standard. Meaning your car is assumed to be worth only 70% of its listed price by the time 4th year of lease starts.(Doesn’t matter how well it is maintained it is just all mathematical (not good  commonsense but great ‘business’ sense for the insurer).

I recently had to ‘pay’ 30% value for parts repalced after an accident but still thought it was a good deal so GET IT INSURED.

PS: Some people have even started ‘conning’ the insurers by ‘staging’ fake accidents to claim more than actual but that should be the subject of another post which I’ll write some other time.

Mitsubishi makes the best micro car?

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mitsubishi_i_hello_kitty800px-mitsubishi_i_1

Although it may not be virtually unknown outside its ‘native’ Japan it won the 2007 Car of the Year award from the Japanese Automotive Researchers and Journalists Conference (RJC), and two other “Car of the Year” awards, from the Carview Corporation website and the Consumer’s Choice.

It also won the “Most Advanced Technology” Special Achievement Award at the 2006–07 Japan Car of the Year awards, where it was nominated unsuccessfully in the overall Car of the Year category, and ranked first in the Japan Mini-Car APEAL Study published by J.D. Power Asia Pacific in October 2006, with a higher score than any previous winner. Aside from the 2006 Good Design Grand Prix, its style won Design Awards from the Japan Automotive Hall of Fame (JAHFA), and the magazines Popeye and Car Styling.

Even the 2008 Car of the year 2008 Toyota’s iQ although better performance wise & designed by Toyota’s design studio in France pales in comparison to the sleek shape & georgeous look of the “i”. Agreed that microcars or ‘kei’ cars as they are known in Japan are made generally for the ladies &/or ‘sissies’ but offlate the modified versions of Smart Cars having superbike engines have been known to pack quite a muscle (0-100kph in under 3.5seconds.

“i”s breakthrough success with the said market came after a “Hello Kitty” customized “i” was put on display in a large Japanese Department Store for a week in 2007. Other close rivals include Smart Mortor’s fortow & K models, ZAP (zero air pollution), Toyota iQ the proposed Aston Martin-Toyota joint venture Cygnet & Honda’s Insight.

Suzuki has also marketed its own budget version of the smart car known as Suzuki Twin while rounding off the European competition are Mercedes-Benz’s Motsy & Subaru’s R2.

The Art of leasing a Car – Flexible Tenures & Downpayment Options explained

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While approaching the bank every potential customer has atleast some idea of ‘how long’ his relationship with the bank will be for this particular transaction or in laymen’s terms what will be the duration of this loan? This duration for which the customer will ay installment-based repayments to the bank is also known as the tenure of the loan. This needs to be pre-determined and directly affects the amount of each installment as well as the total amount that one pays for acquiring the car (principal+interest).

Usually the banks offer tenures of 1-5years with the 3-5 years being the most popular selection made by the clients. SBP has however allowed consumer lending for automobiles upto 7 years so you can always ask your banker for an extended period which will then be considered as a deferal from norm but still within the approval authority of the bank. My personal advice is that you take either a 3-year plan or a 4-year plan, reason being that the installments for 1 & 2 year plans will be too burdening on your income (especially if you are salaried individual with fixed income) while in case of 5 to 7 year plans you end up paying more than 1.5times the actual price of the car. Let me explain it through some simple calculations:

Assume that the car of your dreams costs Rs. 1million. You pay a quarter of it as downpayment while the interest rate is taken as 15% which is possibly the best one you can get at the moment then your installment per month would be as follows:

Tenure (Years)            Installment Amt.                 Amount paid during tenure

1                                         Rs.71,875/-                                     Rs.1,112,500/-

2                                         Rs.40,625/-                                    Rs.1,225,000/-

3                                         Rs.30,208/-                                    Rs.1,337,500/-

4                                         Rs.25,000/-                                    Rs.1,450,000/-

5                                        Rs.21,875/-                                      Rs.1,562,500/-

So a Rs.1million car ends up costing Rs,1.5million in a 4-5 year plan even without considering insurance which usually is around Rs.4,000/- p.m for a car in that price category. Thus you must choose tenure wisely after making calculations as above. Your banker will be more than happy to furnish you with complete repayment schedules for all tenures if asked.

Same is the case with downpayment otherwise known as equity contribution by customer. SBP allows from zero upto 50% downpayment however the baks generally allow plans for 10%, upto 30%.  Again this means that you must negotiate strongly with your bank as it will affect the end outcome. Any amount you contribute towards the purchase of the car will reduce the amount provided by the bank thereby allowing total amount of markup to be reduced when downpayment increases. (The more you pay less will be the amount on which you have to pay interest).

Ending as always my suggestion is that you haggle with your bank just like you bargain with your corner-grocery storeman. The more you haggle the better option you will get. Next post will address matters pertaining to insurance.

The Art of Leasing a Car – KIBOR & its implications!

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Those of us who have off-late ‘attempted’ borrowing from a bank in the recent past have all heard of the mysterious KIBOR. All banks nowadays peg their lending to the KIBOR & then add their spread to give their customers a flexible rate. Since KIBOR has off-late been rising steeply (atleast during the calendar year 2008) banks have minted quite a few ‘extra’ bucks by merely re-pricing their loans as part of their ‘deal’ with their customers.

Now what the hell is KIBOR you may ask. For the uninitiated (which means the most of us – non-bankers) KIBOR is an acronym standing for Karachi Inter-Bank Offer Rate. KIBOR isn’t a new phenomenon either. It has been around for atleast a dozen years but its impact on the consumer finance sector is a relatiely new phenomenon.

Bankers have lent to ‘each other’ (read: inter-bank i.e. bank-to-bank) by using KIBOR since the early 1990s when this emerged as a substitute for the LIBOR (London Inter-Bank Offer Rate) which though more stable was definitely not in sync with our ‘local’ money market therefore the local banks all got together and came up with KIBOR.

