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Jun 19 - 25, 2000

Easy availability of smuggled and legally imported, but excessively under-valued, spare parts is depriving the government millions in lost revenue on the one hand and undermining the very existence of local auto vending industry on the other. It is also denying the local car producers to market their genuine parts, both imported and locally manufactured as per the specifications of Original Equipment Manufacturers (OEMs), in the replacement part market.

The threat to the survival of the vending industry is very real as the availability of the replacement parts market is a must for the development of the component industry which can not subsist on the supply of parts for the auto assembly alone. The absence of the replacement part market is not only denying the local auto vending industry to exploit its production potential and to develop an economy of scale but is also hampering its growth.

The local auto vending industry, which is manufacturing a variety of components for the local auto producers as per the specifications of Original Equipment Manufacturers (OEMs), is deprived of the replacement parts market which is heavily dominated by smuggled as well as imported but excessively undervalued products. The easy availability of these under-valued imports throughout the markets allover the country is all the more threatening as the majority of such fast moving auto accessories such as plugs, points, lighting assemblies, air filters, oil filters, a/c compressors, fan belts, mud guards, etc., are routinely finding their way into the country legally. For instance, auto shock absorbers which retails anywhere from $ 20-30 equivalent in local currency are cleared at an unbelievable low Customs valuation of $ 1. The case with other frequently used accessories listed above are no different.

Talking to PAGE, the Vice Chairman of Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), Javed Shaikh, said that the clearing of automotive parts and accessories at unbelievably low valuation is taking place under the nose of the policy makers and yet it remains undetected. The market is so heavily dominated by these smuggled and under-valued replacement parts that it is hard to buy locally manufactured part. This preference on the part of the retailers to sell smuggled and under-valued auto parts is driven by two primary reasons. Number one, the national psyche which prefers all things foreign even though a locally manufactured substitute is exclusively made for the locally assembled automobiles as per the specifications of OEMs. And number two, the immense profit which under-valued imports offer to the retailers. The massive grey market look even more vicious when one notes that the auto component manufacturers had to face a 20-30 per cent reduction in demand due to automotive recession in the country last year which still continues unabated.

The local vending industry which comprises of some 750 manufacturers of all sizes producing a variety of items including precision engineering parts, sheet metal, radiators, body parts, plastic parts, plugs, air and oil filters, employs some 500,000 persons directly or indirectly. The limited assembly market in addition to loss of the major portion of the replacement parts market is denying the local auto vending industry the push imperative for its growth and to encourage investment. In fact, it is eroding the very foundation of an industry which is still in its nascent phase.

Talking to PAGE, Manager Planning of Indus Motor, the local producer of Toyota Corolla cars and Hilux Trucks, expressed concerns that container-loads of spare parts are increasingly finding their way into the country legally under shipments labelled 'scraps.' Allowed to be released into the local market these spare parts in good working condition are subjected to the minimum of import duty irrespective of the fact that they are neither 'scrap' nor 'in a condition unfit for use.' A massive 95 per cent of the market is dominated by these 'good to use' spare parts while the share of genuine parts manufactured by local vendors according to strict specifications of OEMs is no more than 5 per cent. 'We are losing a sizeable amount of revenue from the sales of spares due to easy availability of low priced imported substitutes in the local market,' he added.

Javed also blamed the local auto producers for discouraging the sales of locally manufactured auto spares and accessories by inflating the retail prices aimed at high profit. The OEMs have made it a habit to retail the spare parts at a huge profit to render them further incompetitive in a market which is already heavily dominated by much lowered priced smuggled and under-valued substitutes. The profit margin seemed fit by these OEMs is highly unreal — a part bought from a local vendor for Rs 300 retails for Rs 500 while in many other items the profit runs as high as ten-fold, Javed claimed.

He asked that the government should implement the GST at the retail level to at least earn some revenue from the massive sales of smuggled and under-valued imported auto parts and added that it would also do a lot of good to the local vending industry. It should also ensure the correct evaluation of imported auto parts for import tariff purpose. Failure to address these issues would keep on posing a threat to the very survival of the local vending industry, he added.