Bid to break monopoly: Volkswagen inks deal for vehicle assembly in Pakistan

In partnership with local dealer, German company will assemble Amarok, Transporter T-6, Caddy and Skoda

ISLAMABAD: Volkswagen - the world’s largest automobile manufacturer - has entered into an agreement with a local luxury brands dealer for the assembly of vehicles in Pakistan, becoming the second European carmaker that will make inroads to capture the Japanese-dominated market.

Volkswagen AG and Premier Motors Limited inked the agreement in Hanover, Germany, earlier this month, according to officials of the Board of Investment (BOI). Premier Motors would assemble vehicles from completely knocked-down (CKD) kits, they added.

Against earlier expectations that Volkswagen will assemble two variants, the Germany-based company has decided to assemble four types of vehicles in three phases.

In partnership with Premier Systems Private Limited - the authorised importer of Audi vehicles in the country, Volkswagen will assemble Amarok, Transporter T-6, Caddy and Skoda in Pakistan, according to the BOI officials.

Volkswagen is the second European carmaker that has entered Pakistan. Earlier, Groupe Renault had inked an agreement for the assembly of passenger vehicles in the country.

New South Korean and European entrants are expected to break the monopoly of the three Japanese vehicle assemblers that in the past three decades have failed to localise car production. Japanese vehicles are highly price-sensitive to exchange rate movements due to failure of the assemblers to fully implement the deletion plan despite getting billions of dollars in tax benefits.

All the three Japanese assemblers have massively increased prices of their variants in the past one year due to sharp rupee depreciation against the US dollar. Had these assemblers implemented the deletion plans, the consumers would have been protected from huge price hikes.

The last Pakistan Muslim League-Nawaz (PML-N) government had approved a new automobile policy in an attempt to break the monopoly of the three existing players and ensure new foreign investment in the growing automobile sector.

The Volkswagen project at its full capacity is expected to generate up to €500 million annually in exports and €200 million in duties and taxes for Pakistan, said the officials. These estimates suggest that the manufacturer also wants to export vehicles to the regional countries from Pakistan.

In the first phase, 28,000 units of Amarok and Transporter T-6 light commercial vehicles would be assembled in Karachi, according to the officials. The direct comparison of Amarok can be drawn with Toyota’s Revo.

In the second phase, Volkswagen will assemble Caddy and in the third phase Skoda vehicles will be assembled.

The company estimates generating 5,400 jobs which include 1,400 direct jobs. During his telephonic conversation with German Chancellor Angela Merkel, Prime Minister Imran Khan had expressed the desire that a German carmaker should enter Pakistan.

The company plans to have at least 40 dealerships across the country. According to a story published in this paper last year, Volkswagen Commercial will use the same plant Audi intends to build for the assembly of its own vehicles in Karachi. Audi AG, the German carmaker, is owned by the Volkswagen Group.

Nishat Mills - a textile giant - has also announced that it will bring vehicles to the Pakistan market by the end of 2019 in collaboration with Hyundai. Lucky Cement - one of the country’s largest cement manufacturers - has already announced its partnership with Kia Motors.

Various researches suggest that only 17 out of every 1,000 Pakistanis own a car as compared to 22 in India and around 600 in Japan and some European countries, offering huge business opportunities. But increasing interest rates coupled with higher vehicle prices may affect sales of the automobile sector.

The government’s decision to prevent non-filers of tax returns from buying new cars has also started impacting sales of the carmakers.

Published in The Express Tribune, November 23^rd, 2018.

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