PAK AUTO INDUSTRY NOT ESCAPES WORLD FINANCIAL MELTDOWN
JV WITH GLOBAL VENDORS CAN EXPAND EXPORT HORIZON-PARVEZ GHIAS CEO INDUS MOTORS
Mar 02 - 08, 2009
Parvez Ghias, Chief Executive Officer Indus Motors while making a realistic assessment of the automobile industry on the back of global recession and financial meltdown said that the industry has been affected with drop in sales volumes that is primarily attributable to limited availability of auto credit, high interest rates, and of course, the unstable law and order situation that has created anxiety amongst customers over the economic outlook.
Besides the depressed market scenario, the auto industry also had to deal with the challenges posed by the unfavorable post 2008 budgetary measures such as imposition of 35% cash margin on letters of credit, 5% Federal Excise Duty on cars above 850cc, Withholding Tax at registration stage, increase in custom duty from 90 to 100% on imported cars above 1800cc, additional regulatory duty of 50% on high-end vehicles, which had an adverse impact on the sales volume of the entire industry.
When his attention was drawn towards the fact despite decline in prices of steel and other inputs the industry in general and Indus Motors in particular was not passing on the benefits to the customers, Parvez without any pause replied with a smile on his face when the prices of steel were soaring up the industry absorbed the price hike and did not pass down the burden, but at this stage the industry has suffered a lot especially due to sharp devaluation of the Pak Rupee against major currencies and exchange rate disparity has washed away all the benefits of declining prices of different commodities, consequently that has raised the production costs.
Parvez Ghiaz, having a command over his temperament, which helps to keep him cool, and probably that is the secret of his success, said in a soft tone that though the challenge is alarming yet we are not supposed to give up or surrender. This phase of turmoil will vanish with the passage of time; however, it is the responsibility of the economic managers to show maturity and professional spirit with a view to bail out the industry. For example, he said that imposition of 5 percent excise duty did not help to improve revenue at all but it was surely instrumental in reducing the demand, as such levies increase prices and psychologically scare away the buyers.
As a matter of fact, the soul of good governance calls for a review of the inconsistent policies and increased levies and taxes as well as follow up and implementation of Auto Industry Development Plan. The import of used cars is still hurting the local automobile sales. it is interesting to note that over 8000 leased cars abandoned in Dubai and the banks were selling them at forced or throwaway prices. This is a situation, which is fascinating to the commercial importers in Pakistan. In order to protect the local industry, Parvez Ghias agreed that to check the influx of those abandoned car into Pakistan, there is a need to imposing regulatory duties with a view to avert autos glut in Pakistan.
Why Pakistan auto industry should not use its surplus for exports, which could be an impetus to the industry? Parvez said yes it could be done but not at this stage, in fact auto industry is one of the capital intensive industries where policies are evolved well in advance especially for diversification of either markets or products. So entering into exports requires not only companies but the government to chalk out policies and strategies.
However, he indicated there are certain areas where initiatives are required to strengthen the industrial base and that can be achieved through joint ventures with the world players in the vendor industry. Look at Taiwan and even India, which have gained huge exports in spare parts in collaboration with leading vendors in the world. So the vendor industry with the support of the government can enter into joint ventures in spare parts that would ultimately help entering into export market, he observed.
IMPACT OF THE RECESSION IN TERMS OF NUMBERS
• Cars and LCV sales have drastically declined by 41.5% during Jul-Jan 2008-09 (60,627 units) compared to Jul-Jan 2007-08 (103,591 units).
• On an annual comparison the sales of locally produced cars and LCVs, that had previously recorded sustained growth over the last 5 years, declined 8% from 204,121 units in FY 07 to 187,412 units in FY08.
• There has been a corresponding decline in profits of the auto manufacturers.
When asked his comments about road infrastructure especially in Karachi as well as in Punjab, Parvez Ghias who takes special interest in road safety programs and have initiated several workshops and seminars focusing on road safety measures, readily agreed that improvement in road infrastructure is impressing in Pakistan in general and in Karachi in particular. 'You know a good road helps promoting auto industry besides ensuring life of the vehicles.'
He, however, emphasized on creating a sense of civility among the motorists who become more violent in case of accidents in Pakistan. He cited the example of Vietnam where number of motorcycles was much greater than Pakistan yet you would never see any scuffle on roads. After any eventuality on the roads, they first enquire about the welfare of the people on the other side and disperse amicably instead of indulging in manhandling or fighting with each other.
Commenting about the adverse impact on the industry of import of cars, Parvez said that import of used cars has had a negative impact on the sales of locally produced automobiles. In fact the imported ones are also a drain on our valuable Forex, and result in dumping of junk cars in the country. Such cars are at the end of their productive life, or are not compatible with Pakistani conditions.
Despite downward revision of the maximum age for imported used cars from 5 years to 3 years, used cars still continue to enter the country. However, the age reduction is a welcome step for the local auto industry, which increased local capacity utilization. There are reports that used car importers usually resort to malpractices by using false documentation to import a large number of used cars into the country. Unless there is further reduction in age of used vehicles to 2 years, these imports will continue to hurt the local auto industry and production capacity will remain unutilized. Used vehicle imports are still about 14% of domestic passenger car and LCV production.