The changing exchange rates, especially
depreciation of Pak rupee against Japanese yen, drastic cut in duty on
imports of CBU from 65 to 15 percent, and exorbitant increase in steel
prices were some of the genuine concerns of the booming auto sector in
Pakistan. Otherwise, the vibrant automobile industry was giving strong
signals for impressive growth in production in the wake of capacity
enhancement program being carried out by all the major players.
In fact, things taking shape in the auto sector, it
continues to attract investment in all segments of the industry for
modernization, expansion and replacement to increase production
capacity to the level of 300,000 units per annum. Obviously, easy
access to liquidity provided by the banking system under consumer
financing is the major factor in making the auto sector a growing
If the light commercial vehicles and buses were
taken into account along with cars, the existing production capacity
was around 168,000 units per year, however, as far as car
manufacturing was concerned the estimates were close to 113, 835 units
during financial year 2003-04. The production break-up of different
companies reveals that Suzuki remained on top with a contribution of
around 57,757 units, Indus 29,722, Honda 13,415, Dewan 13,235 units,
and Nissan 24 units bringing the total of 113,835 units in 2003-04.
The car production during current financial year i.e. 2004-05 is
expected to reach 135,000 supported by the imported CBUs which is
likely to meet the growing demand to a large extent.
The market-led growth, however, was encouraging the
major players to increase production capacity to reach the landmark of
300,000 during next five years.
By and large, all the stakeholders seem happy, the
auto makers in terms of market potential, expansion in plants and
growth in profits.
The government on the other side looks comfortable
with the performance of the automobile sector due to contribution of
increased revenues by this important segment of the large-scale
Though it presents a rosy picture in the given
circumstance in short terms, the long-term strategy, however, calls
for concrete steps on war footings to gradually move towards economy
of the scale if we have to tap the real potentials the auto industry
offers. It was the auto industry which set many precedence of changing
the course of economic history in different countries of the world
which are now called economic giants both in Asia and the West.
The auto industry in fact needs a direction to
achieve motorization level within the country as the first step and to
grab the market share available in the Central Asian States and Africa
in the second phase.
So far, Pakistan's economy has to heavily rely on
cotton and textile and despite efforts made to diversify our economy
by the governments in the past, cotton textile continues to enjoy the
status of the mainstay of the economy. There were hopes that the much
talked about Information Technology may assume the role of another
leading contributor to the economy couple of years back, however,
despite all hue and cry, either the IT sector failed to produce the
desired results or our economic managers could not deliver the job.
The automobile sector after remaining idle for over
a decade has made an impressive comeback and the way it is striving,
this labor as well as technology-intensive industry has the strength
to provide a strong economic base with the spread in the downstream
and extending the arms into export sector, provided the government
plays as the real facilitator with a clear vision and the direction.
The game certainly deserves candles.
Japan, which is the most valuable partner in the
growth of the auto industry in Pakistan, can contribute significantly
to make auto sector a booming industry in the real sense. The auto
market in Pakistan is mainly dominated by the Japanese technology
being its friendly nature and economical. However, despite having a
major share in Pakistan, there is a lot of room for transfer of
technology as the auto sector has yet to rely on imports for basic
parts and accessories. Indus Motors which is producing prestigious
Japanese automobile models of Toyota, Corolla and Cuore, claims to be
the best in terms of quality and aiming to take lead in the production
as well as eyeing to be the most respected and successful enterprise
During a recent visit to Indus Motors, I
appreciated their vision and the pleasant working environment in
highly professional manners, the target seems very close to them.
However, the goal they were aiming for is especially to become the
most respected enterprise. It may become easier provided the company
sincerely extends its support towards the growth by helping out auto
industry with the impetus of transfer of technology in the real sense.
Some senior officials of the Indus Motors including Shah M. Saad
Hussain, Director Corporate Planning, Akira Sato, Director
Manufacturing, Norimitsu Hayakawa, Chief Marketing Advisor, M. Ilyas
Suri, Director Technical, Tariq Quddusi, GM Manufacturing, warmly
received my suggestion and explained that the company was already
contributing significantly towards human resource development and also
believes in the well being of Pakistan.
They acknowledged that the economy in Pakistan was
on the right track and continues to grow. GDP, foreign exchange
reserves, per capita income and other macroeconomic indicators that
affect automobile sales have shown a positive trend in recent years.
