VENDOR INDUSTRIES SUPPORTING THE ASSEMBLERS

Allowing the new assemblers to import duty free CKD kits would be unfair with the existing assemblers and most fatal for the auto parts manufacturers

By SHABBIR H. KAZMI
Apr 10 - 16, 2006

During the last couple of years auto sales have grown phenomenally. Despite manifold increase in local car production the average delivery time still ranges from six to twelve months. The government allowed import of car, which helped in bringing down 'on money' but also put foreign exchange reserves under pressure. Now two options are under consideration 1) allowing entry of new assemblers and 2) permitting duty free import of CKD kits. Both the options need thorough probe before making any decision. However, it is important to say that neither of these options could help in increasing supply of cars nor bringing down prices.

It is on record that most of world leading brands are already being assembled in Pakistan. Addition of couple of new and/or high end brands may provide an opportunity to a very small minority to satisfy its aesthetic sense or show off its wealth but certainly not meet the demand for cars to be used by the majority. On top of this allowing the new assemblers to import duty free CKD kits would be unfair with the existing assemblers and most fatal for the auto parts manufacturers.

At least half a dozen world leading brands of Japanese origin are being assembled in Pakistan. Besides these, Korean and Chinese are have also rolling out. Most of these brands range from 800cc to 1,300cc and meet over 95% of the local demand. Government has also reduced tariff on cars of higher engine capacity, mostly not being assembled in the country. The net result of the shift in government policy is that hundreds of cars of different brands and engine capacity are parked outside the show rooms on Khalid bin Waleed Road, Karachi as well as all other areas. Reportedly more or less similar scenes can also be witnessed in any urban area.

It is worth noting that on certain brands/models assemblers have achieved up to 70% indigenization level. The best point is that when assemblers where producing about 50,000 units local parts and accessories producers were meeting the demand and they have also succeeded in meeting the requirement when more than 125,000 units are being produced. They have also expressed their commitment to meet the demand even if the assemblers are ready to produce up to 200,000 units annually.

CARS

IMPORT TARIFFS FOR PAKISTAN'S CAR INDUSTRY

Custom Duty

(2005-06 Budget)

1.

Raw Materials

5%

2.

Sub-Components

10%

3.

Components for sub-assemblies & Assemblies

20%

4.

CKD Kits (SRO 453(1)2004)

Cars upto 1600 cc

35%

Diesel Cars

35%

5.

CBU - Completely Built Units

Upto 1300 cc

50%

1300 to 1600 cc

70%

Upto 1500 CC

50%

1600 to 1800 cc

80%

1501 to 1800 CC

65%

Above 1800 cc

100%

Above 1800 CC

75%

Their level of commitment can be gauged from the fact that lately the total investment of parts and accessories manufacturers touched almost Rs 100 billion and they are still busy in expanding their facilities. According to industry sources they intend to invest another Rs 100 over the years to be able to produce 200,000 passenger cars alone on top of meeting demand for components for light commercial vehicles, buses, trucks, tractors and motorcycles. The total number of medium and large component manufacturers is estimated around 250 and the number of various types of entities involved in this business touches 1000.

Apart from meeting demand of assemblers these units also meet demand of replacement market. Reportedly they are also aiming the export market. According to the data made available by Pakistan Association of Automotive Parts & Accessories Manufacturers in above 12,00cc category the level of indigenization is around 62%, up to 1200cc 65% and up to 800cc the level is as high as 73%. The history may be enviable but the potential is enormous.

According to some projection for 2005-06 Pakistan's auto industry aims at producing 146,000 cars, 5,500 buses and trucks, over 600,000 motorcycles, 25,000 light commercial vehicles and 50,000 tractors. These are rather conservative estimates if one looks at the demand growth. The demand is being fueled by auto financing as well as improving per capita income, both for the rural and the urban population. It is also estimated that parts and accessories producers provide direct employment to 250,000 people.

Therefore, it is earnestly desired that the government adopt policies which facilitate expansion of capacities by the existing assemblers and keep the duties on CKD kits at levels which also encourage further investment by the component manufacturers. The above stated two suggestions could only result in closure of part manufacturing units and unemployment of thousands of people. It may also be kept in mind that local production of parts and accessories has also resulted in transfer of technology.

It may be true that according to various articles of World Trade Organization (WTO) Pakistan may not be able to continue with the deletion program. However, experts are of the opinion that protection can be provided to the local manufacturing units through tariff based measures. All those who may be a little unsure about the level of protection that could be offered to local must read these articles again and again. While these articles demand withdrawal of discriminatory measures it also ensures all the possible protection to the local manufacturers.