The auto industry found the right atmosphere to grow and under a supportive provincial government it flourished.

KHALID BUTT, Bureau Chief, Lahore
Nov 13 - 19, 2006

Like many other sectors in the national economy one of the most vibrant and fast expanding area pertains to auto industry. The industry owed its initial baptism to somewhat a late start during Ayub's era. It soon became a successful and visibly profitable enterprise. But soon after the process of nationalization initiated by Bhutto and separation of eastern wing it fell into a phase of gloom and doom. It took long time to recover from the apparent shocks and inconsistent policies of the successive regimes.

The industry started a remarkable recovery in the 90s but during the present regime it took off in a big way. Its epicenter gradually shifted from highly erratic and security prone Karachi to safer and more peaceful environs in and around Lahore. Here the auto industry found the right atmosphere to grow and under a supportive provincial government it flourished. A silent yet significant transformation is taking place in the Pakistani auto industry. The transformation has already started changing the face of competition in the passenger car and light commercial vehicle segments of the market. In the coming months it will be spread to 4x4 and commuter vehicle segments.

Thus far Pak Suzuki, Honda Atlas and Indus Motor were the three Japanese assemblers who have by and large dominated the passenger car and light commercial vehicles market in the country. Suzuki which started assembly operations 17 years ago faced no competition in 800 and 1000 cc passenger car market as well as 1000 cc Jeep, Potohar. Toyota which commenced commercial operations in May 1993 and Honda Atlas which followed in July 1994 were the main competitors in the 1300-2000 cc segment, though Suzuki's 1300 cc Margalla/Baleno was able to snatch about 19 per cent share.

According to Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) Suzuki has achieved a maximum deletion level of 60 per cent on its 800 cc Mehran car. The localization of its other models are: 1000 cc Khyber 42 per cent, 1300 cc Margalla/Baleno 32 per cent, 800cc pickup 50 per cent, 10-seater pickup 47 per cent, and 1000cc Potohar jeep 40 per cent. Toyota has achieved a maximum localization of 30 per cent on all its models of Corolla cars, which range between 1300-2000 cc. It has achieved an 18 per cent deletion on its 24 cc Hilux trucks. Honda has achieved a deletion level of 30 per cent on both 1500 cc and 1600 cc models of its Civic cars and 28 per cent on its 1300 cc City cars.

In the emerging competition Dewan Farooque Motors Limited (DFML) has signed technical collaboration agreement with two Korean auto manufacturers - Hyundai and Kia. The assembly of one ton Hyundai 'Shehzore' light commercial vehicle was started at the Sindh Engineering plant in Karachi with whom DFML signed a contractual agreement. The first Kia Classic 1300 cc car with such loaded features as power windows, four-way stereo system and central locking system, duly rolled off the assembly line of DFML's interim plant in Sujawal, District Thatta. DFML plans to assemble and progressively manufacture a number of other Hyundai and Kia models subsequently. The new models include 1000 cc Hyundai Santro Plus car, a 1600 cc 4x4 sports utility vehicle Shuma this year and a 12-15 seater diesel commuter van later on.

Suzuki, which had enjoyed a virtual monopoly in the small car market in the past is now facing a tough competition for the first time. Toyota now controls the majority shares in Daihatsu, the oldest Japanese manufacturer specializing in small car segment for 90 years. It is for the first time that Daihatsu cars are being produced in Toyota plant in Karachi. The assembly plant has a production capacity of 10,000 Cuore cars per year. Daihatsu expects to produce some 5,000 cars in the initial year.

Another Korean auto manufacturer, Daewoo, is also in the process of entering the local market. A technical collaboration agreement was signed between Daewoo Motors Company of Korea and World Korean Motors (WKM), a subsidiary of World Group of Companies, in August last year. The group has wide experience in auto distributorship rights for locally assembled as well imported new vehicles in the past including BMW, Mercedes, Nissan, Mazda, Isuzu, Mitsubishi and Daihatsu.

In 1998-99 the total paid up capital and reserves of the group totaled Rs 556.891 million, annual turnover Rs 1964.5 million, fixed assets Rs 400 million and current assets Rs 828 million. Sixty per cent of the group's revenues come from automobile sector. The agreement allows WKM to assemble and progressively manufacture Daewoo vehicles in Pakistan. WKM plans to assemble 800 cc Matiz passenger car and 5-door 4x4 Musso 2900 cc jeep.

WKM has a total paid-up capital of Rs 500 million. WKM also claims that the total LCs and other finance lines available from the various financial institutions will be of Rs 750 million.

Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) was founded in 1988 to represent and protect the interests of auto vendors at various government departments and to provide technical and management cooperation to its members. It collaborated in the Pakistan Auto Parts Show in Karachi recently, which was organized by the Export Promotion Bureau. Some 150 participants, including many car assemblers, displayed their products to help promote the auto and vending industry of the country. The vending industry offers Pakistan a huge potential in the years to come, according to industry sources. However, it is imperative to take fiscal and administrative measures to reduce the smuggling of vehicles as well as components and parts into the country, which often find their way as 'used parts.'

In addition, the culture of under-invoicing and mis-declaration should be seriously resolved by the government to help check the unethical practices which not only hurt the local auto manufacturers and the vending industry but also the buyers ultimately. A greater interaction between the assemblers and the vending industry would also encourage the development of the vending industry for the overall growth of the auto industry. It is important to take measures to ensure that vendors are provided with the financing facilities. The banks should be made to play a more significant role in the development of the vending industry. The emergence of competition in the small car segment for the first time and in the expensive car segment in general would offer a better choice to potential auto buyers in price as well as in models.

This last factor would offer the ultimate benefit to the buyers who would be in a much better position to dictate the market to help force assemblers to improve the quality of their products as well as make them better price competitive. Unlike today, in the years to come buying a locally assembled vehicle would no more mean a thankless ordeal for the buyers. In near future the auto market in Pakistan, particularly cars, would no more be sellers' market. There are indications that it would transform itself into a buyers' market.