AUTO VENDING COMPANIES NEED STIMULUS

TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com)
Sep 14 - 20, 2009

Pakistan's automobile sector is at the stage of development with numbers of local vendors supplying parts to assemblers of two, tri, and four wheelers, and heavy vehicles rising. Most of the local auto vendors supply auto parts to assemblers to meet the demand of body and engine parts. Nevertheless, local content integration is not up to the mark in Pakistan and carmakers import majority of auto parts in to the country. Some of the parts are even not technology-intensive. In spite of this, bulks have no availabilities in local markets. The reasons range from weak channel of distribution, production underperformance, to above all dearth of precision in designs.

There are over 230 vendors across the country, providing auto parts and accessories to assemblers and manufactures of motorcar, auto rickshaw, bus, truck, tractor, and motorcycle. Considering others who are unregistered and operate as helping vendors of main vendor would increase total numbers to a substantial level. Local auto vendors supply auto parts such as brake pads, chassis frame, oil chamber, timing plate, oil pump, water body, rotor, ball joint, shock absorber, silencer, tie rod ends, camshaft, cylinder sleeve, gasket, fuel tank, brake drum disc, tappet cover, valve, tool kit, brake fuel pipe, hydraulic pipes, throttle rod, piston, and speedometer. In a wide contrast, the list of auto parts and accessories imported in the country seems endless. Not less than 450 auto parts and accessories are imported in Pakistan, suggested custom tariff data. Requiring from low precision works to highly efficient production process, these items include engine parts, electric appliances, emblems, plastic accessories, and other body parts.

Manufacturing and integration of local contents are of multiple benefits. First, it would give a boost to large and small-scale manufacturing. Second, it broadens employment market. Third, it expands gross development products. Fourth, it would drive exports growth. And, fifth correlated advantage of robust auto vending companies is augmentation of international competitiveness of local outputs. The share of Pakistan's auto sector in global market is negligible.

Transformation to tariff based system that also removed the condition of compulsory local content has not produced desire results and local vending companies are still far away from bolstering sophisticated technologies to design auto parts at par with international standards. They have reached to certain standards of efficiency and increased integration of local parts in to production. But, the supply system and production process has not improved to a desirable level owing to lack of investment and skilled workforce, and unplanned development of vending companies.

An oft-repeated statement is that auto-vending companies have not developed design, tooling, and evaluation facilities. However, little was discussed about what really has hindered in bringing vendors to tier-1, which is a category engineering development board associates with a company, which has enough capability to introduce sophistication in its products, machining, and to enhance productivity of its human resources. The absence of these capabilities is obstacle to vending companies to become efficient and effective. Despite being a labor-intensive country, Pakistan is devoid of skilled workforce in automobile sector. Skilled workforce is prerequisite for developed auto vendors.

Mostly vending companies are characterized by small and medium enterprises because of their production capacity and numbers of employees. Their establishments are not organized for most of them like to operate within a close circle that they carve out themselves. Even if they want to come out of this circle, they face multitude of problems including insufficient market intelligence and incompatible production capacity. It is safe to assume that most of the auto vendors or at least those who facilitate main vendors in Pakistan belong to unorganized sector. Informal training may obstruct labors to give their optimal. It can be one of the reasons behind suboptimal productivity of auto vending companies, but it is not single reason. India's automobile industry can be cited as an example. India has not only marked its presence in global automotive market through exports of cars and automobile components, but it also cherishes world-renowned sprawling auto vending companies. Some of its vendors are supplying parts to General Motors. Tata Motors- Indian carmaker -has displayed world's cheapest car recently. India has stepped in brand localization a long ago. The key to success of local automotive industry and penetration of Indian auto in global arena is its thrust to transfer technology in the country. Economies of scale may be an advantage that attracts Hyundai and Ford to broker joint venture deal with Indians. However, the voracity with which Indian auto industry gulps in foreign technologies is imitable.

The purpose of agreements with Original Equipment Manufacturers may not have been upgrade of local automobile sector in Pakistan. Otherwise, we would have seen strong foothold of local brands in Pakistani local market. All initiatives of localization were nipped in the bud. Some car assemblers have done a good job to make vendors set up near companies' location. Integration of backward links can give advantage of location of economies, cutting costs of production and distribution. Japan's keiretsu model is a good example in this regard.

All stakeholders of automotive sector have to strive hard to promote local auto-vending and to increase automotive sector's contribution to GDP, which is not above three percent. Like cement sector, the broad base of auto sector spreads to a number of industries, connecting with them through backward and forward linkages. Widespread linkages of auto sector make it one of lynchpin of several industrial development processes. From backward connection it takes inputs of steel, rubber, fibre, plastic, textile articles, glasses, metals, etc. and its forward correlation brings in to action diversified services based jobs like retailing, marketing, financing, overhauling, maintenance and repair, and drives consumption of petroleum products. The implications of robust auto sector are of great economic significance.