Bangladesh has experienced an increase in its use of private cars over the last two decades due to the socio-economic development and increasing purchasing power of the middle and upper middle classes. In the last decade, the number of passenger cars increased at an average rate of more than 7 percent (7.23%) each year. As the number of private car purchases among customers increased, so did the sales of brand-new cars. In 2016, where 92 percent of cars were reconditioned, in 2020 it has reduced to 82 percent. Although JDM reconditioned cars were dominating the automobile market of Bangladesh for a long time. Why do Bangladeshis tend to buy brand-new cars?
Brand New Car Market in Bangladesh
The number of private cars registered in Bangladesh until 2021 will exceed 5.6 lac (562,897). Almost half of these vehicles were registered in the last decade. One of the reasons for the growth of the automobile industry in Bangladesh is the increase in purchasing power of customers.
However, there was a huge tendency among Bangladeshi customers to buy JDM reconditioned cars. Originally, customers were so interested in buying reconditioned cars because they were slightly cheaper than brand-new cars and as they were made for the Japanese domestic market, the durability of those cars is unquestionable. In fact, JDM reconditioned cars are quite popular in many countries around the world like Bangladesh. In the early period of the last decade and before that, mostly various government offices, some NGOs, and corporate offices were the main buyers of brand-new cars. However, nowadays the trend of buying brand-new cars has increased among individual customers. According to a source from TBS, from 2016 to 2019, while the sales of brand-new cars increased, the sales of reconditioned cars continued to decline.
According to Bangladesh Customs, in 2016, while 92 percent of total car imports were reconditioned cars, brand-new car imports were only 7 percent. However, by 2020, brand-new car and reconditioned car imports accounted for 16 percent and 82 percent respectively. Besides, the share of locally assembled car sales has also increased to 2 percent by 2020. Automobile assembly in the country is increasing mainly due to the increasing trend of buying brand-new cars among customers.
Even though the entire car isn’t manufactured in Bangladesh, many government and private companies are assembling them. Among them, the government-owned Pragati Industries Limited assembles Mitsubishi and Mahindra SUVs and pickup trucks. Besides, Mitsubishi Outlander series cars are being assembled by Rangs Limited. Apart from Pragati and Rangs, PHP Motors is also assembling Malaysian brand Proton cars at its Chittagong plant. Besides, Fair Technologies has also started setting up plants in Bangladesh to assemble Hyundai and Uttara Motors, Maruti Suzuki vehicles. Due to the subsequent growth of the consumer car market in Bangladesh, Indian brands Tata and Mahindra are also keen to set up their assembly plants in Bangladesh.
In the last decade, Bangladeshi roads have improved significantly. Since customers were interested in buying brand-new cars of various models, JDM importers initially began importing brand-new cars of other Japanese brands including Toyota, Mitsubishi, Honda, and Mazda along with JDM cars. Moreover, in addition to authorized importers, these brands have also appointed authorized dealers in Bangladesh. Besides Japanese brands, German and European brands like BMW, AUDI, Mercedes, Maserati, Korean brands Hyundai, and US brands Ford and JEEP also have authorized dealership networks in Bangladesh.
Besides, Chinese brands MG, DFSK, and Haval also have authorized dealers in Bangladesh. For SUVs, customers prefer brands like Hyundai, MG, Havel, Toyota, Honda, and Nissan, and for luxury sports cars, brands like BMW, Mercedes, and Audi. Meanwhile, importers who used to import JDM cars are now also importing brand-new cars despite not being authorized dealers. In addition, brands like Mitsubishi and Ford used to target the sale of brand-new cars directly to various government offices or NGOs, but now those brands are also targeting ordinary car customers and running various marketing and promotional activities which weren’t so frequent before in Bangladesh. Besides, the trend of buying SUVs among global customers has increased more than before. This has led to an increase in the sales of SUVs in Bangladesh since customers are also following the global trend. Apart from this, as the country’s roads have improved, there has been an increase in the trend among customers to buy European luxury and sports cars.
