Automobile sector: Policy for new entrants prepared

Policy prepared to encourage production of low-cost vehicles. Present assemblers will be provided protection.

KARACHI: The federal ministry of industries and production has assured Japanese car assemblers in Pakistan that they won’t be harmed by the new entrance policy for the automobile sector through which the government intends to facilitate new players.

Federal Minister for Industries and Production Mir Hazar Khan Bijarani, talking to The Express Tribune, said that the government has prepared  a new entrance policy for the auto sector so that production of low-cost vehicles could be encouraged. He also emphasised that the interests of car assemblers already present will be protected and no such incentive will be provided to the new players which affects the interests of existing assemblers.

Bijarani was speaking on the sidelines of a ceremony held to unveil the annual report of the Export Processing Zone Authority here on Monday.

The car assemblers are already uncertain about the tariff waiver for the investment that they plan to make. These car assemblers are being pushed by the government to reduce the prices of vehicles, a reason why the government increased the age limit for imported used vehicles in December. However, the decision was withdrawn later.

On the other hand, the car manufacturers face daunting challenges which include increase in raw material costs, rupee depreciation and escalating prices of gas and electricity which are swelling the production cost. Bijarani said that the government has requested the local assemblers to reduce prices of automobiles and has also urged the new entrants to produce smaller cars at cheaper rates. Furthermore, he said that the government is in talks with Chinese and South Korean vehicle manufacturers.

Experts are of the view that with the new policy, production of smaller vehicles with engine capacity of 800cc to 1,000cc will be encouraged which might affect sales of existing market leaders in this category and hence competition will lead to a price reduction. The auto industry has rejected the perception that the increase in prices of cars is uncalled for and they substantiate it by saying that from June 2009 to December 2010 the rupee depreciated by two per cent against the yen and inflation rose 13 per cent, which fueled the price increase. Contrary to that, from June 2009 to December 2010 the prices of new vehicles have only increased by an average of seven per cent, they said.

Published in The Express Tribune, January 18^th,  2011.