10-YEAR PLAN FOR LOCAL AUTO SECTOR'S GROWTH

The primary thrust of the auto Industry development plan would be to encourage local manufacturers to increase investment and enhance their capacity by at least 100 percent

SHAMIM AHMED RIZVI, Bureau Chief, Islamabad
July 17 - 23, 2006

Amid the pleas and cries raised by the local auto manufacturers against the liberal import of used and new cars on reduced rates of duties, Prime Minister Shaukat Aziz has constituted a three-member committee to prepare on a fast track basis a 10-year plan for the growth of local auto sector keeping in view the demands and problems of all the stakeholders as well as minimizing the gap between supply and demand in the automobile market.

The committee comprises Deputy Chairman Planning Commission Dr. Akram Sheikh, Secretary Ministry of Industries and Production, Kamran Rasool and Chairman Central Board of Revenue Abdullah Yousaf. The primary thrust of the auto Industry development plan would be to encourage and ensure that the local manufacturers increase their investment to enhance their capacity by at least 100 percent to meet the rising local demand and grab some share in the international market. The committee would suggest changes in the present liberal import policy keeping in view the problems of local manufacturers and assemblers as well as the rising demand of the local market, besides eliminating premium business by ensuring prompt delivery.

A meeting, recently held at Prime Minister Secretariat and attended by top brass of Ministry of Industries and Planning Commission, discussed in detail the PAIDP prepared and submitted by the Engineering Development Board (EDB) that led to formation of the committee to further look into its viability. Under the plan, manufacturers will be given a target of 0.5 million cars and one million motorcycles production by the end of 2010-11. The plan will also address issues like delay in delivery of cars and bikes and suggest abolishment of illegal premium, which is an abhorred practice in the sector. The government has ensured the industry all out support and reasonable return on investment but it would be required to enhance its capacity. The representatives of the industry were of the view during the meeting with the EDB that import of used cars scheme and new entrants policy was a major concern for the local industry.

Sources said that the government wanted the industry to enhance its capacity and competitiveness as huge imports of vehicles has been disturbing the country's balance of payment. The production and sale details since 1995 show that local production of automobile was not enough to fill the demand supply gap in the local market and the trend continues to widen during recent years.

IMPORTED CARS

TRANSFER OF RESIDENCE SCHEME

PERSONAL BAGGAGE SCHEME

GIFT SCHEME

APART FROM 3 SCHEMES

July-May

2005-06

2005-06

2005-06

2005-06

1000cc

15,251

2,931

797

1,076

1001cc to 1300cc

1,153

349

202

1,469

1301cc to 1500cc

3,143

647

315

228

1501cc to 1600cc

64

24

13

869

1601cc to 1800cc

498

156

186

76

1801cc to 3000cc

421

333

365

1,006

above 3000cc

20

45

245

93

4X4 jeeps

6,285

484

804

487

Total

26,835

4,969

2,927

5,295

The automobile industry in Pakistan has witnessed tremendous growth during the last few years. It applies to all sectors including cars, buses and trucks as well as motorcycles. The growth in car manufacturing has, however, been more spectacular where production rose to almost 200,000 units by end 2005 from about 40,000 in the year 2002.

Since 2001-02 the automobile market is growing up rapidly by over 40 percent per annum and if an average annual growth of 30 percent per annum is maintained, Pakistan's market will cross the milestone of 500,000 units by the year 2010. Long-term investment-friendly policies of the government and up-gradation of production facilities are considered as pre-requisite by experts for achieving the automobile vision 2010 of 500,000 units.

The increase looks all the more impressive given the fact that the car leasing finance, believed to have boosted the demand, has lost some of its attractiveness. Over the last one year the leasing companies' interest rates have risen from around 8 percent to nearly 13 percent, which should have acted as a dampener on the sales activity. But it has not, and as the sales figures indicate, people continue to buy preferring local cars to imported ones.

This tremendous growth, has, however, not translated into the easing of the buyers' travails. They still have to wait, after the full payment of the price, for several months for the delivery of the purchased vehicle. Thus the vehicles, which are already, much overpriced as compared to most other countries due to heavy taxation, become even pricier for the buyers, including those interested in small utility cars.

