THE AUTO PARTS BUSINESS
By AZAM ALI
Oct 18 - 24, 2004
The up-stream automobile industry which is generally called as a mother industry is essentially responsible for creating a much larger vendor industry thus helping rapid development of the down stream activity especially the engineering side of the economies around the world.
The importance of the vendor industry, which is responsible for producing auto parts reflected in the fact that even after decades of rolling out a car in the market, the market demand for spares of the same model remains intact which keeps moving the wheel of the engineering industry.
The auto parts industry was expanding in Pakistan at a growth rate of 10 to 20 percent per year.
On one hand Pakistan has joined the club of the countries which are exporting spare parts, and on the other hand its growth benefiting the neighboring countries which are enjoying the market share in Pakistan.
No government department has any statistics on this subject, however, according to roughly estimated figures by the dealers and auto parts importers, the per capita requirement of parts comes to 100-150 per vehicle in Pakistan while the demand for some fragile parts including accessories exceed the normal demand.
Since the demand for auto parts in India and Pakistan are identical, Indian parts which are cheaper in terms of price, have flooded the local market are feared to takeover the major market share from Chinese competitors in not a distant future.
Dealers in spare parts markets feel that Indian products are being imported through Dubai and sold in the local markets. Import of auto parts from India was in practice for the three years, however, the trend has been geared up during recent years.
Earlier, some four Indian products including lights, seat covers, rubber pedals, levers had carved a place for themselves in the local market. However, with the demand growth, about 24 different products from India have sneaked into Pakistan markets following improved bilateral relations between the two countries.
According to dealers' estimates, Rs 3-5 billion worth of Indian spare parts are making their way each year into Pakistan market. The made in India parts available in the local market ranges from tire covers to door glasses which indicates how speedily the Indian parts are occupying the local market. Though the trade of auto parts is transpired through a third country i.e. Dubai but it is now an open secret known to everyone both in the private as well on the public sector organizations.
Though various Indian auto-part manufacturers have succeeded to enter into Pakistan market, yet products from existing countries are much visible in the market but the growing demand for spare parts is the real factor behind the existence of Indian products in the market.
The tremendous growth in the auto sector has helped developing some seven major auto-part markets in Karachi alone. These market outlets are not directly involved in the import of auto parts from Dubai, instead it's a business carried out by some major players active between Pakistan and Dubai. Though the Indian products are not superior in terms of quality, yet they are cheaper as compared to Chinese and of other origins, the price factor helps Indians to capture the market.
Due to economic factors people comprise on quality when they are offered the cheaper products from India, despite the fact that quality-wise, the Indian products come at fourth place after Japan, Taiwan and China.
The Indian auto parts are available for all types of vehicles besides the tractors' accessories, which are also in demand.
According to a market survey, the Japan-made door glasses of Suzuki Alto car are available at Rs 1,400 while the Indian glasses would cost only Rs 800. Similarly oil pump of Taiwan is being sold at Rs 3,800 while the Indian brand costs merely Rs 1,600 for the same product.
The vendor industry in Pakistan was not happy over the situation as arrival of Indian auto parts have added to the hardships of local industry already facing due to cheap Chinese products.
The only way to survive for the local vendors is to get ready to compete with the onslaught of the imported products in terms of quality, quantity and the price, if they have to survive in the market in the face of free trade.
It is said that the onslaught of foreign parts especially from India and China have hit over 1,800 production units in Pakistan as they were earlier enjoying the monopoly and freedom to sell their products at their own terms.
The vendors have asked the government to check such trend and take measures to protect the local industry, said an office bearer of auto parts dealers association in Karachi. "We have also offered our technical assistance to design a policy". He said vendors have share of Rs 45 to Rs 50 billion in auto industry and it could badly hit by imports from China and India.
But traders disagree with vendors and question the quality of locally produced auto parts. Though Indian products are not matching quality standard of Japan and Taiwan, they are still far better then locally manufactured spare parts. Indian products cannot damage the industry, another dealer said, Currently a number of Indian products do not cover all ranges but it may do in future as the trend is increasing day by day.
He said currently lights, seats, external body parts, tires and accessories of farm tractors are available, which he said is wrong to say that it could hurt local industry. He said smuggling is major cause of any negative impact on industry and local markets. Vendors themselves asked the government to impose 35 percent import duty on all kinds of spare parts in the budget 2004-05, he said. This has resulted in rampant smuggling through Pakistan's porous borders and through Afghan Transit Trade (ATT) facility.
The government in budget 2004-05 imposed 35 percent import duty on spare parts, mainly varied from 15 percent to 25 percent during 2003-04.