AUTO INDUSTRY AND ECONOMIC DEVELOPMENT

SHAMSUL GHANI
(feedback@pgeconomist.com)
June 7 - 13, 20
10

Pakistan had an average GDP growth of 7.3 per cent during the financial years 2003-04 to 2006-07 when both consumption and investment levels had been on a rise. Likewise, the automobile industry of Pakistan flourished in style. From statistical angle, it still has a great potential to further grow. The components of its growth, when critically studied, give little to sing about. Large Scale Manufacturing saw a negative growth of 7.6 per cent during Jul-Mar 2009, with the economy showing some signs of recovery, compensated by a positive growth of 4.4 per cent during the same months of FY-10. The recovery has been mostly in the personal transport sector cars and motor cycles. Any signals of any robust improvement in the economy are hardly present in the overall LSM growth pattern.

What to produce and how much to produce? The answer to this basic question of economics depends in a particular economy on consumption level, economic development goals, production capacities, export market for any surpluses and socioeconomic constraints, if any. In the case of our automobile industry, the consumption level is a function of population and family income. We have a negligible size of export market due mainly to the lack of competitive edge. The production capacity, although suffering from inadequate capital formation and dependence on imported parts and components, is quite sufficient, thanks to the investment made in the industry during boom period. Being a developing economy, Pakistan's economic goals warrant a sustainable growth of this industry with more emphasis on segments related to industrial and agricultural development.

SEGMENT-WISE GROWTH

VEHICLE NOS. PRODUCED MAR-10 NOS. PRODUCED MAR-09 CHANGE % NOS. PRODUCED JUL-MAR FY-10 NOS. PRODUCED JUL-MAR FY-09 CHANGE
%
Cars and Jeeps 11,878 6,818 74.22 87,419 63,984 36.63
Motor Cycles 118,207 74,181 59.35 1,002,528 633,591 58.23
Light Com Vehicles 1,355 705 92.20 11,488 13,655 -15.87
Tractors 7.175 5,603 28.06 52,987 41,766 26.27
Trucks 392 301 30.23 2,521 2,169 16.23
Buses 68 41 65.85 474 408 16.18

The statistics on segment-wise growth of the industry reveals a great deal about the growth pattern and its relationship with the country's economic development. Cars and Jeeps production shows an increase of 36.63 per cent during the first three quarters of the financial year 2010. The increase in motorcycle production during the same period has been to the extent of 58.3 per cent. This depicts a high growth pattern and suggests peoples' marked shift from reliance on public sector transport to dependence on their personal transport. The sudden upsurge in the production of personal transport vehicles shows that people have somehow managed to repair (or ignore at the cost of food and shelter expense cuts) the dents in their disposable incomes made during the recent high inflationary times. This is not a positive development as it likens to peoples' alienation from the rulers who are supposed to take good care of their transport needs by providing them a cheap, efficient and hassle-free transport system. They have already shown their mistrust of government's ability to protect their life and property by putting reliance on personal means of security. These developments are quite serious and can potentially harm the restoration of democracy process. Moreover, the ever growing number of personal transport vehicles creates a number of problems, the wasteful use of energy being the most serious of them.

The negative growth in the production of light commercial vehicles suggests sluggishness in trade and commercial activities which by itself is a disturbing trend. It shows that the economy is still far away from its recent-past track.

On trucks and buses production side, we see a growth of 16(+) per cent. Although an encouraging trend, yet the growth is not in line with the growth of car and motorcycle segments. Moreover, the low-base factor further discounts this meager growth. Trucks are the backbone of logistic system and take important part in the transportation and distribution of agricultural produce and industrial goods. Growth in this segment is indicative of an overall and balanced economic growth. In India 400,000 trucks are produced every year as against a dismal number of few thousands produced in Pakistan.

Just 16 per cent growth in the production of buses when seen in conjunction with the absolute numbers fully explains the government indifference to an important public issue-transport. The variance between the growth of cars (and motorcycles) and buses is the combined effect of government failure and public severance of governing relationship with the government. The increase of 26.3 per cent in the production of tractors is perhaps the only face-saving feature of the so-called improvement in the LSM sector. We need to keep up this trend to support farm mechanisation for an improved yield. A recent news item discloses that the wheat consumption during the current financial has reduced by 10 per cent. That is, the requirement of 20 million tons has been scaled down to 18 million tons. Could this news be linked to the high growth in car and motorcycle production? Have people started to eat less to have a personal means of transport? This is food for thought for the insensitive feudal rulers.

Porsche, the German sports car makers have their presence in Pakistan. They are known to have thrived in the Middle East markets. Understandably, the said market has potential to accommodate such high price car manufacturing companies. But what they are doing in Pakistan? Of course they are not so nave as to invest in a market with no buyers. Who their buyers could be in a country where more than 35 per cent people are living below the poverty line; where acute energy shortage threatens the very survival of the country? Just for a change, a few items from the price list of Porsche: Boxster Rs6.5 million; Cayenne Turbo: Rs14.2 million. And last but not the least Cayman Rs69.8 million!