In view of the rising gap in supply and demand and with a view to lessen the hardship being faced by the tail-end buyers or users the government allowed import of new and used cars at a reduced rate of duty. Recently the government has allowed overseas Pakistanis to gift cars to their brothers and sisters under gift baggage or transfer of residence scheme. The local car industry is protesting against this decision of the government without any suggestion to meet the gap between supply and demand and reduce the period of 'waiting for the turn' by their purchasers.

At a recent presentation to Engineering Development Board the representatives of the auto industry complained that the industry was quickly losing its market share to imported cars. They expressed apprehension that continuation of the current policy of liberal imports might block investment in this key sector, affecting its future expansion plans.

The industry in its presentation informed the Engineering Development Board that 2005 had witnessed unprecedented increase in import of cars, and if the trend continued in the coming days it would hurt the local industry very seriously. The representatives of the industry held 'low tariff' as an attraction for buying imported cars, in particular the used ones. They informed the EDB that Pakistan has spent a sizable amount of 2.231 billion dollars on the import of motor vehicles since FY-04. The country imported 653 million dollars worth motor vehicles in 2003-04, 972 million dollars in 2004-05 and further imported one billion dollars vehicles in 2005-06.

However, despite the import of over two billion dollars worth motor vehicles in last two and a half years, there seems no relief in black marketing of cars as the dealers continue to charge premium on immediate delivery of four wheelers. The details of imported cars show that customs cleared over 23,000 cars in 2005. This included both new and old cars. The customs report indicated that over 13,000 used and around 10,000 new cars were imported into the country in 2005. The models and makes of imported cars cover a large range of varieties - Honda, Toyota, Mercedes and Land Cruisers - among the first choice of the importers.

Buying of a car has become a terrible hardship for most Pakistanis in the last few years. They have to deposit the full price of a car in advance with the designated showrooms and join a long queue for a long period or pay a handsome amount, known as premium, to the dealers over and above the factory price for ready delivery. This is not all. Most of the dealers prefer to sell cars through leases offered by various financial institutions, and it is up to them to decide whether to opt for this route or not. The government is sandwiched between the demand of car buyers to allow liberal import of new and reconditioned cars to ease their difficulties and the desire of local venders and assemblers to protect their investment and facilitate their expansion plans and encourage growth of local industry and job promotion.

ANNUAL PLANT CAPACITY

CAR

Pak Suzuki Motor Co. Ltd.

68,000

Indus Motor Co. Ltd.

34,000 *

Honda Atlas Cars (Pakistan) Ltd.

30,000

Dewan Farooque Motors Ltd.

15,000

Ghandhara Nissan Ltd.

6,000

LCV & 4X4

Pak Suzuki Motor Co. Ltd.

12,000 (LCV 11,000, 4x4 1,000)

Indus Motor Co. Ltd.

8,000

Dewam Farooque Motors Ltd.

10,000

Sigma Motors (Pvt.) Ltd.

4x4 Land Rover Manufactured at
Ghandhara Nissan Plant.

SUV

Dewan Farooque Motors Ltd. 

Not declared 

TRUCK 

Hinopak Motors Ltd.

10,000

Ghandhara Industries Ltd. 

3,000

Sind Engineering Ltd.

3,000

VPL Limited 

 500 ****

Master Motor Corporation Ltd.

8,050

BUS

Hinopak Motors Ltd.

2,000

Sind Engineering Ltd.

1,000

Ghandhara Industries Ltd.

1,800 ***

Ghandhara Nissan Ltd.

-

TRACTOR

Al-Ghazi Tractors Ltd.

25,000

Millat Tractors Ltd.

25,000

MOTORCYCLE

Atlas Honda Ltd.

400,000

Dawood Yamaha Ltd.

200,000

Suzuki Motorcycles Pakistan Ltd.

65,000

Saigols Qingqi Motors Ltd.

100,000

Pakistan Cycle Industrial Cooperative Society Ltd. (Sohrab)

42,000 **

*   Planned: 50,000 by September 2005.
** Planned: 60,000 by December 2005.
*** No bus body manufacturing facility.  Bus chassis included under Truck.
**** Plant closed.

It is a good development that the government has taken notice of the prevailing anomalous situation and appointed a small committee of experts to resolve the contradictory issues. Let us hope that the committee would come up with just recommendations to the satisfaction of all stakeholders the local auto industry, the importers and tail-end car buyers who are being criminally exploited these day.