IMPACT OF THE IMPORT OF USED CARS ON THE ECONOMY IN PAKISTAN

Analysis and Suggestions.

By ASAD WAHID- DIRECTOR OPERATIONS
Pakistan Chery Automobile (Pvt.) Ltd

June 12 - 18, 2006

The automotive industry is one of the largest manufacturing industries in the economies of the developed world. In fact, just in the United States of America alone the automotive and its allied industries are responsible for employment to more than 13.3 million individuals with new automobile sales generating around USD 240 billion in revenue. Clearly every one in ten jobs in the giant U.S. economy is tied to the automotive sector. Key findings of a research conducted by the Center for Automotive Research of the U.S. in the year 2004 are quoted as under:

* The auto industry is responsible for more than 100,000 direct jobs in each of several industries, including dealerships, fabricated metals, auto parts, auto repair and maintenance, road construction, tires dealerships, fueling stations, and car washes.

* The auto industry is responsible for more than 50,000 jobs in each of several other related industries, including plastics and rubber, trucking, computers and electronics, petroleum, and machinery and equipment.

* The auto industry is responsible for more than 25,000 jobs in each of several more related industries, including advertising, textiles, aluminum, and recycling.

* The auto industry also provides thousands more jobs in the rail industry, the steel industry, the painting and coating industry, the glass industry, the copper and brass industry, and the iron industry.

* Expenditures of auto industry employees create millions of more jobs throughout the economy.

Clearly the above facts indicate the overwhelming importance of the auto industry and the wide positive impact it has on numerous key industries in an economy. In Pakistan since the last several years we have been blessed with double digit growth in the automotive sector with projections of the total market of cars reaching the 500,000 unit mark by the year 2010. Indeed the local assemblers of cars were taken quite unprepared for the sudden increase in the demand resulting in supply side shortages which caused grave inconvenience to the majority of aspiring car owners and was also responsible for the rise of the 'ON' or 'Premium' mafia.

Last year the government of Pakistan in good faith attempted to address this problem by opening up the avenues of importing limited quantities of used cars from abroad vide three main schemes viz a viz transfer of residence scheme, personal baggage scheme and the gift scheme. However, this policy simply opened the flood gates of imports of obsolete and outdated vehicles into Pakistan. While the aim was to provide relief to the masses, on the contrary the imports of used luxury cars with price tags in the range of between Rupees ten lacs and above sky rocketed. Indeed, even in the small car segment, the majority of the cars imported were priced well above Rupees Five lacs and that too for cars which were initially manufactured in the year 1999.

While initially the mass public was very happy with the allowance of import of used cars, it quickly dawned upon them that they and the country was the ultimate loser. The simple fact of the matter is that used car maintenance requirements far exceed those of new cars. Additionally, customers found too late that there is no warranty or after sales service on the used cars and that they purchased them on an 'as-is' basis with no reprieve for the customer even if major defects are detected in the car right after taking delivery of the vehicle. There is also a dearth of availability of spare parts for such cars and even if they are now beginning to become available they are priced very much higher.

The impact of such imports is far worse on the economy. Recent government released figures reveal that the import of fully assembled automobiles drained away in excess of precious one billion dollars out of the country. The majority of this drain-out can be attributed to the import of used cars. Additionally, not only the used cars do not contribute positively to the economy they actually become a permanent burden as none of their spare parts are made locally and have to be imported from abroad which further strains our foreign currency reserves. Last but not the least, since used cars automatically require more maintenance then brand new cars, customers spend more time in workshops on average which results in further loss of time and productivity for individuals and causes additional burden on the economy.

While the government may have acted in good faith by allowing the import of used cars, there are other methods which would have been just as effective in helping out the common man while benefiting the economy as well. Some of these are listed as under:

* The government should immediately put a stop on the import of used cars and instead allow the import of brand new cars by authorized distributors on reduced duties.

* Only distributors who take concrete action to progressively engage in local manufacturing of spare parts and the complete vehicles within a stipulated time period may be extended this incentive. The distributors would also have to undertake to set up proper after sales network and also should provide their customers with comprehensive world class warranties (this way all profits generated would be channeled back to the economy and contribute towards creating more employment and other benefits to the economy).

* The reduced duties should only be applicable on economy vehicles targeted towards compact and economical cars that meet with high standards of fuel efficiency and have world class engines (such as those meeting with Euro III or Euro IV emission standards). Luxury vehicles, petrol guzzling vehicles and those with outmoded engine technology should not be extended this facility as they contribute significantly towards waste of our country's precious resources.

* The reduced duties could be in place till the mismatch of demand and supply is eliminated and thereafter the normal tariff regime should prevail.

The above measures would achieve a multi-tiered advantage for Pakistan. First and foremost, such a measure would immediately spur healthy competition in the local market whereby the vast majority of the masses would be the ultimate winners where they would have an easy and economical access to good quality cars. Secondly, the still prevalent curse of 'on' and 'premium' on small cars would be eliminated. There would be an increase in investment and transfer of technology by car manufacturers into Pakistan resulting in an increase competitive edge for our locally produced products as well as in the generation of further employment in the country. Lastly, by promoting cars that are highly efficient and small in size, the adverse impact on the import bill by way of petroleum products and the deterioration of the environment would be reduced.

Pakistan Chery Automobile (Pvt.) Ltd would heartily support all measures taken by the government which are for the benefit of the people of this great country. In fact, this is the prime reason why our firm is moving aggressively towards setting up a manufacturing plant in the province of Sindh to progressively manufacture all Chery brand of automobiles for domestic use as well as for exports so that we may serve our country and its people better. Let us all take this opportunity to pray that Allah Almighty may help us all in achieving all our noble and selfless goal towards improving Pakistan's standing in all social and economic fields, which would lead to the common people of our great country to share increased happiness and prosperity for all times to come.