GROWTH OF AUTOMOBILE INDUSTRY
The automobile industry is still in a difficult position, as it is unable to meet the demands
By NIHAL AKHTAR
July 19 - 25, 2004
The automobile industry in Pakistan has achieved tremendous growth during recent years due to friendly economic policies and of course easy and cheap finances available in the market.
In Pakistan there are 6 cars/1000 persons, which is well below the world standard of 120 cars/1000 persons. However, if local industry reaches the 500,000 units per annum mark, it will start giving result is the form of cost effective local components resulting in most competitive product prices. And that is not very far.
From 1949 to 1970, only nine players in the private sector were involved in the assembly or distribution of cars and popular brands were Dodge, Morris, VW and Toyota.
However, the progress of the automobile industry vis-a-vis its age is quite behind, this is due to nationalization of automobile industry in seventies and inconsistent policies of the government. As under the Economic Reform Ordinance 1972, the Government nationalized all the nine automobile units in the country and in 1973, they were given under the control of Pakistan Automobile Corporation.
A new era was heralded in the auto industry of Pakistan with the establishment of Pak Suzuki Motors in the early 80's. Then in early 90's the automobile industry was privatized as part of Government's liberalization plan of national economy. This motivated the leading Japanese, Korean, and Italian brands like Toyota, Honda, Nissan, Hyundai, and Fiat to set up their assembly plants in Pakistan with huge domestic and foreign investment.
The Engineering Development Board (EDB), has chalked out a comprehensive program for aggressive deletion for the automobile industry and the industry is actively pursuing the process and this has resulted in development of more than 700 local venders, out of which more than 300 vendors are manufacturing automobile components according to Japanese and Korean Original Equipment Manufacturers standards. Today, the local vendors account for more than 75% of the components in case of 800cc passengers' cars and more than 55% components in case of above 800cc cars. This indicates that the industry is moving towards self-reliance, and needs government attention and support to turn into a self-reliant one.
Although the Pakistan automobile Industry is more than five decades old, most of its years have been spent in a state of neglect. After the shock of the 70's nationalization process wore off, the automobile industry suffered due to the Prime Minister's Transport Scheme in 1993. The import of duty-free cars through this scheme had a very negative impact on the industry. Due to easy availability and negligible paperwork, the scheme became very popular, but it was grossly misused. The local industry, yet again, suffered the repercussions of government intervention with stagnant production and sales for the next eight years.
The automobile industry is still in a difficult position, as it is unable to meet the demands. The recent demand-supply problem has made it a target of criticism from all walks of life. However, this gap in demand has risen due to unprecedented annual growth rate of approximately 50% in demand for automobiles during the last two years. With the lack of any profitable investment opportunities in other sectors, the car booking business offers a very lucrative venue for investors.
The automobile manufacturers, vendors, suppliers, and dealers have made huge investments in Pakistan economy and provide employment to hundreds of thousands of people in Pakistan, contributing towards the growth and prosperity of Pakistan Economy.
This industry is still a nascent one, and needs government support and patronage and positive polices and a positive outlook is much needed for the promotion automobile industry of Pakistan. The current gap in demands and supply of vehicles is a short-term one, and the automobile assemblers and vendors are ready to cater the growing needs of the Pakistani market.
The industry is still operating well below its installed capacity. The government should realize that plant capacities could not be doubled overnight. This short-term gap in the demand versus supply situations is being taken care of by the industry, which is operating at around 150% of its capacity. The local assemblers have started investing in the expansion of their plant capacities. Many foreign companies from China, Korea etc. are willing to invest in this sector. However, investor confidence has been shaken due to government announcements regarding permission to import used cars and reduction in duties for imported cars.
The size of passenger cars and Light Commercial Vehicles Industry is around 100,000 units per annum against a demand of 150,000 vehicles and this gap is the main reason of premium charged by dealers and automobile venders. And once our passenger cars and light commercial vehicles market is able to cross the 400,000 units / annum mark, our products will also become internationally competitive, being down the cost of local component a great extent.
What is needed for the Government is protection and creation of an investment friendly environment. This will result in restoration of local investors' confidence, which, in turn, will attract more domestic and foreign investments into different segments of Pakistani economy.