Racing Ahead

By Marylou Andrew
Jan 27 - Feb 02, 2003

The events of September 11th have wrought mass havoc on world economies, resulting in slumps, downturns and recession. Pakistan, which has the dubious honor of being one of Afghanistan's closest neighbor's, has borne the brunt of this economic devastation. However, the same cannot be said for the country's automobile industry which has defied all odds and seen tremendous growth over the past year. During the last twelve months, Pakistan's automobile industry posted a growth of 20 percent and the demand for new cars has increased by an incredible 50 percent.

Due to the limited market size, the production volumes have been fairly low but the industry has undoubtedly entered a new era as it produces eight international brands in various models. In order to meet rising demand the automobile industry has considerably increased its production capacity. Indus Motors, brought forward its delivery date by six months for its latest model of Corolla. Other car manufacturers also followed 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.

Perhaps the greatest achievement of the industry over the last year has been breaking away from the production of automobiles that are solely Japanese. As a matter of fact, Korean and European cars have made big waves in the market and local entrepreneurs have already unveiled plans to manufacture Chinese models as well. The past year also saw the emergence of new manufacturers such as Dewan Farooque, Daihatsu and Hyundai Motors in the market with a number of new product lines. The intense competition created by these companies has completely changed the paradigm of the automobile industry in Pakistan.

The automobile industry has made a lasting impression on the domestic vendor base by making it more export oriented. The system works so that before the domestically manufactured parts are used by domestic manufacturers, they are tested by the original manufacturers at their facilities abroad and given a certification of quality. In addition, domestic production has facilitated competitive pricing which has encouraged exports.

The auto industry has also provided a number of employment opportunities in the country and has the capacity to generate more employment. In total this industry employs 125,000 persons including technicians, engineers and management staff. The Indus Motor Company provided jobs to some about 625 persons till 1998-99, Pak Suzuki with 619 persons and Honda Atlas Cars with 348 persons in 1998-99. Total numbers of jobs in vending industry is about 135,000. If the auto industry is supported by government then it can generate more employment in the country.

Inspite of its many benefits for the economy of Pakistan, the automobile manufacturing sector has developed slowly mainly due to a flawed regulatory framework and short-sighted policies. Smuggling of fully conditioned cars and car parts was carried out rather casually in Pakistan for a very long time. Additionally, from time to time, the government has allowed the import of used and reconditioned cars, a measure which dramatically decreases demand for domestically produced automobiles.

The post September 11th scenario has given rise to increased vigilance on all fronts, providing increased checks on smuggling. And since black money networks are being closely watched by the developed countries and the Middle East, the automobile industry has flourished.

While the auto industry seems to be racing ahead, critics are of the opinions that ground realities just do not seem to justify this sudden surge in auto sales. They say that developments such as withdrawal of economic sanctions, comparatively greater access to markets for Pakistani exports, rescheduling of foreign debt and flow of aid, loans, grants and assistance may be creating a new class of nouveau-riche.

For the time being, however, the pros far outweigh the cons and the current situation offers rapid growth for the automobile industry of Pakistan. It is important that the manufacturers realize the opportunities and take full advantage of them.