June 7 - 13, 2010
Pakistan's vehicular population witnessed an overall increase of more than 400 per cent within the last 20 years. The country has also seen the maximum growth in two-stroke vehicles. A recent study has reveled that in Lahore, Rawalpindi and Islamabad the average suspended particulate matter were 6.4 times higher than the WHO standards. The number of vehicles in cities and towns has also increased with the increase in human population. Karachi, the country's commercial capital and most populated city has particularly seen a phenomenal increase in both human and vehicular population over the past two decades.
The increase in vehicular population in the country has so far been dominated by personalised modes that are not energy-efficient and environmentally benign. Such a pattern of growth can lead to a number of problems in several small but growing towns that will witness a rapid growth in the number of vehicles as they grow. The economic, social and environmental implications of such growth need to be taken into account by the relevant authorities, which should chalk out plans and strategies for overcoming the problems posing challenges on administrative, environmental and socioeconomic fronts.
The growth of vehicular population depends on the growth of auto industry. Rapid growth of auto sector in past five years resulted in rapid growth of vehicular population in Pakistan. Under former government of Prime Minister Shaukat Aziz, the industry had set the target of manufacturing half a million cars and one million motorcycles by 2010. Under previous regime, many banks were providing auto financing and the country witnessed car sales boom during past three years.
By the year 2007, there were 82 vehicle assemblers in the industry producing passenger cars, light commercial vehicles, trucks, buses, tractors and two and three wheelers. In the fiscal year 2006, Pakistan auto industry played a significant role in the large scale manufacturing industry as it contributed $3.6 billion to the economy besides import substitution resulting in annual foreign exchange savings of over $ 1 billion. There are over 600 players in the vendor industry. The total direct employment in the sector is over 192,000 with a total investment of over Rs98 billion.
Pakistan Automotive Manufacturers' Association (Pama) comprises of 21 local companies, which are working in association with multinational companies for the assembly and manufacture of vehicles. According to the PAMA statistics, cars and light commercial vehicles (LCVs) sales drastically declined by 44 per cent in the first quarter of FY 2009 (27,159 units) compared to first quarter FY 2008 (48,559). On annual comparison, the sales of locally produced cars and LCVs, that had previously recorded sustained growth over the last five years, declined by 8 per cent, from 204,121 units in FY 2007 to 187,412 units in FY 2008.
Pakistan's automobile industry is an export driven industry attracting both local and foreign investments. Presently, the declining sales and production volumes predict a bleak future for the country's auto industry, which is still waiting immediate remedial measures from the present government.
Owing to the present slump in the industry, several companies are on the verge of bankruptcy and are feared to be closed down any time. The improvement in performance of auto sector is subject to an economic turnaround in the country.
The global financial crisis has had an adverse impact on the once booming auto industry. The increase in raw material prices has increased the input cost. Similarly, the severe deterioration of Pakistan's macroeconomic fundamentals has also crippled the growing industry over a period of past one year. Over 30 per cent depreciation of local currency against the US dollar, widening trade deficit, rapid erosion of foreign exchange reserves, rising inflation and ballooning oil import bill have been the factors that adversely affected the country's booming auto industry in last three years.
Over two dozens Pakistani manufacturers and assemblers have technical collaborations with Japanese and Korean manufacturers. The market is dominated largely by Japanese and Korean manufactures like Suzuki, Honda, Toyota, Hino, Hyundai and Mazda. The major segments of the industry include two wheelers, cars, jeeps, wagons, trucks and buses and tractors.
With the entrance of Chinese manufacturers, the industry has already gone through a major phase shift over the past few years because low-priced Chinese products have created a situation of cut-throat competition in the market. With the entrance of Dong Fang, one of the biggest automobile manufacturers in China, it would be harder for the Japanese and Korean manufactures to maintain their dominant positions in the country's market. China is already giving tough competition to Japanese bike makers in Pakistan. Out of 53 units assembling two wheelers in the country, 50 Chinese units are competing with 3 Japanese assemblers units. Owing to the rising competition with their Chinese counterparts, the Japanese bike makers have slashed prices of various models for improving their sales volume, which have been on the decline for the past two years.
Critics say that present government has not played its supportive role in strengthening the auto industry, which had attracted huge foreign investment during past three years. Increase in different taxes including sales tax and withholding tax at registration stage and inconsistent policies continued to hurt local automobile sales. During past three years, auto financing has been the main driver for auto sales. Presently, the financing companies have put restrictions on loan disbursement. Similarly, higher interest rates have also played havoc with rising sales volumes. This resulted in decline in profits of the auto manufacturers.
The government should intervene immediately and take remedial measures to save the local auto industry. It should abolish 5 per cent federal excise duty imposed on cars above 850 cc and ban import of used auto parts and vehicles. It should withdraw 35 per cent L/C margin on imports and 2.5 per cent withholding tax at registration stage. The government needs to formulate a consistent policy for vibrant growth of automobile industry in the country. The Auto Industry Development Plan (AIDP) needs to be implemented to attract foreign investment.
The experts should also undertake research in search of finding the viable solution strategies to avoid the negative implications, the growth of vehicular population entails.
The economic managers need to develop a strategy to promote sustainable growth of auto sector.