June 7 - 13, 2010
Alan Greenspan described the US economic situation in 1980 in the following words:
April 1980, interest rate at Main Street USA climbed to more than 20 per cent and millions of people lost their jobs-unemployment rose to near 9 per cent in mid 1980, on its way to near 11 per cent by late 1982.
Earlier in 1980 letters from people who'd been put out of work flooded Volcker's office. Car dealers sent keys to represent cars they hadn't sold."
Pakistan's auto industry, like its economy's other aspects, is unique in the sense that it has undergone little rigor in the wake of global financial crisis and current recessionary situation. While the auto industry world over felt the heat and resorted to hefty price cuts, car makers refused to budge on price side. Instead they countered by shifting to just-in-time production and refusing to stockpile inventories. They suffered a bit on volume-profits side and tried to balance their bottom line by saving on the cost for holding inventories. The price escalation phenomenon continued even during the hardest periods when the sales dropped by more than 50 per cent.
Indian auto industry not only slashed prices but also endeavored to market low-price cars-Nano for just around $2000 being the example of such endeavors.
Pakistan's feudal economic system hardly works in line with the popular economic theories. Supported by the elements of profiteering, hoarding, smuggling and corruption, people in the country hardly witness any price downturns, no matter what phase the economy is going through both locally and globally. If anyone ever experiences a slide in the prices of some perishable items, he or she must take it for granted that it is due to the fast-ending shelf life of that very item rather than the dictates of market forces.
Pakistan's car industry is fully insulated against such risks that warrant price cuts in adverse economic situations. True that rupee depreciation is, to a great extent, on the back of car price hikes, but then who is responsible for failing to achieve timely and effective deletion to make the industry indigenous to the maximum to shield it against currency fluctuations or any other imported influences. The car industry is almost entirely dependent on domestic market, it should, therefore, try to break itself away from the foreign economic linkages.
CARS PRODUCTION AND SALES DATA
Cars Jul-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 1300 cc & above Production 4113 4351 3263 2655 6109 6376 Sales 5139 5425 6066 5825 5744 5987 1000 cc Production 1605 1621 1542 1547 2260 2435 Sales 1555 1552 1829 1764 2089 2107 800 cc & below 1000 cc Production 3015 2497 3389 3171 3416 3043 Sales 2654 2861 3195 3121 3294 3241 Total Cars Production 8733 7381 11040 9857 11742 11222 Sales 8560 7068 11400 10310 11208 11335
The global financial crisis dealt a severe below to the car industry everywhere. Even Tatas of India suffered on this account, and besides sustaining operational losses, got their credit rating affected. Pakistan's car industry, behind the smoke screen of rupee depreciation, emerged from the crisis almost unscathed, thanks to the industry cartelisation and government's indifference to their price-push tactics. They are one of those industries that know how to thrive during stagflation conditions with the overt or covert government nod. The car price hikes continue in the wake of rising demand and higher sales. The government has recently announced a proposal that is yet on the anvil to allow imports of used cars to release pressure on domestic car prices. This is a standard recipe to force the cartelised industry into some 'bargain of convenience' with the government functionaries. Whether the benefits of any such bargain are shared with the domestic car buyers or are totally 'appropriated' towards the government functionaries' accounts, remains to be seen.
Auto industry's reliance on imported parts and material when seen in the backdrop of a depreciating rupee vividly explains its low share in the export market. By default it is a self-sufficient industry fully catering to the domestic market. Pakistan's domestic market has great potential for the auto sector to develop, albeit at the cost of domestic buyers. The high production cost, lack of modern technology, high tariff structure for imported units and manufacturers' greed for higher profits makes the indigenous production saleable only in the domestic market with ample demand which is likely to grow with the passage of time. The ever-deteriorating and now almost irretrievably disarrayed public transport system has awakened the masses to the need of owning personal means of transport, even at the cost of food and clothing expense cuts.
Till 2007, the easy access to consumer credit drove the herds of masses to the doorsteps of banks and financial institutions. As a result, the auto industry went into the boom cycle.
We could equate this change with a sort of social uplift, but the unplanned change has given rise to such serious problems as ubiquitous traffic jams, street and road blocks created though mindless and unauthorised parking, and above all, the ever-increasing pressure on energy consumption.
Energy consumption levels in economies are determined by the oil consuming propensity of autos, factories and homes. The developing economies are known to have wasteful energy consumption patterns. With the oil-to-gas conversion of transport during the last 4-5 years, and with the domestic gas resources coming under great pressure, the vehicular economics will have to be tackled with a positive mind and a forward-looking attitude.
A proper infrastructure that is good roads, modern railway tracks, highways etc. coupled with an efficiently-run mass transit system is what the government and the country's economic managers need to focus on. This will afford a cheap mode of transport to the masses on one hand and economise on the country's energy consumption on the other.