Home / This Week / Cover Stories / Encouraging outlook for auto sector

Encouraging outlook for auto sector

Extraordinary growth during 2015-16 broke all previous records

Auto assemblers see the new fiscal year as encouraging owing to improved economic conditions, which are translating into an increase in demand for vehicles. Political stability and normalcy in law and order situation would help the industry to grow at an increased pace.

Auto industry and its growth potential are attracting a lot of players in this region. Large auto players were eying the local market with interest and newly announced incentives by the government could motivate them further.

The reduction in interest rates is having an appreciable impact on car financing and in turn a positive effect on car sales.

The share of auto financing in car sales has increased from 20 to 22 percent last year to up to 30 percent this year.

Car sales hit to 180,079 units in 2015-2016 as compared to 151,134 units in 2014-2015.

There was a jump in truck sales to 5,550 units from 4,111 and bus sales to 1,017 from 569 units. The impressive figures of 2015-2016 were backed by 50,000 units of Suzuki Bolan and Ravi sold under Punjab Taxi Scheme.

Car sales will grow at 5-year (2016-20) compound annual growth rate (CAGR) of 12 percent due to improving law and order situation in the country, rising auto financing owing to 42-year low interest rates and increasing disposable income.

Pakistan which has 13 cars per thousand people will reach 20 cars per thousand by 2020.

The industry witnessed a similar boom in sales during 1992-93 when the Prime Minister Yellow Cab Scheme was launched. At that time, there was an artificial increase in demand mainly due to major finance shared by financial institutions. This time, the situation is totally different.

In the recently announced auto development policy (ADP), the decision to put age limit on import of commercial vehicles and changes in tariff would prove a morale boosting actions for the local assemblers.

At present, the installed capacity of this sector is over 30,000 units per annum. With this installed capacity, only need few weeks to hire and trained workers and get into business.

The market needs are catered by the best Japanese brands in addition to Korean and Chinese players but there is still room from Europe players.

Car sales to jump by 10 percent in the current fiscal year if used car imports are limited. Sales of commercial vehicles may grow by 15 percent in 2016-2017.

BENEFIT OF FORTHCOMING AUTO SHOW

Pakistan Auto Show 2017-PAPS would invite both local and international investors who are showing keen interest in working with Pakistan. The main target of PAPS show is to benefit Pakistan through boosting its industries, promoting import substitution, enhancing exports and economic growth.

Market share expected in 1,000CC as Honda Civic is forecasted to gain footing there by churning Toyota sales.

Pak Suzuki is also expected to launch Celerio and possibly the 660cc Alto which would move the company’s volumes up.

Renault, a French car manufacturing company, is expected to start assembling cars in Pakistan by 2018.

The government was pursuing foreign car makers like Renault and Nissan with generous import duties last year.

New entrants would be able to import machinery for plants duty free. Customs duty for importing car parts has been set at 10 percent, while existing players will have to pay 30 percent. With greater competition consumers will be offered better choices.

NEW MEASURES

Economic Coordination Committee of the Cabinet headed by the finance minister constituted a committee to review the Auto Policy and recommend new measures for expansion, investment and consumer protection in auto sector of Pakistan.

The committee held several meetings and interacted with all stakeholders and came up with new policy package to attract Greenfield investment as well as revive existing closed auto units in the country.

The threat of militancy also remains high, despite the armed forces’ long-running campaign against groups including the Taliban.

Foreign companies have been reluctant to invest large sums when the long-term outlook is so uncertain.

Prices and the quality of locally produced cars, which tend not to have airbags, anti-lock braking systems (ABS) and other features considered standard elsewhere.

The cheapest Pakistani car, the Suzuki Mehran, sells out double the price of a comparable model in India.

Volkswagen is set to launch two new vehicles in Pakistan.

MORE CHINESE INTEREST

President of Chinese Company, Wang Tao met Punjab Chief Minister Muhammad Shahbaz Sharif, recently. During the meeting, Chinese company evinced keen interest in investment in auto sector in Punjab.

President Chinese Company Wang Tao said that there was very conducive environment for investment in Punjab and his company wanted to invest in auto sector. He said that his company wanted to set up vehicles manufacturing plant in Punjab.

German truck maker MAN SE is at an advanced stage of setting up a plant in Pakistan, industry officials say.

Forecasting greater demand of heavy vehicles under the China-Pakistan Economic Corridor (CPEC), vehicle manufacturers are flocking to Pakistan to explore opportunities of investment with MAN SE being the latest addition to the growing list.

It is pertinent to mention that 75 percent of MAN SE’s ownership rests with the Volkswagen Truck and Bus GmbH, a wholly-owned subsidiary of Volkswagen AG.

Industry officials say this is a big development for Pakistan because the company is also expected to export trucks from the country.

The National Logistic Cell (NLC) is expected to give significant orders to MAN SE because Pakistan’s leading logistic company is looking to replace its old fleet, an auto industry official informed.

CPEC is expected to generate huge demand for trucks in Pakistan and industry officials say Pakistani companies like NLC would prefer to use German trucks due to quality concerns.

Local industry officials say German trucks are better placed to commute on extraordinary high altitude of Karakoram Highway (KKH) – one of the highest paved roads in the world that connects Pakistan and China.

The 250 year-old company operates through fully owned subsidiaries or joint ventures with local companies in India, Poland, Turkey, China, the US, the UAE South Africa, Uzbekistan, Portugal etc.

Suzuki Motors proposes conditioned investment of $660 million in Pakistan. If the same two years (of) incentives and benefits are given, then Suzuki is committed to investment in setting up a state-of-the-art new green field plant and it would introduce new and advance models.

Total expected investment by the company is expected to stand at $460 million, which includes foreign investment of $250 million, inclusive of an 80-acre plot already purchased by Pakistan Suzuki Motor Corporation (PSMC).

Vendor investment is expected to be $200 million while the annual volume of local parts purchase is expected at Rs18.72 billion.

The company informed the government about PSMC’s investment is likely to create approximately 3,000 direct jobs while its vendors will add 24,000 jobs as a result of this investment. After adding 324,000 indirect jobs, the total number of jobs will cross 350,000.

The company said the plant will have the capacity of producing 100,000 vehicles per year. It will start producing new models within three months of the plant’s completion.

Auto manufacturing is a fully documented industry and it ranks amongst the top three taxpaying industries in Pakistan.

The industry’s performance and growth is being threatened by a few issues that can be solved if the government shows more vigilance and commitment to the policy prescribed in the ADP 2016-2021 and execute investment plan accordingly.

Localization of hi-tech parts in the country is possible only if the government supports the industry with Investment incentives same as the Special Economic Zones (SEZ).

New auto policy offers great incentives to the auto industry. It is already attracting many new automakers and will lead auto sector to more business growth while it will surely increase consumer choice. This policy will drive Pakistan’s auto industry forward and can then compete with other regional auto industries with great success.

Check Also

An important step for the Islamic Financial Industry of Pakistan-Senate resolution 393

An important step for the Islamic Financial Industry of Pakistan: Senate resolution 393

Over the past few years, Pakistan’s economy is facing a bad patch. Some of the …

Leave a Reply