Lack of competition in local auto manufacturing industry: CCP
KARACHI:
Three major players are dominating the market and dictating prices due to the absence of competition in the local automobile manufacturing industry, according to a research report commissioned by the Competition Commission of Pakistan.
This was the finding of a research programme initiated by the CCP to assess the competition vulnerabilities in various sectors. The Pakistani market only has three major players, each dominating a different segment of the market based on the size of the car, according to the study.
Car prices have been increasing continuously since 2006 and new cars are out of range of the middle-income group. Car sales have fallen on a yearly basis in 2008 and 2009 but prices showed an upward trend with Honda Atlas, Indus Motors and Pak Suzuki increasing their prices thrice in 2008, according to the CCP’s statistics.
“We are concerned about the sector being so concentrated and the point of the study was to find a weak point in the sector as it is very difficult to say that it is not a competitive market due to product differentiation,” said the chairman of the CCP, Khalid Mirza. He believes that this sector needs to be monitored.
The problem: increasing car prices
“It seems that the local assemblers have adopted a strategy of increasing profits on limited production instead of increasing volumes,” alleges the CCP’s report.
The CCP is concerned that the neat division of the market between Honda, Suzuki and Indus Motors along with the steady market shares that they have had over the last decade signifies a lack of competition.
Cartelisation of this sort does exist as they do have the pricing power; given that they have 70 to 80 per cent of the market share cornered between them, according to Invest Cap Bank’s research head, Khurram Shehzad.
Any loss of competition in the market is bad news for the consumers, who have the same limited choices albeit at rising prices; most carmakers have been announcing plans to increase production volumes over the next few years but these plans have yet to come to fruition and the problem of late delivery of cars remains unchanged as a source of dissatisfaction among buyers, says the CCP report.
The cure: tariff decrease on imports
The report suggests that the tariff on import of new cars in all segments of the market be reduced to bring manufacturer protection down to five to 10 per cent. Cars imports are currently subject to excessively high duties, and the CCP believes that inter-brand competition can be promoted by allowing import of new cars at lower prices.
It also suggests that the industry “move from a reactive demand-based model to a proactive supply based model in order to make it more competitive”. As is the case with most manufacturers in developed countries, including Honda, Toyota, and Suzuki, customers place their orders directly with the manufacturers via the internet. This creates a direct linkage between the two, reducing the role of dealers, and helps the manufacturer in the inventory management and production planning process.
Published in The Express Tribune, July 25th, 2010.
Three major players are dominating the market and dictating prices due to the absence of competition in the local automobile manufacturing industry, according to a research report commissioned by the Competition Commission of Pakistan.
This was the finding of a research programme initiated by the CCP to assess the competition vulnerabilities in various sectors. The Pakistani market only has three major players, each dominating a different segment of the market based on the size of the car, according to the study.
Car prices have been increasing continuously since 2006 and new cars are out of range of the middle-income group. Car sales have fallen on a yearly basis in 2008 and 2009 but prices showed an upward trend with Honda Atlas, Indus Motors and Pak Suzuki increasing their prices thrice in 2008, according to the CCP’s statistics.
“We are concerned about the sector being so concentrated and the point of the study was to find a weak point in the sector as it is very difficult to say that it is not a competitive market due to product differentiation,” said the chairman of the CCP, Khalid Mirza. He believes that this sector needs to be monitored.
The problem: increasing car prices
“It seems that the local assemblers have adopted a strategy of increasing profits on limited production instead of increasing volumes,” alleges the CCP’s report.
The CCP is concerned that the neat division of the market between Honda, Suzuki and Indus Motors along with the steady market shares that they have had over the last decade signifies a lack of competition.
Cartelisation of this sort does exist as they do have the pricing power; given that they have 70 to 80 per cent of the market share cornered between them, according to Invest Cap Bank’s research head, Khurram Shehzad.
Any loss of competition in the market is bad news for the consumers, who have the same limited choices albeit at rising prices; most carmakers have been announcing plans to increase production volumes over the next few years but these plans have yet to come to fruition and the problem of late delivery of cars remains unchanged as a source of dissatisfaction among buyers, says the CCP report.
The cure: tariff decrease on imports
The report suggests that the tariff on import of new cars in all segments of the market be reduced to bring manufacturer protection down to five to 10 per cent. Cars imports are currently subject to excessively high duties, and the CCP believes that inter-brand competition can be promoted by allowing import of new cars at lower prices.
It also suggests that the industry “move from a reactive demand-based model to a proactive supply based model in order to make it more competitive”. As is the case with most manufacturers in developed countries, including Honda, Toyota, and Suzuki, customers place their orders directly with the manufacturers via the internet. This creates a direct linkage between the two, reducing the role of dealers, and helps the manufacturer in the inventory management and production planning process.
Published in The Express Tribune, July 25th, 2010.