8 - 14, 2010

Recently, reports of a costly recall by Toyota of defected vehicles from USA, Europe, China, Taiwan, and parts of gulf countries reverberated through the international and local media. While people emitted unequivocal backlash on the production lines of global automobile giant for its quality unconsciousness in green signalling defects, the top official of automaker sincerely admitted the failure in quality check. The president of Toyota, Akio Toyoda stated that rapid expansion had stirred safety issues. That was perhaps a docile but a candid confession ever came from any company under crisis. The faults in hybrid car models of Japanese carmaker promoted recall of over 8.5 million cars from some of the countries-faults were detected related to accelerator and floor mat entrapment. Involved over twelve models as old as 2004 the recall gave a sigh of relief to owners of the faulty cars but certainly it must have dented financial efficiency of the automaker that possessed 14 percent market share of 52.26 million global car productions in 2009.

Suppose, had this happened in Pakistan, or had faults been diagnosed here too, would have loss to customers been redressed-as long as they held models five or six years old? Of course not since maximum warranty of claming faults in local car spans not more than 2-year or 50,000 kilometres, whichever is less. On top of this, 'the specifications of Toyota models in Pakistan are different from those of brands in western countries,' says a spokesperson of Indus Motor Company (IMC), which assembles, partly manufactures, markets Toyota vehicles in Pakistan under the joint venture agreement with Toyota Japan. Furthermore, 'the reason behind the recall in the countries closer to Pakistan such as gulf and China is that the vehicles were either imported directly from the USA or had the uniformity in specifications,' says a company's statement.

In spite of this, a fear haunts local sellers of Toyota brands who could not help but worry abut the rumours that same faults might appear in local models. Belittling rumourmongers, officials of IMC smell a sort of conspiracy in maligning the reputation of the automaker in international market. Toyota ranked best global brand 2009.

It is worthwhile to mention that five years ago Toyota had recalled 38,000 cars detected with eccentric wheel rims. This incurred us a substantial cost, remarks a spokesperson after a meeting with news reporters following media visit to Toyota plant in the vicinity of Karachi.

The automobile sales growth is not likely to decline given the strong sales and financial results of first half of 2009-10. The customers exhibited penchant likings for the 1300cc and above segment in this period, which grew 63 percent over comparable period of last financial year. Thereby, the company projects to achieve sales growth of 24 percent in 2010, supported by full presence of its flagship brand of corolla in the market. The combined sales of Toyota and Daihatsu brands both complete built unit and complete knocked-down increased 53 percent in the six months period ended December 2009 to 21,300 units as compared to 13,927 units in the comparable period. Notably, the company made a history of selling 36,000 corolla brands in 2009, which was highest in Asia excluding Japan.


Toyota corolla is expected to be under the considerable demand of enterprising farming community. In fact, good agriculture earnings would help boost the sales growth of 1300cc and above segment, according to an automobile analyst. At least, "we base our projection on flourishing of agriculture community this year," a spokesperson of IMC says. This does not imply that other factors would have ignorable impacts on growth. According to him, interest rate movement would also be a determinant of sales growth in addition to exchange rate and government policies underscoring sixty to 65 percent production in automobile industry was triggered due to financing. Healthy farm income and removal of five percent federal excise duty on cars above 850cc propelled the growth of automobile industry. The caveat stems from exchange rate position however. The depreciation of Pak rupee value against dollar or yen determines price suitability of automobiles. The Pak rupee lost 2.6 percent of its value against greenback and whopping 48 percent versus yen during June 2008 and January 2010. The appreciation of yen increases the cost of imports from Japan and thereby jacking up prices of CBUs and CKDs.

The carmakers in Pakistan call for level playing field in the relaxed import environment for second-hand cars in the country. Original equipment manufacturers consider custom duties on their imports as high. Further, government should monitor imports of cars under gift scheme that is exploited when traders import cars, he comments. The price of second-hand imported cars is quite low as compared to its local substitute. Reasonably, customers prefer to buy such cars because of cost advantage. OEMs should reduce prices in order to break in to the second-hand car market.

While localization in car making is increasing gradually, yet it is limited to harness system, some body parts, all in all less technology intensive manufacturing. Precision components are still imported from across the border because of slow transfer of technology in the local automobile industry. For example, only one or two engine parts are indigenous in cars assembled in Toyota plant. We are active in enhancing this proportion, he highlights.

Increasing production of automobiles did augur well for the vendors industry in the country, resulting in generation of employments. Auto parts manufacturers employ more than 150,000 employees at present. Safety of employees at the plant is an area where IMC needs to realign its approach. While it has invested billion of rupees in plant setup, it should also expedite its efforts to harness technologies of international standards to make production more reliable and qualitative and manufacturing lines safe.