Crisis could have been averted had local car makers done their homework and introduced new models of small cars.PHOTO: FILE
The used-car import industry has been through a roller coaster ride in the last few years but has not completely collapsed. There are several reasons for it not buckling under market pressures, one of them being its appeal among customers, which has strengthened over the years.
Local car assemblers are right when they point out that import of used cars have dented their sales figures but, it is a bitter pill to swallow as the local industry has failed miserably in meeting customer demand.
The situation is not so bleak for the assemblers though, as they have competed valiantly with imported vehicles in the 1,300 cubic centimetres (cc) or above engine category with Toyota Corolla, Honda Civic and Honda City. However, the bigger issue plaguing assemblers is the smaller engine vehicles – 1,000cc or below
Currently, only Pak Suzuki is producing two 1,000cc models while Indus Motor – the makers of the Toyota Corolla – and Atlas Honda Cars do not have a single model in this engine category. Indus Motor had earlier discontinued its only variant in the segment, the Daihatsu Cuore, and says that “the model had outlived its life cycle”
Meanwhile, Pakistan has imported 11,881 used cars during the first six months (Jul-Dec) of fiscal year 2014-15, out of which 76% of the cars fall under the 1,000cc or below category. The trend to favour small cars is neither new nor unusual. Apart from design, customers have grown increasingly conscious over fuel efficiency – one of the main reasons for their popularity.
The share of smaller cars in the imported used cars category has been continuously increasing over the last few years, but local carmakers have continued to ignore this trend. Out of the five engine categories, the share of small cars (1,000cc or below) in used car imports was 45% in fiscal year 2012 (FY12). It jumped to 59% in FY13, 72% in FY14 and it now hovers around a massive 76% in the first six months (July-Dec) of FY15.
This crisis could have been averted had local car makers done their homework and introduced new models of small cars. Instead of introducing new models, Suzuki Alto and Cuore (both 1,000cc or below category cars) were discontinued from June 30, 2012 as these companies were not able to introduce the Euro II engines in these cars to meet the emission requirements of the government.
The local industry understands that it is losing out on a big market by not introducing small cars.
“We want to introduce new models in the small car segment but their initial cost would be over Rs1.1 million, which is high for most of the customers who want entry-level or economical cars,” said an official of a local carmaker on condition of anonymity.
This is where the government can play a big role by reducing different duties on entry-level cars in order to reduce their prices. This strategy can allow carmakers to play on the economies of scale and produce cheaper cars, following the example of India.
What importers want?
Importers bring in cars and other vehicles through three major schemes: personal baggage, transfer of residence and the gift scheme. However, out of the total, about 98% of the cars come under the personal baggage scheme every year.
Carmakers often urge the government to take corrective measures because they promote mis-declaration and money laundering besides hurting the sales of local cars. Yet nothing has changed and the system is still in place for decades.
“We are also tired of these import schemes. We want the government to allow open imports in place of these schemes,” said All Pakistan Motor Dealers Association (APMDA) Chairman HM Shahzad.
Car importers feel the space to do business is shrinking gradually due to the government’s policies of slapping new taxes on registration and transfer of used vehicles, because of which their sale and purchase is under pressure. Moreover, importers say the harassment from customs and other law enforcement agencies is also on the rise.
“We want to do business without hassles,” said Shahzad. “We generate revenue and contribute heavily to the government’s revenue as well.”
Published in The Express Tribune, March 23rd, 2015.
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