IS GROWTH IN AUTO SECTOR REALLY BENEFITING THE ECONOMY

The auto sector has played a significant role in the economic development of the leading economies in the West as well as in the Asia

By AMANULLAH BASHAR
June 14 - 20, 2004

The auto industry which registered an impressive growth of 68 percent during the current financial is among those large scale manufacturing industries which are said to be the leaders of the rally of economic growth in Pakistan.

It is however yet to be analyzed how much of the growth in production and sales of the auto industry contributed to the national economy and what share it repatriated to the principal companies for import of cars in CKD form.

Actually, it was the financial policy of providing access of the consumers to the banking and other financial system which allowed car financing facility to the individuals as well as the corporate sector which proved really a pushing factor in the growth of the auto sector. The cheaper rate of mark up was another factor which helped tremendous growth in the auto sector.

Despite expansion in production capacity, the phenomenal growth in demand for car, however, created a gap between demand and supply causing delayed deliveries, increase in prices and premium as well on almost all the latest models launched by different automobile assemblers including Suzuki, Toyota, Corolla, Daihatsu, Dewan Motors and Honda Motors.

Taking advantage of delayed delivery which ranges from 4-12 months encouraged the profiteers to make money by asking premium of Rs50, 000 to Rs150,000 on different models.

Taking note of the situation, the Minister for Production Liaquat Ali Jatoi has recently announced that the yawning gap between demand and supply is not only causing delayed delivery of cars but also provide leverage to the automobile industry and the middlemen to skin the buyers through charging exorbitant prices.

The minister said that he has strongly recommended to the cabinet to allow import of cars so that upward trend in car prices and the issue of delayed delivery could be addressed amicably.

It may be mentioned that despite repeated persuasion for bringing down the prices, the car assemblers had increased prices of all models. In case of Honda the prices increase is said to be Rs20,000 on each unit, Toyota has closed down advance booking because it has already been overloaded and is facing a shortfall of 60,000 in supply. It is being sold at a premium of Rs1,75000 per unit. The trend of price increase is reflected in the premium of Rs70,000 on the recently rolled out model of Cuore model of Daihatsu.

According to an estimate a huge fund to the tune of Rs50 billion is said to be stuck up with the auto sector due to delayed delivery of the cars. Under this situation, the Ministry of Production is considering allowing import of reconditioned cars and a decision in this regard may be announced in the forthcoming federal budget, the minister told a recent meeting organized by the business community in Karachi. The production minister also indicated that in a bid to clear the backlog, import of Chinese, German and French Models would also be allowed which is expected to create an atmosphere of healthy competition and reduction in ever rising prices of the automobiles.

The auto sector, it may be mentioned, has played a significant role in the economic development of the leading economies in the West as well as in the Asia. It is the auto sectors which help the Japanese economy assume a leading role through the world. Though the industrial base in the auto sector was smaller in Pakistan, yet it can do a magic provided the assemblers were asked to operate within the framework of the deletion program which is lagging behind the schedule. In fact, the growth in auto sector does not reflect in the vendor industry which is suffering from stagnant growth because a large portion of the accessories and spares used in car assembling are provided by the principal offices.

The auto sector in Pakistan is also assuming significant role, the growth should be used for developing vendor industry which would ultimately help addressing the problem of unemployment by creating opportunities for the unemployed.

So far Pakistan has not entered into the export business of the automobiles because of limited production base which not sufficient to meet the local requirement. It is the time to ask the foreign assemblers to enhance the production base and make amendments in the agreements so that Pakistan could also enter into export regime of the automobile especially in the huge market available in the Central Asian and African countries which offer a huge market for the auto sector.

There were enquiries for import of cars from different countries but since the auto sector is unable even to meet the local demand and facing a gap of over 10,000 in demand and supply, the economy could not benefited from such exporter orders. It is expected that following the implementation of WTO rules from January 1, 2005, the prices of car may come down automatically in the face of arrival of cheaper models of vehicles from different car producers especially from China where the auto sector is operating on the economy of the scale bringing the car prices even to the level of motor bikes, it is said.