IS STIMULUS NEEDED FOR AUTO VENDING INDUSTRY?

TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com)
Mar 02 - 08, 2009

Auto vending industry, the backbone of original equipment manufacturers in Pakistan, like many other industries that face contraction in growth in past few months has also gone awry due to slump in production and sales of automobiles over time. Once enjoying superfluous production orders from makers of motorcycles, tri-wheelers, cars, trucks, tractors, buses, auto vendors are now feeling the pinch of tapered production orders. The situation can be reversed if demands enliven in local market. Alternatively, if fresh markets are explored outside the country for local auto parts, auto vending industry will get out of current predicament that is infiltrating furtively layoffs in the industry for cost cutting measure.

Is second option viable without revival of protectionism that local auto industry enjoyed for over a decade and that lifted it at least to a position where assemblers started depending over it for having 34% of components of automobiles? Local components requirement known as deletion program abolished in June 2005 and replaced with trade related investment measures' compliance tariff based system was protectionist regime that constricted OEMs to use local components in making of automobile to a predefined extent.

Favorable to indigenization of auto industry, the deletion program in fact increased production in auto vending industry and thereby employment in it. According to an estimate, an automobile consists of average 20,000 components including engine parts, body parts, trims, suspension parts, and electrical parts. In addition, body parts that form largest composition of an automobile are manufactured locally. Despite increment in numbers to over 1600, both organized and mostly unorganized, auto vendors have never been allowed to share sophisticated and hi-tech expertise of OEMs and to supply designs in replacement (spare parts) markets. Local auto vendors design parts that include engine parts according to drawings of OEMs which seldom share equipment prototype designing with vendors.

Small and medium enterprises make 90% of auto industry. Is it not an irony that despite constituting major portion of trade and industry small and medium sized enterprises in Pakistan are always treated with indifference and disparate attitude as compared to large scale industry? Obviously, its low volume of production differentiates it from high volume production industry. However, on this account variation in treatments should not be based. Similar to constellation of stars overwhelming solar reflection, agglomeration of SMEs outputs can become more powerful source of economic prosperity, by increasing government revenue sources, by expanding exporting base, by creating economic self sufficiency, by employment generation. Unfortunately, apathetic approaches towards development of sustainable SMEs base in the country have so far gained paltry access to optimal prowess of this sector in infusing economic prosperity. Identical doom befalls on auto vending industry which runs mainly by low-financed, unorganized small and medium companies.

Reversal of this state is a call of the day when government is eagerly looking for ways to reducing widening trade deficit. As Pakistan has presently trade imbalance too in auto parts and has whopping dissimilarity in its import and export figures, government should do something to get benefits out of local auto manufacturing industry. Exports earning of auto industry constitutes a scant portion in total national export revenue. For example, in total exports of $11.46 billion during July-Jan FY09 auto parts earned government $9.73 million. It was $9.10 million in the corresponding period of the last fiscal year. In a wide contrast, auto parts importation sent $43.41 million from the country in seven months while $50.11 in similar duration last fiscal year.

Local auto vending industry needs booster to manufacture auto parts in excess of their present capacity to increase exports. For that matter, the industry must be free to cater to demands of OEMs as well as importers. This may necessitate policies that unbind auto vendors of their obligations to restrict their supplies only to original equipment manufacturers. Persistent exploration of international markets and opportunities for local auto parts is equally important.

An apt stimulus can do away misappropriation of hard earned government revenue in profligacy of officers on special duties, commercial councilors, whose rectification may pave the way for due utilization of auto industry's export potential. Mended direction of flow of export development funds will also develop due development of export base of the local auto vending industry. Merely rhetoric in shape of superficial auto development plan has so far failed in bringing about actual proliferation of the indigenous auto industry and that stagnancy is evident from the fact that unorganized auto vending industry remains truly unorganized.

Driving this important segment requires not a fresh monetary stimulus but surveillance over allocation and upright disbursal of government aids. Though practically impossible it is to successfully work out a plan while out of international trade ambit, protectionism has not lost the vigor to detain the success and it is still callable and taxing on the talks-tables of economies world over weathering impotency of their economic systems. Its reverberation in many capitalistic economies nowadays is cited as an example. French President Sarkozy turns up a staunch supporter of protectionism to auto industry. Recently during a TV interview, he said local car marker be propped up with federal aids. With a government tightening strings of purse, auto vending industry of Pakistan can not long for federal financial backups. However, making it seriously a part of mainstream economy through policy-shift and organization will summarily relive it from extraneous, snowballed hardships in concurrence with building stable auto exporting industry.