Auto sector can be revived if govt ensures consistent policy

Indus Motor Company says industry needs protection from imports.

ISLAMABAD:

A major player in the domestic auto industry is optimistic about a turnaround in the sector’s fortunes if the government promises prudent policies and provides an enabling environment, which it says is necessary for the capital-intensive sector.

Indus Motor Company’s Marketing Division Director Ali Asghar Jamali, while talking to journalists here on Monday, said that a consistent long-term auto policy will not only help the existing industry expand, but will also attract foreign investment.

He said that Original Equipment Manufacturers (OEMs) and other vendors shelved their investment plans for the country in the recent past, when import of up to five-year-old used cars was allowed. He claimed that car manufacturing countries all over the world do not allow import of used cars, as it denies a level playing field for manufacturers.

He also said the practice is “unfair to consumers” both due to their quality and price, and their after-sales service.

He claimed that car models manufactured in Pakistan are made according to global quality standards, however, he said that some luxury specifications are added depending on regional and country-specific requirements and tastes.



He said policymakers must understand that after rapid growth between 2003 and 2006, OEMs and auto parts manufacturers enhanced their capacities significantly. “Today, the industry is sitting on car production capacity of 300,000 units per year. In fact, production crossed the level of 250,000 cars in 2007-08 and was well on its way to touch the half-a-million-unit mark by 2013 had the government’s policies and demand during that period remained positive,” he added.

Jamali regretted that car production is currently down to only half of installed capacity. He said a number of auto part manufacturing units have shut down, while two multinational car manufacturers have been forced to wind up their operations in the country.

He said that to further localise the auto parts used in locally manufactured cars and to reduce prices, the auto sector requires a consistent long-term policy that provides breathing space and shelter from unethical competition. He added that these objectives cannot be achieved overnight.



Double-digit inflation, depreciation of the rupee, increase in power and gas charges, high bank mark-up and other increases in operational costs have hurt the industry. “Nonetheless, local manufacturers are trying their best to keep prices as low as possible.”

He said that the basic Toyota Corolla model has a retail price (less taxes) of approximately Rs1.69 million in the United Arab Emirates, whereas a similar model has a retail price (less taxes) of Rs1.01 million when made in Pakistan.

For a regional comparison of duty structures for completely knocked down (CKD) units, he said that the CKD duty in Pakistan is 32.5-50%, the highest in the region, while it is 10-30% in India. “Thailand has fixed the CKD duty at 30% and these countries allow only new cars to be imported at up to 90% and 50% duties respectively,” he added.

He said the industry wants an iron-clad guarantee that any auto policy will not be tinkered with for the entire period for which the policy is formulated. He said the import of old cars should be completely banned, and under-invoicing and smuggling of auto parts should be strictly monitored.

“Genuine competition should be encouraged by luring new entrants under a transparent policy,” he added.

Published in The Express Tribune, February 19^th, 2013.

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