Reasons Behind Changing Behavior
Brand New Car Became Cheap
Currently, the price difference between Japanese reconditioned cars and brand-new cars has narrowed. Because earlier JDM cars used to get depreciation benefits of up to 45 percent on the price determined by the Japan Auto Appraisal Authority. But, currently, the government is providing a maximum of 35 percent depreciation on imports of JDM vehicles older than five years and no depreciation on vehicles less than one-year-old. On the other hand, in the early periods of the last decade, some brand-new cars were available at prices close to JDM cars, but customers had to pay a lot of supplementary duty for them. Besides, in most cases, those cars were base models manufactured in Indonesia or Thailand, whose build quality was not that good. However, NBR currently levies the tax on reconditioned vehicle’s retail price instead of levying tax as per second-hand value. On the other hand, in the case of brand-new cars, the tax is levied based on the declared value of the importer. As a result, the price difference between reconditioned cars and brand-new cars has been reduced to a large extent. Besides, brands are releasing hybrid versions of almost all their car models. On the other hand, the government has also reduced the supplementary duty on hybrid CBU vehicles compared to brand-new CBU vehicles. Due to this, the overall price of the brand-new car has come down.
JDM cars are mainly manufactured for the Japanese market, so most of those cars’ features were not helpful at all for Bangladeshis. Also, those cars are 3 to 5 years old, so they didn’t have modern up-to-date features. However, car buyers are more feature-conscious, so besides new models and different brands of cars, they are more interested than ever in using new and updated features. According to Lightcastle, 50 percent of customers place importance on unique features and specifications, 44 percent on brand value, and 34 percent on the availability of parts and services when buying a brand-new car. So, in addition to many models of cars of different brands being available in the same budget in the country market, brand-new cars are equipped with many safety features and sensors including the latest entertainment system, Android and Apple CarPlay, wireless charging, heads-up display, parking sensors, close control, auto parking, and 360-degree cameras. To avail of all these latest features, customers prefer to buy brand new cars as opposed to reconditioned cars nowadays.
Purchasing Power Increase
According to The Daily Star, Bangladesh currently has a per capita income of $2,824. On the other hand, depending on purchasing power parity, the GDP per capita of Bangladesh in 2021 was $5,733 which will reach $8,859 by 2026. Basically, as the purchasing power of Bangladeshi customers has increased with the increase in income, there has been a change in their purchasing behavior, which is especially noticeable in the case of car purchases. While domestic customers are more inclined toward previously reconditioned cars, now customers are preferring newer models of different brands to increase their purchasing power.
After Sales Service
In the past, due to the lack of availability of authentic parts and adequate service center or after-sales services in Bangladesh, buying other brands-cars instead of Japanese cars was not the first choice of customers. However, in the last few years, several professional services centers have emerged in the country which are providing reliable and hassle-free services as well. Besides, official dealers of brand-new cars are also providing proper after-sales service to their customers and ensuring customer satisfaction.
On the other hand, in the case of JDM cars, most of the dealers do not have a good after-sales service, so if there is any problem with the car, it is a hassle. Moreover, many corrupt JDM importers have lost their trust due to unscrupulous methods such as falsifying vehicle auction sheets, lowering odometer readings, and substituting original parts. Besides, authorized dealers and importers are also providing car exchange facilities and lucrative credit facilities to customers. Apart from this, now any authentic parts can be imported easily and within a short time, so the availability of parts for brand-new cars has increased
In a global sense, people are also changing cars more often. Also, there is a new trend started among the elite class of giving brand-new cars as gifts. Before, car importers in Bangladesh would only bring in certain models like the Allion, Premio, Axio, Nova, Harrier, and Prado. They would try to trick customers into buying cars from these models, even though they had many other good options that fit their budgets. But now, as more people use the internet, customers can easily find out about different car brands and models, as well as the latest features and amenities. Now, customers can compare models and choose the best one for them. Also, in the past, authorized dealers and importers would only bring a few models of a brand into the domestic market.
Currently, they import a variety of models in various price ranges, as well as multiple variants of the same model. In addition, as there are more options than ever before for brand-new cars, more and more people are buying German, US, Korean, and Chinese ones other than Japanese brands.