Be ready to face competition from new cars allowed to be imported at half the duties

Oct 27 - Nov 02, 2003

No body can blame the Ministry of Industries and Production's Task Force on the auto industry for inflexibility. It took the Task Force months of deliberations, and tons of unsolicited advice that seemingly fell on deaf ears, to finally give local car producers three months to clean up their act or be ready to face competition from new cars allowed to be imported at half the duties.

Would the local car assemblers, who chose to adopt an attitude of collective defiance to the point of hostility to the Task Force and remained totally uncooperative to it disregarding it requests for production costs, reduction in prices and the abolishing of the all too rampant black-marketing practices, would heed the warning this time around? An even more important question is: Would the recommendations made by the Task Force will be approved by the federal cabinet to allow import of new cars at the reduced duties for the benefit of the buyers?

The Pakistani auto industry, which primarily comprises of assemblers producing internationally recognised Japanese and Korean brands of cars, is the most fiercely protected industry in Pakistan. The import of new cars, though allowed, is being heavily discouraged through heavy duties which after reductions today still stands at a high 75 per cent for cars up to 1000 cc, 100 per cent on 1001-1500 cc cars and 125 per cent for 1501 cc and above cars. The used cars are also subjected to the same duty structure.

So nobody can blame the Task Force for being least inflexible. The final recommendations of the Task Force asked the local car producers to voluntary reduce the prices of their products, ensure that the rampant black marketing practices are abolished entirely and to ensure to lessen the delivery period to one month. The recommendations shows the dissatisfaction over the high prices of locally assembled cars and the rampant overcharging practices by the dealers for immediate delivery on strict cash payments. The later is not only blamed for pushing an already prolonged delivery period for thousands of people who booked the cars on full cash but it is also encouraging the unscrupulous dealers to play the thriving trade at the cost of thousands of car bookers. The third recommendation reducing the delivery period to one month is also meaningless as the actual delivery periods already far exceeds the officially set two month period.

According to the chairman of All Pakistan Motor Dealers' Association, H.M. Shahzad the otherwise forceful recommendations made by the Task Force have resulted in the reduction of rate of "black-marketing which is often wrongly called 'premium'". He also lamented that the recommendations are another attempt to give the car assemblers a safe exit and shelf the pertinent problems into the cold storage. "We had expressed reservations about the Task Force when it was established and we have reservations about the recommendations that it has made now. We have incessantly requested the authorities to include the representatives of the Federation of Chambers of Commerce and Industry, Chamber of Industry and Trade Karachi and the representation of the motor dealers to make up meaningful recommendations. What can you expect from a task force excluding representation from the industry and trade but comprising representatives of the assemblers and secretaries of finance, commerce and industries & production?"

According to Shahzad the three traditional assemblers of Japanese brands have secured bookings enough to keep them busy for the next two years. "Tens of thousands of cars have been booked collectively by these assemblers who even if they enhance their production capacity would not be able to deliver them on schedule due to the tremendous back log. The assemblers have collected billions in advance and yet the bookers would have to wait for months beyond an already stretched delivery date.

"That all the more justifies the case for reducing the duty on imported cars because the local producers have nothing to loose because they have solid bookings to keep them busy for next two years. The imports would not only help reduce the load on local assemblers but would also benefit the people who would not be able to book the cars anymore due to a prohibition recently imposed on deposits from the public."

Shahzad was referring to an announcement made by the Securities and Exchange Commission of Pakistan on the 17th of this month which prohibits the automobile, and the real estate, companies to invite deposits from the public in advance of actual delivery of relevant product or a property without its prior permission. The measure was obviously necessitated due to persistent complaints that the auto and real estate companies were using various tactics to avoid the delivery of contracted products, and property, indefinitely. The measure clearly doubts the ability of the car assemblers to keep their delivery commitments to the bookers, particularly amidst the heavy bookings that they are sitting on.

Observers feel that the recommendations made by the Task Force amidst the non-cooperative and almost hostile attitude of the local assemblers have created an environ of uncertainty which should be removed for the benefit of the industry, thousands of car bookers as well as potential buyers.