Auto demand was also spurred by excess liquidity in the finance
industry, easy availability of consumer finance and low interest rates
were extending support to the growth of the large scale manufacturing
in Pakistan. They said with a sense of pride, Indus Motors enjoy the
distinction of being one of the highest contributors of revenue to the
government. The contribution to the exchequer, inclusive of sales tax,
customs duty and income tax was approximately Rs8.20 billion, 1.6
percent of the total national revenue collection of Rs510.6 billion in
During the year, sales of Corolla registered an
increase of 58 percent (20,321 units compared to 12,867 units last
year) making Pakistan the third highest in Corolla sales in Asia
(excluding Japan), just below Thailand and Taiwan. The Corolla
continues to dominate the high-end segment with a market share of 54
percent. Sales of Daihatsu Cuore also increased by 40 percent (6,393
units compared to 4,579 units last year) whilst sales of Hilux were
2,399 units. They were of the view that Cuore has established itself
as a leader in its class by virtue of its superior styling, quick
acceleration and quality. During the year, demand for all variants of
the Cuore, including the Cuore CNG, ECO launched last year, continued
to remain strong. Cuore Automatic was launched on April 10, 2004 and
became an instant success. Cuore Automatic is the only locally
manufactured automatic car available below 1300cc.
The success story does not end on the Toyota family
alone, as the sun of success was shinning equally for other auto
makers as well. While Suzuki remains on top of the list with the
distinction of the largest auto producers in Pakistan, Dewans
prestigious Santro and sturdy Shahzore have also make their presence
felt in the market. All these auto players with their agility and
ability seem determined to give a real boost to the economy along with
their respective enterprises.
The government has reduced the gap between CKD and
CBU duties with the objective to ease the mounting pressures on the
automobile companies for timely deliveries which usually take even
more than 8 months for the models which are much in demand. Though the
impact of the import cars was not so severe during the current year
but the size of CBU imports is likely to take quantum jump in the
coming days because the manufacturers have also shift their interest
in the trading as well. As an immediate impact, the government's step
for reducing duties may provide a cushion against the pressing market
demand, yet it may become a gray area for the industry and the economy
as well in the long run. It may be in the interest of the economy and
to pave the way to provide a strong base to the auto industry as well
as the downstream vendor industries to provide duty protection when
the dust settles down with the increase in volume of production of the
companies which are currently in process of expansion of their
According to an assessment, to reach Motorization
level of countries in the region, Pakistan needs to cross 500,000
units mark a year. Currently, Pakistan was on the bottom line with a
Motorization level of 8 cars per 1000 persons. Motorization figures
available from other countries indicate China has 10 cars per 1000
persons, India 12, Indonesia 21, Iran 23, Sri Lanka 25, Philippine 31,
Turkey 67, UAE 193, Saudi Arabia 326, UK 426, Japan 543, New Zealand
580, Australia 619, Malaysia 641 and the USA 785.
The opening up of the banking system for consumer
financing was of course the brainchild of our economic managers which
deserve appreciation. In fact, it was due to continued access to
credit, which played as the key driver especially for the large scale
manufacturing growth in the current economic scenario. The direct
impact of continued easy monetary policy is more evident in the robust
growth of automobile sector in Pakistan.
Automobile industry recorded an increase of 23.7
percentage points in capacity utilization. Within automobiles, the
capacity utilization in tractors industry witnessed the largest
increase of 44 percentage points, followed by motorcycles/scooters,
light commercial vehicles, cars and jeeps.
Since the capacity utilization in motorcycle and
tractor industry has reached about 112.3 percent and 113.9 percent
respectively, manufacturers were planning to expand the production
capacity, working hours by six days a week besides increasing the
shifts during the current year to bridge the gap between demand and
Auto loans or car financing schemes launched by the
banking sector saw an even larger jump in the current financial year,
accounting for approximately 32 percent of consumer loans.
According to official figures released by the State
Bank of Pakistan, 40.2 percent YoY growth by the automobile
manufacturing was on top of 48.4 percent growth recorded last year.
