Carrot and stick: Manufacturers sweat over auto policy uncertainty

Industry begins lowering car prices to placate government.

KARACHI:

Mounting government pressure on the automobile industry is pushing vehicle manufacturers into reducing prices.

At a time when the government is preparing the new auto policy, the auto industry has been under pressure for the past few weeks to reduce car prices after a sharp depreciation of the dollar against the rupee, say industry analysts. In recent weeks, the greenback has dropped by 9% from its peak of Rs108.6 per dollar.

“Looking at media reports, it is clear that the local auto industry is not pleased with government’s plans regarding the new auto policy,” said JS Global Capital analyst Atif Zafar. “This is why the industry is reducing car prices to somehow pacify the government at least on the price front.”

Following reduction in prices by Indus Motor, it is expected that the other two carmakers may also slash theirs, added Zafar.

Analysts believe that if the government gives non-discriminatory market access (NDMA) to India, the auto part makers may receive a battering as the automakers may start importing parts from India.

However, they say, the grant of NDMA status to India will not affect local automakers as much since they can reduce their cost of production if they go for joint ventures with Indian companies.

Meanwhile, the director general of Pakistan Automotive Manufacturers Association (PAMA) – the representative body of auto assemblers – is concerned about how the government will tackle the issue.

“Lack of consultation on part of the government and publication of the new auto policy draft in newspapers have sparked worries in the auto industry,” PAMA DG Abdul Waheed told The Express Tribune.

“Being the representative association of automakers, we want to see a new auto policy that is supportive of manufacturing in the country. We want a policy that can facilitate the local industry, attract new players and new investment in the market,” he added.

Despite concerns over the new policy that is expected to be announced with the upcoming budget, Waheed still has hopes.

“The policy has been delayed for two years but we are hopeful that it will promote (automobile) manufacturing instead of trade in the country,” he said, alluding to car importers who compete with the manufacturers.

Taking the lead, Indus Motor, an affiliate of Toyota Japan, on Thursday reduced vehicle prices up to Rs75,000. According to a BMA Capital report, the reduction in prices was between 0.5% and 3.1% for different models.

All Pakistan Motor Dealers Association (APMDA) Chairman HM Shahzad said there was obvious government pressure on the assemblers to bring down car prices.

“Even if all the players reduce prices, it would not be proportionate to the price increase they made when the dollar was appreciating and touched Rs108,” he said.

All the car assemblers needed to cut prices by at least 6% if they wanted to pass on complete benefit of the dollar depreciation to their customers, he suggested.

Published in The Express Tribune, March 23^rd, 2014.

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