SITUATION CALLS FOR IMMEDIATE BAN ON IMPORT OF USED CARS

REMOVAL OF 5 % FED & 35% L/C MARGIN DEMANDED
INTERVIEW: PARVEZ GHIAS CEO IMC

AMANULLAH BASHAR
Oct 20 - 26, 2008

The automobile industry which was considered as one of the most vibrant segment of the economy and was considerably instrumental in igniting spark in allied industries in Pakistan, is not an exception to the current domestic and global economic recession having an adverse effect on the growth momentum.

The boom like situation enjoyed by the car manufacturers has come to halt with local car sales plunged by 57% on yearly basis to 13, 316 units in first 2 months of FY09.

The decline in car sales was 51% and 60% in July 08 and August 08, respectively, as compared corresponding months of the last year. However it will be interesting to note that this is not the domestic phenomenon alone, as more or less for the same reasons, auto assemblers in all over the world are going through a tough time.

This phenomenon is mainly attributable to change in auto finance policies by the suppliers of funds in the context of the local auto industry.

COUNTRY DROP IN CAR SALES AUGUST 08

Pakistan

60.0%

Italy

26.2%

UK

18.6%

Europe

15.7%

USA

15.5%

Thailand

13.0%

Japan

12.8%

Germany

10.4%

France

7.1%

China

6.2%

India

4.4%

Malaysia

1.0%

In order to discuss the prevailing situation in the automobile industry and their future strategy to cope with the situation PAGE interviewed Parvez Ghiaz, CEO Indus Motor Company to share his views with our valued readers:

PAGE: What would be your strategy to cope with the current situation in respect of drastic cut in sales and declining demand for vehicles in the country?

PARVEZ: Our strategy is to successfully survive this economic downturn by staying close to the customer and read the market demand as accurately as possible. It will allow us to manage our inventories efficiently, conserve cash, reduce costs and manage operations effectively.

PAGE: Do we need to import cars in the face of glut like situation in Pakistan, would you suggest a total ban on import of CBUs and used cars?

PARVEZ: We certainly do not need to import used cars which should be banned. Other countries like India and Thailand, for example, have very high, prohibitive tariff and non-tariff barriers against import of used cars, and thus are able to meet their demand for cars though domestic production. As far as new CBU imports are concerned, such imports should be allowed if they are not directly competing with local production.

PAGE: Indus had some investment plans for expansion of the existing capacity. Is that investment plan still intact or the company considering for shelving the expansion plans?

PARVEZ: On long term basis, Pakistan offers good potential for automotive business. We continue to remain in dialogue with Toyota on expansion of existing capacity, however, the current market situation and near term business outlook will be key factors to that need to be recognized as we firm up our expansion plans.

PAGE: Indus recently rolled out the new model of corolla car, would like to share with us about the market response of the new one?

PARVEZ: Market has responded favorably to our new Corolla models. The Altis and Diesel Saloon Models were launched end August while the volume sellers XLi, GLi and 2D were launched less than a week back So far the demand has met our expectations.

PAGE: How do you foresee the future outlook of the auto industry in Pakistan?

PARVEZ: We believe the next couple of years are going to be difficult for the auto industry. 2007/8 at 213,400 vehicles (representing CKD, CBU new and used) was already down 16% over 2006/07 volume of 254,400 units. We expect 2008/9 market demand to be about 170,700 units, which is about 20% down over 2007/8.

PAGE: Do you have any plan to offer financing facility of your products in the face of stringent financing policies of the banking sector?

PARVEZ: At the moment we do not have any plans to offer financing facility. However, we hope our arrangement to offer Residual Value (RV) package through banks will offer customers the pleasure and joy of owning the vehicle in terms of reduced installment amount.

PAGE: What incentives you would suggest to the government enabling the auto industry to weather the persisting crisis like situation?

PARVEZ: The Government should immediately remove the 5% Federal Excise Duty and the 35% Letter of Credit margin. This is hurting not just the OEMs but also hundreds of vendors who supply parts to the auto manufacturers. If used cars cannot be banned, there should be a reduction of depreciation limit from 2% per month to 1% per month, with a cap of maximum 25%. Life of used imported cars should be reduced from 3 years to 2 years. Driving license should be a requirement for the Transfer of Residence Scheme and registration of the used imported car in the name of the returning Pakistani for at least one year will minimize misuse of this scheme. To enhance technology transfer, levy of 10% federal excise duty on Royalty and Technical Fees should be discontinued. Sales Tax should be brought down to the earlier 15%. The auto tariff agreed between the industry and government in the Auto Industry Development Plan should be adhered to and unilateral changes should not be made. It is imperative that the Government and the Auto Industry have a continuing dialogue to jointly develop both short and long term strategies for growth in this extremely difficult business environment.