Production, import and interest rate increased, yet appetite for more cars in Pakistan

July 17 - 23, 2006

Despite heavy influx of imported cars driven by slashed import duties in the last budget, local car sales posted impressive growth at 22% to 155,514 units as against 127,309 units during FY05 primarily on the back of availability of auto finance from various financial institutions.

Though the government has introduced a Tariff Based System for protecting the automobile industry yet the flow of imported cars continued to flood the local market. It is feared that in connivance with the government officials unreliable certificates are also being issued which permit the used cars at comparatively low duty rates. The depth of the local market was however exceptional and despite growing interest rates and enhanced production capacity by the local industry, the demand for imported cars is reflected in the overcrowded consignments at Karachi Port.

Tariff protection is an internal affair of any member country, which is considered necessary for the development of any industry. Any country may increase or decrease its tax structure according to its Economic Development Plan and Trade Targets fixed for a certain period.

Pakistan has no option but to adopt a Tariff Based System (TBS), which other signatories of the United Nations like India, Thailand and other developing countries have already adopted to protect their local industries.

Until now A-max lists have been prepared in most of the categories with the consensus among all OEMs based on part functionality, contains:

Parts localized by all OEMs termed as 'Common'.

Parts localized by any one OEM termed as 'Uncommon'.

The tariff based system is based on the following factors:

Imports in CKD condition would be allowed to assemblers having adequate assembly facilities and registered by the concerned federal government agency.

List of parts/components indigenized by all the OEMs would be notified through List- A-max to discourage the import of parts that have been developed in the country.

Category wise lists of parts importable in CKD condition to be defined in the notification and imports of these allowed at a lower rate in the tariff. (Not Indigenized by any OEMs List C).

Uncommon parts i.e. parts, which have been indigenized by one or more OEM but have not been indigenized by all the OEMs to be notified. Initially import of these parts to be allowed to those who have not indigenized for a specified period. This list is to be gradually eliminated in a specified period of three years.

With the implementation of much debated Tariff Based System (TBS), the government has ignored existing OEMs request to reconsider the permission granted to new auto manufacturers regarding the import of 100% CKD at a rate of 35% thus giving an advantage of 15% to them, mainly due to the fact that they are new entrants in the country. Whereas, existing assemblers would have to foot 50% import duty in case if they would import parts, which are localized in the country.

Some of the salient aspects of the TBS are stated as follows:

High tariff protection would be provided to common parts (which is to the extent of 50%). Whereas, parts which are not manufactured locally are likely to be taxed in the range of 15% - 20%.

Least localization policy has been suggested for new entrants, however, 35% is likely to be charged in the 4th year.

Under the new Tariff Based System, higher custom duty at 50 per cent would be applied on components that are manufactured locally, while duty at 35 per cent would be applied to parts that are not manufactured locally to encourage localization.


The Industry Specific Deletion Program (ISDP) system is based on points allocated to each part. Parts can be selected from any group i.e., engine, body, interior, trim and electrical. Model freeze clause exists in this system to support OEMs which introduce new models and need to catch up with the industry level. However, the TBS system will be based on parts (by function). Localization decision will be based on cost and available technology. However, there is no option for a model free clause to support the OEMs introducing new models, available in this system. No yearly localization targets are mandatory and OEMs select the parts for localization based on cost and technology. Therefore, OEMs localization will become more economical as the selection of parts will be based on cost viability.


 (Billion Rs.)


Indus Motor Co


FY 05-06

New Assemblers & Vendors



Current Vendors



Sub Total    


( $ 307 M)


HINO PAK (Trucks & Buses)


FY 06-07

Yamaha (Motorcycle)


FY 05-06

Suzuki (Motorcycle)


FY 05-06

Sub Total    


( $ 25 M)


19.7 (Approx $ 332 M)


Pakistan Automotive Manufacturers Association (PAMA) has released the auto sales figures for FY06. Overall, industry sales figures showed robust growth at 22% to 757,235 units compared to 618,384 units previously.

Light Commercial Vehicles (LCVs), trucks, farm tractors and motorcycle sales also increased by 27%, 28%, 12% and 24%, respectively.

Among the listed automobile assemblers, Pak Suzuki, Indus Motor, Honda Atlas and Dewan Farooque Motors respectively hold 54%, 22%, 15% and 9% market share in the passenger cars and light commercial vehicle segments. Overall, Toyota Corolla remained the market leader in the 1300cc and higher segment while Suzuki Cultus and Suzuki Mehran emerged as triumphant in the 1000cc and 800cc cars segment. We suggest a positive stance on Indus Motor and Pak Suzuki.


Sales figures of Pak Suzuki Motor's during FY06 posted sanguine growth at 31% to 99,104 units compared to 75,720 units during FY05. On MoM basis, sales figures increased by 3.9% to 11,247 units during June compared to 10,824 units in May 2006. Pak Suzuki is the market leader in the 1000cc and lower segment of cars with sales of Suzuki Mehran, Suzuki Alto and Suzuki Cultus at 35,982 units, 16,823 units and 21,390 units respectively. The company has replaced Suzuki Baleno with Suzuki Liana during the period and the product is getting acceptance in the market. Sales figures of Suzuki Liana remained on the ascending trend with 1,535 units during June compared to 1,187 units in May.


Indus Motor's sales during FY06 stood at 40,961 units, portraying 17% upsurge compared to 34,983 units last year. The company's Toyota Corolla sales depicted 33% increment to 30,527 units with market share at 46% in the 1300cc and higher engine cars. Toyota Corolla is considered to be the most successful car in Pakistan. On the other hand, Daihatsu Cuore and Toyota Hilux sales figures depicted 8% and 25% declines to 7,883 units and 2551 units. Decline in Cuore's sales is primarily attributable to the acceptance of imported Toyota Vitz, which is available in the same price range. During the month of June 2006, the company has sold respective 2,935 units, 46 units and 1,107 units of Toyota Corolla, Hilux and Daihatsu Cuore.


During FY06, Honda Atlas Cars' sales soared by 17% to 28,134 units as against 24,066 units previously. Currently, Honda Atlas assembles only two vehicles namely Honda Civic and Honda City to tap the upper-end segment of car market. On MoM basis, Honda City sales stood at 1,229 units in June, almost double compared to 626 units during the preceding month. Demand of Honda Civic declined by 61% to 341 units MoM.


Automobile sales figures of Dewan Farooque Motors have remained stable on the back of increased demand of Hyundai Shahzore, which is considered to be the most competitive vehicle in the LCV segment. During FY06, Hyundai Shahzore's sales stood at 9,234 units, 15% higher compared to 8,012 units previously. On the other hand, Hyundai Santro's sales remained almost intact at 7,031 units during FY06 as against 7,009 units last year due to intense competition from small imported cars.