KARACHI: Nature is indeed kind to Pakistan. Country received timely rains last year providing sufficient water to help harvesting bumper cotton and wheat crops last monsoon. A strong backup provided by the agriculture contributed positive impact on the sub-sectors leading phenomenal economic growth in recent years.

But the growth witnessed a swift shift of the economic activities, which generally depend on performance of agriculture sector, to large scale manufacturing (LSM). The backbone of LSM growth has been marvelous turnaround of automobile sector, which is growing at an amazing pace for the three fiscal years.

LSM, which account for about 70 percent of overall manufacturing activities, grew by 15.5 percent in the fiscal 2004-5. That significant increase came after 18.2 percent rise in the last fiscal. Nevertheless, the pace of growth in automobile sector, which grew by 49.5 percent in 2003 and took another quantum leap when it grew by 50.26 in the next fiscal. Though growth tapered off in the fiscal 2004-05 but still registered a rise of over 30 percent.

The increasing trend touched almost every segment of the auto industry. The demand in the auto sector has been spurred by low interest rates in the financial markets, a persistent inflow of home remittances, cheaper and easy access to car financing and frequent model changes induced by furious competition in the car industry. However, the present growth not came by in years. It took well over five decades to become really a vibrant and performing sector of the economy.


The first phase of automotive assembling in Pakistan started in 1950 with Bed Ford truck followed by Ford Prefect, Ford Cortina and Dodge Dart.

The locally produced parts in these vehicles did not exceed 20% with only exception of Bed Ford trucks with a deletion level of 80%. By the end of 70s practically all automobile assembling in Pakistan ceased.

The 2nd phase of automobile assembly started in 1983 with the introduction of FX 800 CC Suzuki Car. In 1989 Pak Suzuki changed the model of FX 800 CC with Mehran 800CC. Pak Suzuki thereafter in 1992 introduced Khyber 1000 CC and 1300 CC Margalla but the indigenization levels from 1983 to 1995 were not significant (i.e. Mehran 30%, Khyber 20%, and Margalla, 15%).

In 1993, Indus Motors Company Ltd., Karachi, introduced Toyota Corolla. Honda Atlas (Pak) Ltd Lahore in 1994 introduced Honda Civic having 1300CC engine capacity. Indus Motors, Dewan Farooq Motors and Pak Suzuki introduced smaller cars i.e. Cuore, Cultus and Santro of engine capacities 850 cc, 1000 cc, respectively, in 2000. This was known as an era of competitiveness.

Up to 1995, the deletion cell of ministry of industries and production was formulating and monitoring the deletion programs. The industry specific deletion programs were formulated to specify local content requirements for cars, motorcycle, buses and trucks.

The Japanese, Korean and European entrepreneurs have invested almost US$ 1.5 billion in Pakistan's automotive sector. The local investment in the automotive sector is approximately US$ 1.0 billion. The size of the industry, however, remains meager in view of the world market. Auto market is one of the largest segments in world trade. The annual size of automotive export trade in the world has grown to a massive level of over US$ 600 billion, which accounts for about 10% of the world export. Changing models, improving fuel efficiency, cutting costs and enhancing user comfort without compromising quality are the most important challenges of the auto industry in the face of a fast globalization. The prices of locally manufactured automotive vehicles are generally less than the landed cost of imported vehicles. But these are higher than the CIF values of imported vehicles. That is one of the major reasons why automotive industry in Pakistan has not been able to make a breakthrough in the foreign markets.


Total car production increased 28 percent to 126,403 units during the year 2004-05 compared to 98,461 units locally manufactured or assembled in 2003-04, according to the data of Pakistan Automotive Manufactures Association (PAMA)

On a month on month basis, car sales during June 2005 soared by 6.5 percent to 13,668 units, while car production during the year went up by 7.9 percent to 13,775 units.

But this was not still able to cater to the increasing demand. Indus Motor's 2004-05 sales soared by 20 percent to 34,983 units compared to 29,113 units during 2003-04. Indus' market share in 1300cc and above segment declined to 43 percent from 54 percent during 2003-04. In the 800cc segment, Indus' brand Cuore captured 22 percent market share as against 19 percent during the proceeding fiscal. During 2004-05, the company sold 23,002 and 8,592 units of Corolla and Cuore, registering a respective increase of 13 percent and 34 percent.

Pak Suzuki's sales during 2004-05 stood at 75,720 units compared to 57,559 units previously. This represents a growth of 32 percent. Sales of Alto, Cultus and Baleno portrayed robust growth at 60 percent, 45 percent and 45 percent, respectively. Sales of most popular brand Mehran surged by 14 percent and reached 31,165 units. However, Mehran lost market share from 81 percent to 78 percent in 800cc segment, the analyst said.



