AUTO IMPORTS-GROWTH TAPERING OFF

MARIAM NASIR
Manager Research
Sep 24 - 30, 2007

Vehicle import has been witnessing a huge decline since the last year. Month over month the numbers are declining. In FY06, the major reason for such high import numbers were the government decision to drop the restriction of age limit on car imports, allowing imports under the baggage scheme and increasing the depreciation rate to 2%. Resultantly, there was a huge influx of imported vehicles in FY06 as they were much cheaper and of better quality versus locally assembled cars. Such high numbers of imports put the local car assemblers in doldrums and panicked them over their billions of investment. Consequently, govt. imposed a restriction of 5-year age limit on car imports in Budget FY07. As a result of the imposition, the import numbers declined by 49% to mere 27,834 units as against 54,328 units in FY06. Further break up reveals that the, car imports declined by 44% to 14,494 units, van imports declined by 54% to 4,860 units and SUV's declined by 73% to 4,012 units. The only segment which registered a growth was pick-ups whose import increased by 52% to 4,468 units.

JULY TO AUGUST FY08-CAR IMPORT DROPS BY 44%

In July to August FY08, the import of used-cars has declined by 44% to 2,687 vehicles as against 4,827 units in FY07. Only 132 cars, in CBU condition were imported under transfer of residence scheme in the period under review. Some 2,392 were imported under personal baggage scheme, 162 under other head whereas one car was imported under gift scheme. These imported cars include 123 of up to 1000 cc, 2 from 1001 to 1300 cc and 4 from 1301 to 1500 cc and 3 4X4 jeeps under transfer of residence scheme. Under personal baggage scheme, 1,400 cars were imported up to 1000 cc, 150 from 1001 to 1300 cc, 215 from 1300 cc to 1500 cc, 77 vehicles from 1600 to 1800 cc, 218 from 1801 to 3000 cc and 16 above 3000 cc besides 316 4x4 jeeps. Only one vehicle of 1000 cc was imported under gift scheme. Among other vehicles imported include, 8 vehicles 1001 to 1300 cc, 31 cars 1301 to 1500 cc, two 1501 to 1600 cc, one 1601 to 1800 cc, 44 cars 1801 to 300 cc and three cars above 3000 cc apart from 73 4x4 jeeps.

(UNITS)

FY05

FY06

FY07

FY08*

Cars

8,049

25,933

14,494

2,687

Vans

2,445

10,649

4,860

N/A

Pick-Ups

3,083

2,941

4,468

N/A

SUVs

1,946

14,805

4,012

N/A

Total

15,523

54,328

27,834

2,687

Source: PRAL
* July - August

After the announcement of changes in import restriction imposed in the 2007-08 budget on more than three years old cars, more than 13,000 reconditioned cars are stuck in Japan. Millions of dollars were invested by both Japanese and Pakistani businessmen in the hope that the decision of the Government of Pakistan, permitting five years old cars in the 2005-06 budget, would continue. However, the abrupt discontinuation of the previous policy brought losses to the investors in both countries.

GOVERNMENT LURE'S INVESTORS BY DUTY-FREE IMPORT OF CARS

Drop in imports would result in heavy fall in revenue collection and increase in the 'on money' for purchasers of locally assembled units. Recently Federal Bureau of Revenue announced that it has allowed duty and tax free import of 3 to 25 cars by the investors who would be making an investment $10 million to $125 million and above in the export processing zones. According to the notification, investors making investment of $10.00 million or more up to $25 million in the EPZs would be entitled to import 3 cars, investors making investment of more than $25 million but less than $50 million would be entitled to import 5 cars, those who would be investing equal to or more than $50 million but less than $75 million would be allowed to import 10 cars. Some 15 cars and vehicles would be allowed duty- and tax-free to the investors who would be making investment equal to or more than $75 million but less than $100 million. Investors making investment of equal to or more than $100 million but less than $125 million; would be allowed to import 20 cars while investment equal to or more than $125 Million would entitle the investor to import 25 cars or other vehicles without payment of taxes and duties. The measure is meant to attract foreign investment in the export-oriented industries in export processing zones, especially overseas Pakistanis and investors from China.

FUTURE OUTLOOK

The total production capacity of the local assemblers crossed 225,000 units in FY06, which reached 275,000 units by FY07. With this capacity, local industry is not geared up to completely meet total demand. However, the budget FY08 won't bring in much relief to the imports as the age limit for imported cars was reduced from 5 to 3 years, making them more expensive. Hence it is assumed that the numbers would be much lesser in the year FY08.