With lobbying and hope, wait for new policy continues

Chinese, European and Korean carmakers may enter market if incentives provided.

ISLAMABAD:

The government has been engaged in the process of finalising a new auto policy for the past six months in the backdrop of hectic lobbying by industry players, but has not been able to come up with a document that could satisfy both the investors and consumers alike.

Pakistan’s market has ample room for expansion, which is reflected in figures for car sales. The country has only the capacity to produce 15 cars for every 1,000 people against the range of 80 to 750 cars for every 1,000 people in the world market.

This underlines the need to open the market for new entrants and encourage competition to stop the increase in prices and make cars affordable. Millions of people are compelled to rely on motorcycles because of high prices of small cars.



Government officials voice hope that Chinese, South Korean and European companies will pour capital into Pakistan if incentives are offered to them. Chinese auto companies are expected to lead the investors and threaten the Japanese-dominated market as they have even taken over US companies in a host of brands.

Pakistan is ranked 40th among auto-producing countries. This heavy engineering industry, which contributes markedly to the economy, provides large number of jobs and supports many allied industries, needs to be streamlined in order to make it export-focused and contribute to the country’s earnings.

The Engineering Development Board (EDB) has proposed an across-the-board reduction in import duty on localised and non-localised auto parts to woo new players in a bid to break the monopoly of existing ones.

At present, the import duty on localised parts is 50% and on non-localised parts it is 32.5%. The Ministry of Industries is likely to propose 10%, 15% or 20% duty for five years for the new entrants. For the existing automakers, this duty incentive may be provided for one year to push them to introduce new brands and give a wider choice to the consumers.

Buses, trucks and tractors

The government is planning to impose age restriction of five years on the import of concrete mixers, which at present have no limit, resulting in its misuse. “It will encourage new investors to manufacture trucks locally,” an official said.

Earlier, the import of sprinkle trucks was also being misused, prompting the authorities to restrict imports to five-year-old trucks.

In the new policy, officials say, consumer financing may be increased for the purchase of tractors as well as cars, trucks and buses. Interest rate is also likely to be cut on financing for the farmers.

Consumer financing has been very low in the country. According to officials, banks are providing only 30% of consumer financing to the farmers. Zarai Taraqiati Bank, which earlier lent money for buying 15,000 to 20,000 tractors annually, is now releasing funds for only 5,000 tractors.

Profit bonanza

The Economic Coordination Committee (ECC), in its meeting held on October 12, 2014, noted that carmakers were making hefty profits on advance deposited by consumers and take four to five months for delivery.

The automakers argue that dealers are in fact involved in delaying the delivery, but officials counter that the manufacturers keep production low to create a gap between demand and supply in an attempt to receive higher prices from consumers.

Used cars

Officials suggest that removal of regulatory duty on the import of cars is being considered. It will spark competition with a reduction in prices of imported vehicles, which are of high quality and conform to international standards.

The regulatory duty had caused a sharp decline in vehicle imports, leaving consumers with no choice but to buy from the domestic industry. In 2013-14, consumers imported only 44 cars in the 1,000cc to 1,300cc category, 3,521 vehicles in the 1,301cc to 1,500cc category and 11 cars in the 1,501cc to 1,600cc category.

While the auto assemblers agree on continuing the import of up to three-year-old used cars, they are pressing for an increase in duties in a bid to discourage imports.

However, parts manufacturers are calling for a blanket ban on the import of used cars. On the other hand, the government feels that imports should not be restricted as domestic manufacturers cannot meet all demand and consumers must have a choice.

Officials point out imported cars would have to undergo a maintenance test in Japan after three years, therefore, prices come down by half. Importers, however, are seeking permission for import of up to five-year-old cars.

Technology support fund

The government has noticed that not a single car manufacturer has been able to meet the deadline for the deletion programme even after an extension. Moreover, the assemblers are producing vehicles based on obsolete technology.

A plan is being studied to set up a technology support fund to bring new technology in the auto sector. The fund will be established with the support of the government and auto industry with the former contributing 50%.

UN regulations

The United Nations Economic Commission for Europe (UNECE) World Forum for Harmonisation of Vehicle Regulations, a worldwide regulatory forum, allows introduction of innovative vehicle technologies, while continuously improving vehicle safety. It leads to a decline in environmental pollution and energy consumption as well as improvement in anti-theft capabilities.

The new policy proposes Pakistan should become a member of this forum in order to promote vehicle safety. Here, there is no check on vehicle safety, which results in accidents. If the country becomes a member of the forum, the auto players would have to submit vehicle safety certificates to the government.

Published in The Express Tribune, March  23^rd,  2015.

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