Banks initially lent using KIBOR rate to their Corporate Customers for what became known as Money Market loans (meaning: loans against borrowing from other banks). This was extended to the Commercial/SME segment during the early years of the 21st century. Once the KIBOR became high due to the geo-politcal economic reasons the banks were left with no choice but to abandon fixed-pricing altogether in faour of KIBOR-linkage (meaning: KIBOR-plus-bank’s profit spread).

Further variants of KIBOR that evolved later were attributed to its tenor (which should either match the tenor of the short loans or should be atleast half-year i.e. 6-months or 1-year i.e. 12-months).

People worried by high markup rates can finally heave a sigh-of-relief as the ‘dreaded’ KIBOR has somewhat nosedived from its New Year 2009 peak of around 16% to somewhere around 11% as of 31-July-2009. (%age rate pertains to the most widely used 6-months KIBOR ask rate).

People requiring further clarifications regarding KIBOR in particular &  other advice regarding Car Leasing in general are invited to leave a message alongside this post for a ‘prompt’ reply. Next post in this series will cover flexible tenures & downpayment options.

The art of Leasing a Car

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Car leasing today seems to have become a hard science with all the islamic/unislamic/fixed-rate/KIBOR-linked rate/flexible-tenure/flexible-downpayment/insurance options ‘mumbo-jumbo’ and what not but infact it is as much an art as painting or photography. Before I confuse you further with my ‘Science of Art’ lecture here is me breaking my “banker’s code” to let you in on all the unpleasant secret “they won’t tell you” while selling you a car lease.

According to howstuffworks.com website, Leasing has two principal benefits:

(1) You drive a newer vehicle that is always under warranty and seldom needs more than routine maintenance.

and

(2) you often get a larger, more luxurious, better-equipped car.

I believe another very improtant ‘benefit’ missing from the list is the commission offered to the dealer/lease-salesperson & strictly-religious vs moderate orientation. Meaning that even in today’s day & age the car dealer or lease/loan salesperson can force you to get a lease or loan depending on which makes them more richer.

For people working strictly on commission basis the single most important motivation is how much they get out of each deal so beware of them. The people employed by the bank/FI on salary basis are genrally more reliable in their committed offerings. I am just saying that be careful and make sure that the person selling you the car lease is not just making forced sales & expecting no repeat sales from satisfactory regular clients. Let this be your first lesson while leasing a car – NO BROKERS – neither car dealing ones nore lease pushing ones.

Having already discussed the major differences between conventional Leasing & Ijarah Financing (Islamic mode) the next post will deal with KIBOR & how rates get pegged to it including a detail about its merits and demerits.

Car Leasing vs Car Ijarah

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The major differences between Car Ijarah & Car Leasing are as follows:

Rights & liabilities of Owner v/s User

An Islamic Ijarah is an asset-based contract, i.e. the Lessor should have ownership of the asset during the period of the contract. Under Islamic Shariah, all ownership related rights and liabilities should lie with the owner while all usage-related rights and liabilities should lie with the user.

A conventional lease contract does not distinguish between nature of these liabilities and places all liabilities on the user of the asset, contradictory to Islamic Shariah.

Continuation of lease rentals in case of total loss or theft of vehicle

If the leased vehicle is stolen or completely destroyed, the conventional leasing company continues charging the lease rent till the settlement of the Insurance claim.

Under the Islamic system, rent is consideration for usage of the leased asset, and if the asset has been stolen or destroyed, the concept of rental becomes void.

Takaful instead of Insurance

Legally (in accordance to Pakistan’s Law and Regulations), it is required for all leasing entities to insure the leased assets. As such, Islamic Banks insure their assets through Takaful only, which is Islamic product for insurance. Takaful will be explained in detail in future postings.

Permissibility for Penalty of Late Payment of Rent under Islamic Shariah

In most contemporary financial leases, an extra monetary amount is charged, in their income, if the rent is not paid on time. This extra amount is the considered as Riba (usury) and is Haram.

Under Ijarah, the Lessee may be asked to undertake, that if he fails to pay rent on its due date, he will pay certain amount to a charity, which will be administered through the Islamic Bank. For this purpose the bank maintains a charity fund where such amounts may be credited and disbursed for charitable purpose.

If you are wondering how does it effect the installments?

The answer is unfortunately, not much.

For a car priced at an even Million Rupees with 50% downpayment and a 3 year tenor the rental/instalment payments are incredibly similar:

Bank Alfalah @ 19% with 3.15% insurance: Rs.20953/month

BankIslami with ‘profit’ & 3.15%insurance: Rs.20585/month

The 10 Greatest Cars on Television — Ever??

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James Tate of MSN Autos recently declared the following as the “10 Greatest Cars on Television – Ever” but I think our worthy readers can comment on the list and might even suggest some changes. I personally was a little offended to not find ‘Chico’s Van’ from Chico & the Man TV Series & Dodge Viper from the hit series Viper. Are they missing any other greatest cars?

10. 1982 Pontiac Firebird Trans Am from “Knight Rider”
9. 1986 Ferrari Testarossa from “Miami Vice”
8. 1951 Ford F1 from “Sanford and Son”
7. 1975 Ford Gran Torino from “Starsky and Hutch”
6. 1983 GMC G15 Van from “The A-Team”
5. 1983 Ferrari 308 GTS from “Magnum P.I.”
4. 1969 Dodge Charger from “The Dukes of Hazzard”
3. 1969 Oldsmobile Vista Cruiser from “That 70’s Show”
2. 1975 Pontiac Firebird Esprit from “The Rockford Files”
1. 1966 Batmobile (aka 1955 Lincoln Futura Concept) from “Batman”