Positive move to discourage speculators in cars

Sep 16 - 22, 2002



In order to meet rising demand the automobile industry has considerably increased its production capacity. According to Indus Motors, it has already brought forward its delivery date by six months for its latest model of Corolla. Other car manufacturers are also following suit.

Recently in order to discourage 'speculators', the government has made registration in the name of car booker mandatory, which would not be transferred before six months. "Whoever purchases the car, it will be registered on his name and he cannot transfer it for six months," announced Commerce and Industries Minister Abdul Razak Dawood.

In future, Razak said, if anybody books a car, he must give identity card number to the dealer so that the car must be registered in his real name.

He also announced that delivery time has been reduced from 90 days to 60 days, after which car manufacturers would pay mark up to the booker at the prevailing rate of State Bank of Pakistan (SBP).

Production by OEMs has also increased a brief overview of marques is as follows:

TOYOTA: When Toyota introduced new model in December, its production was only 62 cars in January, 52 in February, 700 in April, 625 in May, 786 in June, 799 in July and it is expected 900 units would be produced in August.

SUZUKI: The production of Suzuki Mehran was 651 in July and its target for August was 1100 while it would further increase production in September.

HONDA CIVIC: The production of Honda Civic was 575 cars in July.

Overall the production and sales of locally assembled cars soared by 42 per cent and 21 per cent, respectively, during the first month of the current financial year over the corresponding month of the last fiscal.

A total of 3,991 units of cars were rolled out in July 2002, as compared to 2,794 units in the same month last year. Sales in July 2002 flared up to 3,691 units as against 3,044 units in the same month of 2001, according to figures given by Pakistan Automotive Manufacturers Association (PAMA).

One myth prevailing is that carmakers are charging premiums for deliveries. The issue of premiums has emerged due to car bookings made by unauthorized dealers and investors/speculators who then sell these cars charging the extra amount from those buyers who are in a hurry to obtain the vehicles. Another myth is that the automobile industry is not equipped to deal with the rapidly increasing demand for cars.

An objective analysis on the situation would reveal that following factors have resulted in this temporary increase in demand:

* The increase in the home remittances after the tragedy of September 11, 2001 has resulted in greater liquidity in the market at the same time profitable investment schemes are negligible therefore people started to invest cars.

* The ease in purchasing new cars due to car loans provided by banks.

In order to meet rising demand the automobile industry has considerably increased its production capacity. According to Indus Motors, it has already brought forward its delivery date by six months for its latest model of Corolla. Other car manufacturers are also following suit.

In spite of all the initiatives the auto industry has been taking all and sundry these days and have decided to make this sector their favourite punching bag. In turn various misperceptions are being voiced, which at times have no basis in reality.

For instance it has been opined that the domestic car engine technology lags years behind the world markets and that the people have not been allowed to accrue benefits of the new hybrid technology. The reality is that hybrid vehicles are twice as expensive than normal fuel vehicles. Government organizations or companies for tax benefit usually buy these types vehicles. Till date only 102,000 units have been sold in the most advanced countries like Japan, USA and those in Europe, which is a very small number. One can easily predict the fate of such products in Pakistan.

Another assertion has been that environmentally friendly engines, improved braking system, reducing noise, fitting collapsible steering wheels, safety steel bar in doors, over dash drive in special models, and fuel conservation apparatus appear hardly the concern of the car manufacturers in the country. Whereas in actuality Honda Civic offers ABS and Toyota Corolla 4-Wheel Disc brakes with stabilizer bars. Safety bars are available in almost all products ranging from 850cc Cuore to Civic and Corolla models. In addition, Corolla offers Air Bags for added safety as well as Jam Protection door windows, while over drive is and always has been available in Corolla A/Ts. In the context of fuel conservation Honda offers V-Tec engine while Corolla is equipped with the latest fuel-efficient Twin-Cam engine with ECT. EFI engines by design are meant to be fuel-efficient. Toyota Corolla and Honda Civic have NVH dampening material lined inside the car, which minimizes noise and vibration ensuring a comfortable, quite drive.

Some people have even stated that in the absence of any watchdog, the car manufacturers are neither providing any information on car performance nor giving any viable warranty in terms of mileage and time frame and after sale service. The fact of the matter is that automobile companies publish an owner's manual that covers all of the terms mentioned in the statement above.

As for quoting on-Road prices in India, the Indian rupee has a different rate against the US $ and duties are different. Besides, the volume production is higher in India, 640,000 cars versus 40,000 in Pakistan. Therefore, a comparison of India and Pakistani prices should be made after adjusting the exchange rates and duty factors.

Today the automotive industry annually contributes over Rs 30 billion to Pakistan's GDP and is also paying approximately Rs 8 billion per year in the form of taxes and thereby playing a pivotal role in the development of Pakistan's economy.

Presently the auto industry has the capacity to produce 120,000 cars annually on a double shift basis.

Car manufacturers in Pakistan over the last decade have contributed considerably towards employment generation. Car manufacturers in Pakistan and vendors employ around 150,000 to 200,000, people directly and indirectly.

The Original Equipment Manufacturers (OEMs) have also been instrumental for transfer of technology, value addition and manpower development. As a consequence of car manufacturing in Pakistan, a vibrant auto vendor industry has emerged that is now not only supplying parts to local OEMs like Toyota, Honda, Suzuki, Nissan, etc, but also exporting internationally.

Auto-part exports are approximately $20 million per annum. Due to the deletion policy, cars manufactured by OEMs now consist 50% to over 70% local components depending on the model.

Over the year vehicles manufacturing has been among the few industries that has continued to attract local and foreign investment even when the investment climate in the country has not been very favourable.

The development of the local car-manufacturing sector is a key element in the industrialization process. It must be remembered that the import of used cars as opposed to Complete Knock Down (CKD) parts would cause a major drain on Pakistan's foreign exchange and work towards retarding the overall growth of the engineering sector in Pakistan.

The auto manufacturers in Pakistan are playing a significant role in the exports of the country. From July 2001-March 2002 auto parts exports have been to the tune of $27 million. Furthermore it is expected that by the end of the present financial year the total earnings from auto parts would be approximately $34 million.

The deletion process is ongoing and every year a certain set number of locally manufactured car parts are incorporated. According to the deletion program carmakers have to progressively increase quantum of locally made car parts till the maximum level is attained. Currently in small cars the deletion level is almost 75% and in larger cars it is close to 60%. A change in the shape has impact on the deletion program. A change in shape means an investment of anywhere from Rs 4-5 billion, which economically is not a viable proposition keeping in view low demand trend.

Under the existing covenants of the WTO it is requited that import duties are gradually reduced. In the case that tariff protection is withdrawn, this will negatively affect the large automotive component vendor segment and would also result in a reduction in the employment created by the automotive industry in Pakistan. This is likely to trigger a reaction from automotive assemblers against the deletion policy of the GoP. The WTO has recently extended the transition period for Pakistan to 31st December 2003. The GoP will soon be starting rationalization of the tariffs and deletion programs to allow the domestic industry sufficient time to adjust to a highly competitive environment. The first phase of major tariff rationalization has already been completed by June 2001. Local automotive component vendors need to improve the quality of their products to international standards in order to be competitive in international markets.

It is in the best interest of our nation that this industry be strengthened and the used/second-hand/reconditioned car imports are restricted as in the past.