VENDOR INDUSTRY CONFRONTED WITH PROBLEMS

KANWAL SALEEM
Jan 14 - 20, 2008

LAHORE: The auto sector was one of the largest segments in the world trade. In Pakistan car and two-wheelers had seen remarkable growth over the last few years. The growth in domestic market had increased significantly in the recent years. The vendor industry had the potential for development of the entire auto sector. The development of vendor industries in return assured technologies in nearly all spheres of engineering, especially metallurgy and glass. Around 400 vendors were engaged in the production of auto parts locally, however, the industry is facing manifold problems, Syed Nabeel Hashmi, former Chairman Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) said.

Talking to Pakistan and Gulf Economist (PAGE), Mr. Hashmi said automotive industry in Pakistan started in 1950 and has gone through different phases of progress. He said the two segments of the industry namely; car and two wheelers have shown remarkable growth over the last five years. The growth in domestic market of cars has risen from 40,601 in 2001-02 to 126,817 in 2004-05, which crossed 150,000 units during 2006-07. This growth was attributed mainly by car financing schemes, improved liquidity position of certain class as a result of economic growth indicators and other monetary measures. The motorcycles have also shown marvellous growth due to new entrants. The new entrants with fair competition have brought about the availability of cheaper vehicles in the domestic market, he said, adding that demand of new tractors still exists but tractor manufacturers are facing problems due to shortage of raw material.

He said the vendor industry has the potential for development of entire engineering sector. Development of vendor industries in return assures transfer of technologies in nearly all spheres of engineering, specifically, metallurgy, plastics and glass. Technology exists for major engine, suspension and transmission components but due to limited market, prospective entrepreneurs shy away from investment. Over 400 vendors are engaged in the production of auto parts locally including tyres, sheet metal parts, mirrors, gaskets, engine valve, camshaft, oil pump gears, pistons, radiators, seats, dashboard, and axles, he said.

Elaborating Syed Nabeel Hashmi said in car production, there is around 40 percent decline in production in the last few months and the situation will be more difficult in coming months. The deteriorating law and order situation, electricity and gas crisis and problems in raw material supply have compounded the problems of manufacturers and a number of companies have stopped their production. In motorcycle production, he said although the production continues but most of the vendors are facing issues with regard to payments. In Tractor manufacturing, demand for tractors exists but shortage of raw material is major problem confronted to this sector at present.

He further said that strict regulations of State Bank and aggravating law and order situation have caused some serious problems for the vendor industry.

To a question, Syed Nabeel Hashmi said Pakistan has the potential to enhance its share in international exports in the engineering sector. "We must develop our engineering sector in order to get more shares in the world market. More exports in the engineering sector would be a tool for achieving sustained economic growth"", he opined. He said Malaysia, Thailand, Indonesia and Singapore had exploited their potential in the engineering sector, and it is high time for Pakistan to also focus on this sector.

He further said the Engineering Development Board was inching slow but steadily towards its goal of technology acquisition, deletion and cost reduction through indigenization. Strengthening of EDB to make it a more vibrant organization is a step in right direction, he added.

EVOLUTION OF AUTOMOBILE INDUSTRY IN PAKISTAN

Automotive industry in Pakistan started in 1950 and has gone through different phases of progress as summarized below:-

PERIOD

MANUFACTURING OPERATIONS

VEHICLES

COMPANY

1950'S

(Private sector).

SKD Assembly.

Bedford trucks/buses.

General Motors.

1960'S

(Private sector).

SKD/CKD Assembly
Indigenization in :-
i) Bedford trucks/ buses - 40% approx.
ii) Cars - 20%.

Bedford trucks/buses,
Ford Combi vans,
Vauxhall, Ford
Prefect, Ford Cortina
and Dodge Dart cars.

Gandhara Industries Ltd.
(formerly General Motors).

1970'S

(Nationalization).

SKD/CKD Assembly Indigenization process accelerated and achieved 80% deletion in Bedford trucks/buses by 1976.

Bedford Trucks/Buses, cars (up to 1972).

PACO

1980'S ONWARD

(Privatization & entry of private sector).

Progressive manufacturing of cars under Deletion Programme.

Suzuki, Toyota, Honda, Hyundai, Santro, Kia, Cuore, Revo and Chevrolet cars.

PACO, Pak Suzuki Motors, Indus Motors, Honda Atlas Cars and Dewan Farooq Motors, Adam Motors, Nexus Auto


SEGMENT WISE AUTOMOBILE MANUFACTURING UNITS

Cars

7

L.C.Vs

7

Jeeps

2

Truck and

5

Bus

 

Tractor

4

Motor cycle

39

Vendors

(400 approx)

OPERATIONAL ENVIRONMENT

Industry operates under franchise and technical cooperation agreement with:

Japan
Europe
Korea
China

TARIFF STRUCTURE FOR AUTO SECTOR

PRODUCT

CUSTOMS DUTY

 

CBU

CKD

CARS

Up to 1500 cc

50 %

35 %

1501 - 1800 cc

65 %

 

Above 1800 cc

75 %

 

OTHER VEHICLES

LCVs

60 %

20 %

Buses

20 %

5 %

Trucks

60 %

20 %

TRACTORS

(35 HP to 100 HP)

15%

0 %

TRACTORS

(Above 100 HP)

30%

0 %

Motorcycles

90 %

30 %