Dewan Farooque Motors sold 15,999 units, up by 33 percent in comparison with sales of 12,031 units during 2003-04. With a capacity of producing 10,000 units per annum on single shift basis, the company operated on a swing shift (16000 units per annum) due to rising auto demand. Santro's sales during the year remained flat at 7,009 units as against 6,922 units during 2003-04. Shehzore was the main contributor with sales depicting a massive 91 percent increase to 8,012 units as against 4,203 units previously. Market share of Shehzore in Pick-Up segment also improved from 28 percent in 2003-04 to 32 percent in 2004-05.

Honda Atlas' sales during 2004-05 posted 80 percent upsurge and reached 24,066 units compared to 13,368 units previously. Sale of Civic at 12,352 units portrayed 103 percent increase, while City's sales surged by 61 percent to 11,714 units. The ratio of Civic to City has changed from 51: 49 in 2003-04 to 46:54 during 2004-05.

In 2005-06 Budget, government announced duty reduction on CBU import in the range of 5 percent-25 percent on 1,600cc and above cars. The impact of duty reduction will not be significant on local car assemblers as duty structure on popular 1,300cc and below segment has remained unchanged. However, the share of imported cars will increase as local car assemblers have also started importing cars and will try to benefit from that also.


Despite tremendous growth in car manufacturing, supply failed to slake burgeoning demand and exorbitant prices attracted much criticism on the manufacturers.

For the past couple of year the finance ministry allegedly overruled a CBR proposal wherein it was submitted that the exemption levels for CKD be brought down and CBU duty rates be slashed, to create an atmosphere of competition in the market.

This competition was meant to force the carmakers to improve quality, reduce prices and stop fleecing the country and the customers through unfair practices in parts imports/remodeling. The proposals were pressed on the grounds like yawning gap between the duty rates on CBU and CKD kits was on the rise; the smugglers were benefiting from this situation; car dealers with no strong lobbies were hand-in-glove with the smugglers instead of agitating the prices issue. Besides, time was fast approaching when the car prices would have started discouraging the buyers at the market and they would either opt for smuggled cars or give up buying, leaving the vendor industry in lurks.

The Pakistan government was also faced with another dilemma on international scene. The industry had eliminated most but not all of the local content requirements (deletion program that it reported to the WTO in 1995 under the Agreement on Trade Related Investment Measures (TRIMS). In 1999, Pakistan's "deletion" program (mandating the use of domestic inputs) encompassed 106 items. As of December 2004, 16 items in the auto and motorcycle industries remained. For these 16 items, Pakistan had petitioned for a three-year extension on its original December 31, 2003, deadline to eliminate all deletions. Pakistan being a developing country was in principle required phasing out and withdrawing all the trade-related investment measures, inconsistent with the agreement on TRIMS, by the year 2000. However, it kept on seeking extensions of the LCR condition and was granted two consecutive extensions. The request for third extension was turned down by the WTO on the serious objections raised by the United States. Apparently the US holds no direct interest in Pakistan's automobile industry, but its future plans of investing in the sector in Pakistan cannot be ruled out.

The finance ministry, accepting the longstanding demand of local car dealers and importers in the budget 2005-06 allowed the import of old and used cars at the depreciation facility of 2 percent per month.

However, the ministry maintained the condition of a luggage and gift scheme. The car dealers or the traders cannot import used and old vehicles directly.

"This notification will help increase the import of small cars at the competitive prices into the country," said H.M Shahzad, Chairman of the All Pakistan Motor Dealers Association (APMDA). "The old and used cars' import is likely to increase by four to five times in Pakistan."

Earlier, the Central Board of Revenue (CBR) had fixed 1 percent depreciation facility on the import of old and used cars and 2 percent on cars above 1350cc.

Car dealers imported 12,000 used cars up to two years in the current fiscal year, out of which 10,000 is above 1350cc and only 2,000 units imported, ranged from 800cc to 1350cc.

Mr. Shahzad said, "The association is negotiating with the commerce ministry to withdraw the condition of luggage and transfer of residents scheme and the dealers and importers should be allowed import of old or used cars up to five years. The government should also remove the one-year registration condition on the imported vehicles."

Through the notification, "the ministry has fixed duty on 800cc (Asian makes only) $4,000, 800cc (other than Asian makes) $6,000. The duties on 801cc to 1000cc would be $5,000 from 1001cc to 1300cc $10,000, from 1301cc to 1500cc $1,4000, from 1501cc to 1600cc $1,7000 and from 1601cc to 1800cc of $2,1000."

The car importers and dealers will also have a 50 percent reduction in the duty with two- percent depreciation facility.

The government reduced the customs duty from five slabs to three slabs, but the real reduction in duty on the import of big power engine cars are from around 5 percent to 25 percent. However, duty slabs of 1000cc to 1350cc cars have been removed. (ashrafkhan1@gmail.com)