Research Analyst
Oct 11 - 17, 2010

Despite robust growth of automobile industry of Pakistan over the past decade, it has not carved out a position among the hi-tech engineering industries of the world. Automobile production has witnessed staggering progress, but the industry lacks technology.

Majority of cars in the country have dual fuel options and are driven by CNG, which has low price than petrol.

There are only three major passenger car assemblers in the market: Pak Suzuki, Indus Motors, and Honda Atlas. Pak Suzuki has complete monopoly over the small car segment, as it faces almost no competition other than the single odd Diahatsu Cuore produced by Indus Motors.

In the Subcompact Sedan segment Toyota Corolla, Honda Civic, Honda City, and the Nissan Sunny are currently the only cars in production. Pakistan has not adopted any automotive emission or safety standards. Therefore, most cars manufactured and sold in the country are still carburetor based and do not meet any international emission standards.


During FY2010, the local car manufacturers are exceeding the limits of increasing car prices to earn hefty profits. Two years (January 2008 to March 2010) data revealed the local car manufacturing companies raised the prices of their products almost 10-15 times. During the same period, the three leading automakers including Honda, Suzuki, and Indus Motors pushed up the prices by 15 times up to 68 per cent.

Pak Suzuki Company jacked up the prices 15 times on all of its models. The company in 2008 raised the prices six times. In 2009, it again increased the prices six times and till March 2010 the company pulled up three times the prices.

Honda Atlas Motors Company also increased the prices by 10 times, 66 per cent, four times in 2008, five times in 2009 and till March 2010 it scale up prices only once. Similarly, Indus Motors Company, another market leader, pushed up prices of its brands 13 times (up to 60 per cent) during January 2008 to March 2010. It increased the prices seven times in 2008, four times in 2009 and till March 2010 twice.

Inflation went up 33 per cent from the index of 163 in March 2008 to 217 in February 2010 while rupee devalued 26 per cent against the dollar and 39 per cent against yen. Moreover, the sale performance was affected due to slowdown in car financing, as banks were reluctant to issue fresh loans amid risk aversion and chances of higher non-performing loans due to the economic slowdown.

High mark-up rates, contraction in disposable income due to higher inflation and heightened security concerns also restricted consumers to buy new cars. Interestingly, despite reduction in federal excise duty, car prices remained almost flat in 2009. In other regional countries like India and China, the prices are comparatively three to four times lower than Pakistan.







Cars 275,000 63,273 86,613
LCVs/Jeeps 40,000 14,366 12,294
Buses 5,000 408 474
Trucks 28,500 2,169 2.521
Tractors 65,000 41,661 52,878
Two/Three Wheelers 1,800,000 359,335 534,797

After recording massive downturn last year, automobile industry saw some recovery in all the sectors except light commercial vehicles (LCVs).

Auto Industry Development Program, commenced in December 2007, undertook huge expansion programs by making substantial investment. However, the slump that overtook last year is not abating and expansion would continue to be idle. The persistent fall in LCVs/jeeps is due to their sensitivity to the falling purchasing power, rise in the price of diesel, exchange rate losses and the escalating operating costs. After a moderate fall last year, the two/three wheeler sector of the industry revived with substantial growth of 48.8 per cent during the current fiscal year. Unlike other automotives, farm tractors remained unyielding to prevailing economic crises, and have been registering persistent growth for the last three years. There is similar outlook for the current year with projected growth of 16 per cent.

There has not been good enough recovery particularly in passenger cars, jeeps, buses, and tracks. The persistent high inflation has negatively affected the purchasing power. There has been an inevitable increase in the vehicle costs due to host of reasons key being massive currency depreciation.

The potential demand for vehicles in the economy maintains a worthwhile promise for the industry and the slow down may not be long lasting. However, the recovery in automotives would correspond to the macroeconomic stability and recovery in other sectors.


The government should check whether price rise is really justified. The government should reduce taxes on imported vehicles. At present, automakers are taking full advantage of the customers as high duty on import leaves them with no other option but to buy locally manufactured cars.