Car Assemblers decry relaxation

CCP says anticonsumer practices in local car manufacturing industry, assemblers say rupee depreciation to blame.

KARACHI: Car prices in the country have not increased more than five to six per cent over the past year, whereas the cost of production has increased manifold and been absorbed by car manufacturers, says Director Marketing Indus Motor Company Raza Ansari.

“One should also look at the problems faced by local manufacturers, who are in losses due to an unprecedented increase in production costs,” asserted Ansari.

He was talking to The Express Tribune in reference to the government notification issued on Thursday which increased the age limit of imported used cars from three to five years. The move is expected to hit local assemblers hard as the import of used vehicles is likely to go up.

Purchasers, on the other hand, will benefit in the form of lower price tags and more options to choose from. “This will certainly hit all local car manufacturers, but most importantly it will badly affect local vendors who supply parts to assemblers,” said Ansari.

Manufacturers have been repeatedly asking the government not to increase the age limit for import of used vehicles but the government has been under pressure from the public as prices of locally manufactured cars have been increasing sharply for the last few months.

Dealers versus manufacturers

Ansari said that all three big car manufacturers are facing tough conditions owing to a difficult business environment. The Pakistani rupee has been depreciated 17 per cent against the Japanese yen over the last one year, bumping up the cost of production.

“Should we support car manufacturers who provide employment and taxes to the government or automobile dealers who do not pay taxes,” he questioned.

Meanwhile, car dealers assert that the sharp increase in prices of locally manufactured cars was mainly due to the high margins of manufacturers.

“We do not have any objections over proposals to bring more car manufacturers to the country,” countered Ansari, in reference to the government’s proposals to soften investment conditions, for example by reducing annual production criterion from 500,000 to 100,000 units.

What analysts say

“Based on our preliminary estimates, we expect that an additional 5,000 cars could be imported during this fiscal year if the decision is implemented within a few weeks,” commented Furqan Punjani from Topline Securities.

According to Punjani, of the total 150,000 cars sold during the previous fiscal year, only 5,500 were imported vehicles. “Going forward, the import of cars can go up to between 10,000 and 13,000 units.”

He contrasted the current move with the similar situation three years back when the import of cars up to five years of age was allowed.

Given the prevalence of low consumer confidence, higher imports can be expected in the 1,000cc-1,300cc segment where Pak Suzuki and Indus Motor are likely to be affected.

Published in The Express Tribune, December 10^th, 2010.