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The emerging small car market

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The ligh prices of localy produced automobiles in 'disturbing'

By Syed M. Aslam
Apr 03 - 09, 2000

The face of small car market is just about to change in Pakistan with the launching of Daihatsu 850 cc Cuore compact car. A retail price tag of Rs 359,000 for Cuore CL variant makes it the lowest priced locally assembled car. The prices of Cuore CG and CX variants at Rs 379,000 and Rs 419,000, respectively, are also lower than its two main rivals — Suzuki Mehran 800 cc and Khyber 1000 cc.

For the last seventeen years Suzuki has completely dominated the small car market in Pakistan facing no competition as the sole assembler of small 800 cc and 1000 cc cars, jeep, van and pickup. Its 1300 cc Margalla, and its replacement, the 1300 cc Suzuki Baleno two years ago, also enjoys a significant share of the medium-size segment of the market which is dominated mainly by two other Japanese assemblers — Honda and Toyota — who also assemble and compete for 1500 cc, 1600 cc and 2000 cc car market.

The arrival of first real competition in the small car market in the absence of auto imports, which is being discouraged through heavy import duty on new and used cars, will offer choice of price and product to many potential car buyers who thus far were devoid of such a choice.

The Daihatsu project was inaugurated on November 18, 1998 and has been completed three-month ahead of schedule. The project is a joint venture between Toyota Motor and Daihatsu Motor both of Japan and Indus Motor, Company of Pakistan, the local assemblers of Toyota Corolla cars and Toyota Hilux trucks.

It is for the first time anywhere in the world that Toyota and Daihatsu vehicles are being manufactured not only at one plant but will also be marketed through the Toyota dealership network nationwide. The Indus Motor's assembly plant at the Port Qasim has been modified to produce a number of Toyota Corolla variants as well Cuore compact. The plant has the capacity to produce 10,000 Cuore cars per year in single shift though actual production will depend on the market demand. Cuore has achieved a 40 per cent localisation, the highest ever deletion level achieved by a new car at the time of its launch in Pakistan.

Aiming to establish Cuore as market leader in Pakistan, the Indus Motor has not only expanded its 3S dealerships from 17 to 27 throughout the country, including first ever dealerships in Mardan and Sargohda, but has also upgraded its existing facilities to ensure that high quality after-sales service is also extented to Daihatsu vehicles.

Mr I. Shingu, the president of Daihatsu Motor Company who flew from Japan to especially attend the launching ceremony said that his engineers conducted extensive road tests and made improvements in the suspension system to make Cuore the most suitable car for Pakistan. Daihatsu's Shiga test track in Japan which have such features as acute turnings, rough paved track, rope road now also has Pakistani style speed-breaker.

The significance of the Cuore entry in the small car market is evident from the following facts. Of the total 47, 000 cars and light commercial vehicles produced in Pakistan during 1998-99, 30,393 or some 65 per cent fell in the small 800-1000 cc car segment, all of them Suzuki. The 800 cc Suzuki Mehran is the most favourite car in Pakistan — over 16,500 were produced in 1998-99. Suzuki Khyber was the second most produced car- 6991. The buyers would be the real beneficiary of the emerging competition between Suzuki and Cuore.

As Cuore gears up to challenge Suzuki, the sharp rise in the car prices in recent years has drawn the government attention. The chief guest of the Cuore inauguration ceremony Abu Shamim Ariff, the secretary Ministry of Commerce and Industries, said that while the government is willing to support the local auto industry it also needs the industry's support, particularly from the Japanese principals, to fulfil their obligations for transfer of technology, to ensure affordable prices, and to prepare export plans.

He said the corner-stone of the present government's policy is to maintain consistency and transparency to attract additional investments, including foreign investment, into the country. 'We have initiated talks with the industry and vendors to finalise a long-term policy for the auto industry. To promote localisation, we have also approached the WTO to grant Pakistan a seven-year extension to the Trade Recognition of Intellectual Property (TRIP) agreement so as to maintain our current localisation programme," he said.

Calling the high prices of locally produced automobiles as 'disturbing" he said that "the government cannot remain a silent spectator to sharp increase. He also called the standing of yen as paradoxical. "A strong yen should allow the Japanese principals to pass the benefit to car buyers in Pakistan. If Japanese economy is getting strong its benefits should be passed to Pakistan and not the other way around."

Agreeing with the comment earlier made by the chairman of Indus Motor Company, Ali S. Habib, that auto market in Pakistan is growing at a nominal rate. Mr. Ariff said that "it has been so primarily because of sharp increase in auto prices." He also asked "why the car producers in general are utilizing their single shift production shift? They should expand their local market and also go for exports."

The Managing Director of Indus Motor, Farad Zulficar, said that heavy taxation is one of the major reason for high car prices in Pakistan. For instance, he said, 30 per cent of the retail price of Toyota Corolla 1300 cc XE model is collected by the government in taxation. "Remove the heavy taxation the prices of automobiles will automatically come down," he added.