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New entrants in the auto sector of Pakistan

Pakistan, a country with over 208 million population with educated middle class, is focus of attention of the automobile investors of the world. A recent development reveals that the world’s renowned auto brands are flexing their muscles to make their way to Pakistan and explore the untapped market which is solely dominated by the Japanese Honda, Toyota and Suzuki, the three auto assemblers in Pakistan.

German giant Volkswagen has shown its desire to invest in Pakistan. German Audi is going to be one of the leading investors in the auto sector of Pakistan. The plan of the French Renault to invest $100 million in the Ghandhara Nissan plant in Pakistan has sent a wave in the Pakistani auto sector. Hyundai and Kia, the South Korean brands, announced collaboration with Nishat Group and Younus Brothers. Moreover, auto makers currently working in Russia, Italy, Thailand, China, UAE and Turkey are keen to invest in the burgeoning auto sector of Pakistan.

In the not-too-distant past, just a couple of years ago a Chinese delegation representing 500 auto manufacturers and assemblers visited Pakistan for the investment opportunities. The delegation is believed to comprise Chinese manufacturers and assemblers of cars, heavy duty trucks, engines, auto parts and tyres. The would-be plans of Khalid Mushtaq Motors, Dewan Farooque Motors Ltd, truck production of Hinopak and bus production of Hino and Isuzu augur well for the economy and the customers in Pakistan.

It is widely believed that the Auto Development Policy 2016-21 has attracted significant investments in the auto sector of Pakistan. Besides, the incumbent government seems agile in giving space to the investors from across the world.

The critics of the recent developments believe that the actions speak louder than words. A deluge of auto makers from across the world have been visiting Pakistan over the period of preceding two decades, however, nothing concrete has come up except MoUs and intentions to invest. The following instances give credence to the critics.

 

Russian automobile manufacturers visited Pakistan in 2003 and expressed keen interest in setting up manufacturing facilities in the country for making automobiles. The Ministry of Industries and Production finalized plans in 2010 to invite new entrants in the automobile sector to invest in Pakistan through joint ventures etc. In 2007, Mr Shaukat Aziz, the then prime minister of Pakistan, declared that the government attaches great importance to the growth and development of auto industry as it is a key driver of economic growth, technology transfer and a creator of jobs but nothing much was done.

The overall manufacturing/assembling of cars in Pakistan is not even 300,000 whereas the rising middle class and the educated youth are always on the look for the convenience and comfort which need to be catered to. This is an enormous opportunity for the investors coupled with the all-out support by the Imran Khan’s PTI-led government. Owing to the non-availability as well as skyrocketing cost of the cars in Pakistan, a substantial chunk of the population resorts to buying used imported vehicles. Pakistan has been importing around 70,000 used cars on average every year to meet the demand of the market.

With the entry of the European and the Chinese brands in the auto sector of Pakistan, the price and quality factors would fascinate the customers and the long-held monopoly of three leading Japanese brands might dissipate.

The depreciation of the local currency has been a real factor in the costing of the vehicles over the period of last one year. Pakistani rupee has lost 33 percent of its value since December 2017. Further depreciation of the local currency might compound the problems of the prospective buyers of the vehicles in Pakistan.

Extended family system, predominately in the large cities, is vanishing in Pakistan. And there are more and more nuclear families in the large cities of Pakistan which calls for compact cars. The new entrants in the auto sector of Pakistan might focus on economical compact cars rather than SUVs by virtue of the economic conditions and the need.

Financial institutions had a whopping business from 2002 to 2008 in terms of auto financing. The history might repeat itself in the not-too-distant future.

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