Interestingly, within the automobiles sector, the
production of Light Commercial Vehicles (LCVs) recorded the highest
growth (84.9 percent YoY) following by buses 65.2 YoY during current
financial year. The quantum jump in the growth of LCVs was quite in
contrast to trends during last year when the production of LCVs and
buses had declined by 14.1 percent YoY and 38.5 YoY percent
respectively in the early quarters of previous financial year.
Some other segments of the auto sector witnessed a
relative deceleration in growth due to a high-base effect as well as
capacity constrains, but the growth in most segments is certainly
In particular, the production of motorcycles and
scooters increased by an exceptionally 52 percent during current
financial year, followed by cars and jeeps by 36.4 percent and
tractors 36.2 percent YoY basis. The large jump in the production of
motorcycles reflects not only the continuing impact of consumer credit
but also the fall in prices following the entry of low-priced Chinese
motorcycles in Pakistani market. On the other hand, the production of
trucks registered a decline of 12.9 percent in the first quarter of
the current financial year, in contrast with the growth of 18.5
percent during the same period last year. This is largely due to
suspension of manufacturing of a Japanese brand truck by a local
facility as it switched to the production of a new Chinese brand
Despite having comprehensive expansion plans in
hand by all the major automobile manufacturers aiming at double their
existing capacity, the leading auto assemblers were compelled to
import completely built units (CBU) as they are cheaper than the units
produced within the country.
The import of cars is likely to take a quantum jump
next year, said representative of a leading car manufacturing company
Since imported cars were comparatively cheaper than
the ones manufactured or assembled locally, majority of the leading
auto manufacturers like Indus Motors which produces renowned models of
cars in Pakistan have started importing CBU units.
According to industry sources, the duty on CBUs has
been reduced almost to the bottom line from 75 percent to 15 percent
up to 1000cc, 1300cc 15 percent, 1300-1500cc 35 percent, 1500-1800cc
45 percent and 1800cc and above 65 percent.
Since the auto industry really has enormous
potential to generate tremendous economic activity and has played a
role model in the growth of developed economies of the world, the
significant sector can emerge as the engine of economic growth in
Pakistan as well needs protection.
Though all leading car manufacturers have already
geared up expansion of their existing plants, yet all of them are
considering going into expanded trading activity into imported
The automobile, according to Pakistan Association
for Automotive Parts and Accessories Manufacturers, is the sector
which has the capacity to make things happen.
The current economic scenario, however, places the
auto industry with the credit of one of the major contributors to the
economic growth of the country. The industry has impressive expansion
plans with the target to produce 300,000 cars, 3,000,000 motorcycles,
40,000 tractors within next five years.
This growth in production would mean to contribute
Rs368 billion to the GDP, Rs121 billion to the revenue, 300,000 job
opportunities, investment of Rs233 billion, import substitution worth
over $5 billion and a substantial foreign exchange saving of around
$2.830 billion during next five years.
Although the government has decided to reduce duty
on imports of car to bridge the gap between demand and supply, as the
addition arrival of imported cars may ease the situation especially
for timely delivery and root out the malaise of premium being extorted
by the middleman and profiteers, yet it would ultimately affect growth
of auto industry in the wider terms and in the long run.
It is heartening to note that the auto sector has
assumed a position where the market forces are determining the stretch
of investment as compared to other sectors where the efforts have to
be made to attract investment. According to figures released by
Pakistan Association for Automotive Parts and Accessories
Manufacturers (PAAPAM), the target of investment in car manufacturing
segment was projected at Rs42 billion, Motorcycle manufacturing
Rs13.75 billion, tractors Rs5.50 billion, while investment in the
vendor industry is projected at Rs171 billion during next five years.
In fact, the current chaos in meeting the target of
timely delivery to the genuine buyers is due to a free for all
situation encouraging resellers, investors, roadside dealers who are
causing increase in delivery times for genuine buyers as the current
registration regulations do not stop investors from charging premium.
The Indus Motors has suggested some correctives
measures to discourage investors and the resellers which include
detailed scrutiny of PBO, customer details and copies of NIC, only one
vehicle should be allowed against one NIC. Indus Motors have further
recommended for mandatory registration for all vehicles for 6 months
in the name of original buyer. An effective provision is required to
be evolved through the Central Board of Revenue and Income Tax
authorities can investigate NTN buyers who order vehicles. NAP may
also investigate investors charging premium as well as the customers
paying the premium to the middleman or the investors.