DECLINING CAPACITY UTILIZATION OF ASSEMBLERS
SHABBIR H. KAZMI
Mar 02 - 08, 2009
Around the world, automobile assemblers are withstanding the worst of financial crisis, leading to recession. Hundreds and thousands of cars are waiting at the open yards for the customers. The world leaders like Toyota have incurred historic losses and the US administration had no alternative but to offer a bailout package for the automakers. In such a scenario, Pakistani assemblers could not remain immune. They are better off because they were not exporting vehicles. Low capacity utilization can result in losses but manufacturers of parts and accessories face extinction.
Many factors are responsible for the reduction of vehicle sales to nearly half during 2008. These include reluctance of financial institutions in extending credit for auto purchase, high interest rate, and hike in cost of CKD/SKD kits etc. due to more than 25% depreciation of Rupee against leading currencies. On top of this high rate of inflation in the country reduced purchasing power of people in general. Corporate employees, once the biggest segment of customers facing job cuts preferred not to change the models frequently.
Keeping in view declining sales one of the novices suggested exporting cars from Pakistan. It seems that the person was so engulfed in local issues that he never got a chance to see the plight of automakers in Japan, USA, and Europe. However, the idea just cannot be scrapped Pakistan can be used as a hub for supplying vehicles to adjoining countries. In fact all the countries can benefit if they agree to complement each other rather than entering into fierce competition.
However, according to an auto sector expert the demand for vehicles is various markets is not identical. In many countries minimum products specifications fixed by the respective governments are not identical or customer preferences are not identical. For example, people in Pakistan still prefer to drive vehicle having 'manual transmission' but the Middle Easter customers prefer 'auto transmission' units.
According to another disgruntled analysts, "Vehicles being sold in Pakistan fall in the category of 'strip models' and just cannot be exported to some of the countries. If all the other required accessories are added price of locally produced vehicles become uncompetitive. On top of this, the perception that in Pakistani assemblers meets only the minimum acceptable standards remains in the minds of foreign buyers. This may not be a fact now but unless effort is made to change the image the dream of exporting vehicles from Pakistan just cannot become a reality."
The outlook for manufacturers of parts and accessories is very grim. On one hand, they face slower off take of components by the assemblers and on the other local replacement markets are flooded by the smuggled items. This trade has been going on under two heads: Afghan transit trade and import of scrap. The successive governments have failed in curbing this trade. This not only hurts the local manufacturers of parts and accessories but also deprives the government from billions of rupees taxes.
According to a manufacturer of parts and accessories, "The successive governments have extended 'deletion programs' and it looked that they wanted to protect exporters rather than the local manufacturers. They even failed in learning any lesson from the Indian government. For decades, one could hardly see imported vehicles or foreign brands. It first strengthened manufacturers of parts and accessories and only then allowed entry of world-renowned manufacturers. The result is that now most of the globally known brands are being manufacturers in India. As against this, Pakistan still remains heavily dependent on imported CKD/SKD kits."
Another factor that gives India an edge over Pakistan is creation of basic manufacturing facilities. To begin with, Pakistan Steel Mills is not capable of meeting demand for various types of products. On top of this Pakistan has failed in developing engineering industry. It will be wrong to say that no effort was made in Pakistan in the past but frequent change in policies resulted in closer of such units.
Pakistan succeeded in production of engine blocks, gears and many other components of Bedford trucks/buses. First the assembling unit was nationalized and than forced to stop production of this brand. On could still see Bedford buses/trucks plying on the roads but facilities created for their production gone out of business. Some of the victims of bad government policies are Bela Engineering,
Pakistan Machine Tool Factory, Karachi Shipyard & Engineering Works and Taxilla Heavy Engineering and Electrical works.
Many of Pakistan's ills are because of absence of long term planning, coming up with outrageous policies and successive governments changing policies overnight to attain political mileage. Yellow Cab and Green Tractors schemes have caused the biggest dent to local automobile industry. On top of his permission to import secondhand/ reconditioned vehicles of all sorts has virtually broken the back of local manufacturers and assemblers.
In Pakistan, there are various ministries, planning commission and experts' advisory cells but lack consensus on policies. Most of the time their recommendations are contradictory and decision making power is conspicuous by its absence. Often political agenda prevails over national objectives.
At a time when the world is facing crises mostly because of imprudent policies followed by the developed countries, misappropriation and corruption at some of the much talked about corporate, the GoP must try to minimize the worst impact on the local industries.
While other countries face financial crisis Pakistan is suffering from various crises that include lack of confidence in government policies, inability to make prudent decisions and above all a habit of sweeping the issues under the carpet.
The economic managers are so novice that instead of convincing the IMF that the time has come to ease the monetary policy, they are cutting down non-development expenditures to support the Fund's hegemony, removing subsidies, curtailing PSDP allocations and above all spending time on non-issues rather than contentious issues eroding competitiveness of local industries. They cannot even ensure uninterrupted supply of electricity at affordable cost. They claim that the country has the capacity to produce 20,000MW but actual generation remains around 10,000MW.