After a lengthy and arduous wait, the new auto policy is expected to be announced soon.
Predictions over its salient features are flowing in from all quarters but the fact that the PML-N government has taken almost a year and a half in presenting it has hurt the image of what is perceived to be an investor-friendly government.
Despite planning for years, the local automobile industry continues its search for healthier volumes and stable growth, requesting for protection all along the way. Some say the uneven growth is due to the lack of favourable government policies. while some mainly blame the country’s bumpy economic growth.
One of the issues the government is expected to address in the Auto Industry Development Programme (AIDP-II) is the reduction of Completely Knocked Down (CKD) import tariffs to 25% from the current 32.5%. This is going to significantly reduce costs and aid the industry in generating its much-needed sale volumes.
When the PPP-led government introduced the five-year auto policy in 2008, its target was to attain an annual sale volume of 500,000 units. But, the industry failed to even attain the level of 181,000 — the highest annual sales that were recorded in 2006-07.
Local industry officials believe the industry cannot grow unless it attains the desired volumes that can help them reduce cost of production and increase localisation. However, critics of the local industry believe the protectionist policies of the last two decades have dented the very urge of innovation and localisation of auto companies.
Problems plaguing the local auto industry are complex in nature and need an out-of-the-box solution. The previous five-year plan failed to yield the desired results not only due to the local industry’s inability to find a solution but also because of the below-average GDP growth, high inflation and double digit interest rates that significantly dampened the sales of local cars.
Lack of choices
Pakistan is a peculiar case where sales of cars over and above 1,300cc engine category have shown relatively promising growth over the last five years. On the other hand, sales of smaller engine vehicles have shown haphazard growth, highlighting that the natural progression of the middle class – from motorcycles to smaller cars – is not being seen in the country.
Pakistan produced 303,383 motorcycles units in year 2003-04 that jumped 154% to 771,507 units in 10 years in 2013-14, according to sales data of the Pakistan Automotive Manufacturers Association (PAMA). Pakistan produces over 1.8 million motorcycles annually if one also includes all the Chinese assemblers into account.
The question arises that why are not car sales following the same model?
The answer lies partially in the discontinuation of Suzuki Alto and Daihatsu Cuore models after which there exists a serious dearth of locally-assembled cars in the economical section. Pak Suzuki and Indus Motor stopped producing these two models after the government’s deadline to produce all new cars on Euro II emission standards after June 2012.
Since then, used imported cars of 1,000cc or below engine categories have slowly taken over the space provided by the discontinuation of these local models. Out of the five engine categories of imported used cars, the share of small cars (up to 1000cc) in the total imported cars was 45% in fiscal year 2012. This share jumped to 59% in fiscal year 2013 and then crossed over 72% in fiscal year 2014 mainly because local car assemblers failed to introduce new models in the small engine categories.
Massive growth in the import of 1,000cc or below category cars is an indication that this is the market to exploit and this is where most growth will occur in the coming years. If local assemblers are facing difficulties in introducing smaller cars, the government should give special incentives because this is how volumes will grow, ultimately resulting in the decrease of prices of these economical vehicles.
THE WRITER IS A STAFF CORRESPONDENT
Published in The Express Tribune, October 27th, 2014.
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The biggest car segment (1000cc and below ) is dominated by only one player Paksuzuki which faces no competition from any other assembler that is why they are selling obsolete cars like Mehran, Ravi, Bolan, Cultus and Liana which are not produced or sold anywhere else in the world ... even Swift model 2014 in Pakistan is the retired 2004-2010 model in other countries.
Local cars do not meet any safety standards hence have zero export potential. Government must stop restricing new entrants form entering in the market and remove their barriers to entry. No more protection to local assemblers. They should also be forced to retire models and stay in line with international technology standards.
The sad truth is that local car industry hurts Pakistan more then it helps. The consumer in Pakistan has to pay a very high price to make these 3 car manufacturers afloat.They can't compete with the imports and are always looking for the government to give them protection in the form of very high import duty. My suggestion is if you can't compete then you better pack up and look for some other way of making money. The consumer should be protected not these three companies Toyota, Suzuki and Honda.
Local car assemblers are thug and robbers.they loot the nation by offering 80's dumper type choices.monopoly and cartelization are main reasons.wheras the officials are mouth-packed due to corruption.the models that we are being offered by operating companies are inundated by world.govt must allow the import of refurnished vehicles and an auto policy that allows the import of 5 year old vehicle must be implemented.