!logo.jpg (6328 bytes) . .

1_popup_home.gif (1391 bytes) cover.gif (6176 bytes)

Cover Story

An interview with Sohail P. Ahmed Chief Executive of Thal Engineering.

By Syed M. Aslam
Jan 31 - Feb 06, 2000

Sohail P. Ahmed has a long association with the automobile industry. He has served in top administrative capacities with some of the local car manufacturers and auto parts makers. Automobile industry is more than a vocation for him— it is what he calls his ‘passion.’

Sohail P. Ahmed is the Chief Executive of Thal Engineering, a company of House of Habibs. Thal manufactures car air conditioners under license from Denso Corporation of Japan. It supplies complete range of car air conditioners to Suzuki, Toyota and Daihatsu in Pakistan as well as marketing them in the after-sales replacement market. It also provide complete technical assistance and support which includes installation of new air conditioners, maintenance, periodic check-ups, complete spare parts backup and all types of repair or customisation.

PAGE talked to Sohail P. Ahmed. The following are the excerpts of the talk.

Sohail P. Ahmed on the lack of direction of the Auto Industry

Much has been said about the absence of long-term consistent policies but hardly anybody elaborates what it really means. To me it means that the government should chalk out a plan to highlight the persons per car ratio in the country at present and define what it should be within a specific period in future alongwith the range of vehicles, local content (both content & % specific) etc as parts of an overall vision. This would allow investors to plan and evolve a strategy to achieve the objective. Uncertain policies and adhoc decisions not only shy away any potential foreign investment but also create unrest among the existing manufacturers due to uncertain market need, lower production volumes and lesser than expected returns on investment.

The uncertain policies have also resulted in the lack of transfer of technology as well as development of it locally, primarily because more emphasis on ‘hand technology’ i.e. technical and a much lower priority accorded to ‘mind technology' i.e. technological. We have to start training the minds instead of just the 'hand's. We will remain technical oriented instead of technology oriented unless such a change is being made. We would also keep on suffering from sense of direction, lack of vision and the necessary leadership in the auto industry, just like any other sphere of industrial activity.

. . . On under-utilisation of collective production capacity.

Market expansion measures and market expansion attitudes are necessary. This will help to reduce prices and will benefit everyone, the consumer, the government, the industry, the job market etc.

The assumed market expansion never took place. Suzuki produced 42,000 units in 1991-92 which declined to 50% in mid nineties and has risen back to 32,805 units last year. The projected market expansion depended on a number of factors— firstly on favourable government policies which never came; the increased car leasing facilities which did not take place due to concern about security of recoveries in the absence of the needed repossession laws, and the deteriorating law and order resulting in rampant auto thefts and snatchings. Another major detriment has been incessant rupee devaluation resulting in increase in prices compared to stagnant purchasing power. The high withholding on the import of CKDs and spare parts which still remains a high 60 per cent levies including 35 per cent duty, 15 per cent sales tax and 5 per cent plus, tax at the import stage, have also effected the market size. Instead, sales tax at the retail stage could help balance the equation as all sales, irrespective of source would be equally charged.

. . . On why higher deletion level has not helped reduce prices.

Higher deletion level has reduced the prices of vehicles, which would be much more expensive, if imported built-up at the same levies.

The reduction is however not as visible because the constant devaluation of currency has highly increased the cost of the imported CKD pack offsetting the saving of localisation.

Secondly, localisation will be cost effective if volumes are available, as considerable investments have to be made to localise. In fact it could make it more expensive if the production volumes are low. The low production volumes has also made the manufacturers dependant on price increases instead of turnover to make a profit and create a return on the high investments. Moreover, a chunk of the market is denied to the local assemblers due to smuggling and import of used vehicles, the latter has been considerably reduced by the government policies, but smuggling continues unabated.

The case of the manufacturers of auto spare parts is worse. Smuggling, under invoicing, misdeclaration has about 80% share of the parts market. If the government will somehow be able to reduce smuggling and under invoicing by just 25%, vendor industry would grow by two-and-half fold. It is ironic that on one hand the government is advocating indigenisation which requires big investment but on the other it fails to check smuggling to ensure adequate returns on such investment. This would be a great market expansion effective activity and will benefit the consumers, the industry, the government and the common man.

. . . On heating up competition in the small car segment.

The entrance of new assemblers such as Hyundai and Kia which have already started local production and Daihatsu’s Cuore in near future as well as Daewoo’s plans to assemble cars in Pakistan would have greater product and price choice for the consumers and will thus expand the market, but marginally. However, the cake will remain much the same meaning that individual manufacturer would have to fight it out for the market. This is feared to result in 'cannibalisation'.

. . . On ‘what could be done'?

There are only two steps to get the auto industry out of its current stagnation and impasse. Number one, the government should give a clear vision of what is best for the government and the Country 10 years hence and then adhere to the enunciated vision, irrespective of changes in the government and two, the government should adopt market expansion policies, as appropriate policy, administrative and physical measures to stop smuggling, under-invoicing and misdeclarations; enhanced and easier car financing schemes will follow with lower mark-ups and affordable down-payment and monthly installments.