AUTO VENDING IN PAKISTAN
Research Analyst, PAGE
Sep 14 - 20, 2009
The local auto vending industry comprises of around 200 recognized vendors supplying auto parts and accessories directly to assemblers and nearly the same number of unorganized vendors mainly catering to the requirements of major vendors.
Most of the auto vending companies were established during the preparation phase (1985 to 2005) when the government unfolded economic reforms and started effective implementation of deletion programmes. Automotive engineering is a driving force of large-scale manufacturing, contributes US$3.6 billion to the national economy, and employs directly over 192,000 people.
PRODUCTION OF VEHICLES IN PAKISTAN
The after market for spare parts has also witnessed immense expansion over the same period, with imported parts playing an important role in meeting local demand. The spare parts market is given further impetus by a total vehicle population of approximately 5.4 million. Local vending industry produces a variety of items including precision engineering parts, sheet metal, radiators, body parts, plastic parts, plugs, air and oil filters etc.
Auto parts manufacturers have contributed significantly to indigenisation of the locally assembled vehicles as well as in development of the engineering/industrial capabilities. Massy Ferguson and Fiat Tractors have been indigenized to 87%, various models of Suzuki vehicles from 30% to 65%, Hino & Nissan trucks 40%, Mazda trucks 35%, Honda and Toyota cars 28%, Honda and Yamaha motorcycles 80%.
The quality and the standard of parts and accessories, manufactured by Pakistani auto vendors, is monitored and approved by the international licensees. It is a matter of pride and prestige for Pakistan that local tractor parts are exported to European and American countries because of their high quality and standard. So far, the Government of Pakistan has undertaken two major initiatives in the form of National Trade Corridor Improvement Program (NTCIP) and Auto Industry Development Program (AIDP) for the development of the automotive industry in Pakistan.
Engineering Development Board (EDB) is actively implementing the AIDP to increase the GDP contribution of the automotive sector to 5.6%, boost car production capacity to half a million units as well as attract an investment of US$ 3 billion and reach an auto export target of US$ 650 million.
NTCIP is also aimed at to reduce the cost of trade and transport logistics and to bring the quality of services offered to international standards by strong infrastructure of roads and highways. The industry has been by and large developed through its own indigenous resources and some through technical tie-ups with well-known multinationals, both Japanese and Western.
Auto vending industry has been faced with challenges of availability of local raw materials, production assets, sophisticated toolings including dies & moulds, machining facilities and trained & productive workers, supervisory staff and the management and absence of a culture of research and development. The technologies for sophisticated components due to high cost, royalties and license fee etc., remained a barrier in their acquisition.
In the competitive development phase (2005 ñ 2012), the vendors besides the above challenges are now faced with issues of prices, quality, and timely supplies. The vendors under the deletion programmes could not excel in marketing skills due to inherent ease provided by the old system. In the development phase, the number of vehicles will increase and so will the competition which will squeeze the margins but certainly lead to high volume of components for which they will need capacity expansion, efficient and highly productive human resource, latest technologies of parts and processes and mutual support and complementation.
FUTURE OF PAKISTAN AUTO INDUSTRY
|2 wheelers||1.06 million||1.7 million|
|Investment (Rs billion)||98||225|
|Contribution to GDP (%)||2.8||5.6|
|Contribution to manufacturing sector (%)||16||25|
|Gross sales turnover (Rs billion)||214||600|
Increasing competition is expected to lead to few consolidations and mergers in the sector. Mean and lean production processes, just in time supplies, and high technology production may also lead the assemblers to decrease the number of vendors. The new environment provides due tariff protection against components coming from economies that are more efficient. Government's approval of 5 years pre-announced tariff will at least help them focus on areas other than the import tariffs, which in the preparation phase remained the dominant factor in policymaking.
Over the past five years, the automotive vendor industry of Pakistan has played a significant role in the economic growth and development of the industrial sector with extensive capacity build-up, both in vehicle assembly and spare parts production. The industry wants to maximise local contents to at least 70% in automobiles manufactured in Pakistan by the year 2020. It is possible within an environment conducive to innovation, rapid modernization, and research and development.