The Punjab government allocated Rs4.5 billion in fiscal 2012 budget to provide 20,000 yellow cabs to youth of the province.

“We have submitted a detailed report on the scheme to the Punjab government after having several meetings,” says a Suzuki official, adding that details on the scheme will be disclosed later this week.

Although details on the financing structure are not yet available, initial news flow suggests that the provincial government will provide cars on interest-free basis with down-payment of 10 per cent or with Rs20,000 to Rs30,000 down-payment.

The government has shortlisted Suzuki Mehran and Bolan for the scheme that will be launched in five big cities of the province, says KASB Securities in a research note. The vehicles will cost around Rs12 billion, according to rough estimates of KASB Securities.

The Bank of Punjab may be the only option available to the provincial government as all other leading banks are now privatised and the government does not hold any influence on them, says the note.

“This should help the stock break its performance jinx at the stock market as it has been trading in the range of Rs60 to Rs76 since January due to depressed financial performance,” adds the note.

The scheme should increase Suzuki’s car sales by 20,000 in 2011-12. The benefits will start near year-end as deliberations and processes will take at least three months.

Parallels to 90s yellow cab scheme

The scheme draws parallel to the yellow cab scheme that was launched by the Nawaz Sharif-led government in 1992-93. Under the scheme, 65,000 vehicles, including 35,000 taxis, were provided on 10 per cent down-payment with a 10 per cent mark-up.

For the scheme, public sector banks Habib Bank provided Rs8 billion, United Bank Rs3 billion and National Bank Rs1 billion.

“The scheme drew much criticism due to politically motivated allotments where even luxury cars were imported and financed under the scheme and due to large-scale defaults affecting banks’ financial health,” says the note.

However, there is a higher possibility that the Punjab government may replicate the recent tractor schemes whereby 200,000 subsidised tractors were offered in which the buyer had the option to either pay the remaining amount of the tractor or finance it from Zarai Taraqiati Bank Limited. Moreover, the step of only allowing locally assembled vehicles is a positive for the auto industry, says the note.