AUTO SECTOR LURING INVESTMENT

Duty reduction on car imports repulsive to local assemblers

By AMANULLAH BASHAR
May 09 - 15, 2005

The growing auto market in Pakistan is being shared by around 8 car assemblers producing known foreign brands in economy, medium and luxury cars.

On the back of massive financial support by the banking and leasing companies, the demand for cars has gone up from approximately 60,000 vehicles in 2002 to more than a 100,000 vehicles in 2004 while the gap between demand supply suggests production may touch the level of 200,000 soon.

Currently, over 200 vendor companies are engaged in auto parts manufacturing, out of which about 75 were quite capable of matching the international standards while rest of the vendors also catching up fast. Being labor intensive industry, the local auto sector has significantly contributed to the government revenues besides creating job openings for over 120,000 people with an investment of over Rs20 billion.

Since there was a big gap between demand and supply, the profit making was quite natural as "if the honey is there, bees will definitely come." Taking advantage of the growing demand and short supply, the investors in collaboration with the market mechanism and support of the influential who made fortunes especially on account of delayed deliveries which helped them to earn hefty premiums ranging from Rs60,000 to Rs150,000 depending on the size and price of the cars.

Though the government in an effort to bridge the gap between demand and supply has allowed import of cars besides lowering duty on customs stage, yet the demand growth still offers room for more vendors and auto producers in the country.

Obviously, the growing demand encouraged Feroz Khan, one of the senior auto industrialist to roll out "REVO" a Pakistani model of passenger car under the banner of Adam Motor Company, powered by Chinese technology yet having 70 percent indigenous components.

Generally speaking, the companies mainly producing different models of Japanese and Korean models have arrived at a deletion level of 70 percent after a journey of over two decades of working in Pakistan. The REVO, signifying revolution in auto industry, recently launched by Adam Motors rightfully claiming to be the first Pakistani car as it started with 70 percent deletion right from the beginning.

The first model of REVO has been designed to match the local environment, road conditions and of course the requirement of the customers. It is available as variant of 1050cc, electronically fuel injected and 800cc engine size. The producers of the first Pakistani cars were aiming to carve a place in the market by offering attractive value-added features which they feel were bound to appeal especially the users of small cars in Pakistan.

Prime Minister Shaukat Aziz presiding over the launch of a new brand of economy car designed and assembled in Pakistan but powered by a Chinese-made engine, paid tributes to the auto sector for significantly contributing to overall economic growth of the country.

The manufacturers of 800 cc REVO, to be produced in Karachi, have an intention to make a debut initially with 5,000 to make their presence felt in the local market.

Spelling out the details of the newly produced unit, a representative of the company said that this five-door car will cost about 300,000 rupees. The first models are expected to roll on roads in June this year.

Speaking at the launching ceremony, Prime Minister Shaukat Aziz said the auto sector in Pakistan is expected to produce 141,000 cars this year which indicates robust growth, the automobile sector has achieved during in a short span of time when compared to only 30,000 of units a couple of years ago.

Several Japanese automakers like Toyota, Suzuki and Honda assemble their vehicles in Pakistan here but the demand for cars is growing faster than supply. The impressive contribution towards government revenues estimated at Rs51 billion (US$851 million, euro655 million) in 2003-2004, compared to 15 billion rupees previous year reckons the potential of the auto industry in Pakistan.

Currently, some of the popular brands available in the market are including Toyota Corrolla, Hilux, Daihatsu's Cuore, Honda City Civic, Hyundai Santro Shehzore KIA Sportage, Mitsubishi Lancer Nissan Sunny Suzuki's Alto, Baleno, Bolan, Cultus, Mehran, Potohar and Ravi., and Chevorlet, besides a variety of other models being imported in the country.

Though the import of cars was allowed by the government with a good intention to ease the mounting demand pressures, the auto assemblers, however, are generally taking the step otherwise. They were of the view that the change in the import duty and permission to allow cars was in fact a contradictory to the government's claim of adhering to the commitment of consistency in its policies.

It was the plank of the government policy that consistency in policies was the only way to wind confidence of the investors and to encourage more industrialization in the country especially to develop a strong engineering base. The little change in import duty which is being taken as a shift in the government policy is a temporary phase and may be reversed as soon as the demand and supply situation returns to normalcy, said a senior official of ministry of production.

The auto manufacturers were, however, of the view that the policy makers should evaluate Pakistan's strategic objectives and develop a tariff structure that provides local industry a definite advantage and act as a catalyst to further the investment in the auto sector of the country.