SEEKING FLEXIBILITY FOR USED CARS' IMPORTS
INTERVIEW WITH H.M. SHEHZAD, CHAIRMAN ALL PAKISTAN MOTOR DEALERS ASSOCIATION
Nov 15 - 21, 2010
H.M. Shehzad is a businessman of automobiles by profession. He is Chairman All Pakistan Motor Dealers Association, (APDMA), Secretary General, World Memon Organisation - Pakistan Chapter and Chairman Memon Industrial and Technical Institute.
Automobile sales are highly dependant on bank financing. The last 10 years of highly successful car sales performance was largely due to easily available bank financing in a low interest regime. The other factor being stable rupee value against major currencies during that period. It touched a peak when almost 60 to 70 per cent of sales were through bank financing. From 2008 onwards, when mark-up started climbing and banks tightened their lending policies that the sales began to drop.
PAGE: PLEASE TELL US SOMETHING ABOUT FINANCING BY BANKS FOR AUTO SECTOR.
The share of banks dropped to almost 10 per cent and overall sales reduced to about 40 per cent of previous years. Bank financing at favorable rates is essential for a sustained growth of sales of cars. This is essential because the automobile companies are not playing their role in price reduction.
PAGE: WHAT IS THE REASON FOR ALMOST ONE AND A HALF YEAR FOR HIGH LEVEL OF SALES IN LOCALLY ASSEMBLED CARS?
H.M. SHEHZAD: It is important to note the influence of used car market on the sale of locally assembled cars. With the reduction of used car imports from 2009 onwards due to adverse government policies, the gap was inevitably filled by the locally produced cars. At present used car sales account for only 2 per cent of the market. This was an important factor in the increase of sales of local cars whereas devaluation of the rupee was responsible for erosion of buying power and price increases. It was also instrumental in increase in remittances from overseas Pakistanis which also contributed towards increase in sales in recent years.
PAGE: WHAT IS YOUR OPINION ABOUT IMPORT OF RE-CONDITIONED CARS IN PAKISTAN?
H.M. SHEHZAD: The imports of so-called re-conditioned cars which are actually just used cars are allowed through the baggage, gift and TR schemes. This limitation forces market players to use various wrong practices, which the government can not control. The used cars can serve as a strong check for the high prices and low indigenisation of the local OEMs. It is highly recommendable that the used car import should be de-linked from the baggage schemes and brought under the CBU import rules which will result in effective documentation of the industry which is a serious bone of contention. This should be coupled with documentation measures to curb premium or black marketing in the OEMs as well. Used car import at present are highly taxed and as such do not present a serious competition to the local assemblers. This anomaly should be removed and OEMs should be forced to regulate their prices through increased localisation.
PAGE: WHAT ARE YOUR VIEWS ABOUT AUTO SECTOR PERFORMANCE IN PAKISTAN?
H.M. SHEHZAD: It is common in government circles to say that the development of automobile industry started from 1985 from which year the localisation program was initiated and was supposed to end in 2005. This should be assessed against the objectives achieved. It may also be kept in mind that local automobile industry existed and flourished as far back as early 1960s.
PAGE: WHAT WOULD YOU SAY ABOUT IMPORT DUTY ON RECONDITIONED CARS?
H.M. SHEHZAD: As we are aware, the objectives of deletion, which was price reduction and employment generation have not been achieved and the industry refused to further go ahead with this program. The relevant ministry was forced to replace the deletion program with a tariff based system which inter alia allowed the industry to import non localised parts at a higher rate of duty. This resulted in almost a roll back of the deletion efforts. As expected there was a steep rise in prices, frequent change of models and high profitability. All this was done under the garb of Trims and WTO agreements. It can be fairly said that the local automobile industry has frozen the deletion program and increased prices without any check and increased their profitability manifold. There was therefore no need for them to increase production and as a result there is rampant premiums and black marketing. At present, there is no competition from any quarter including used cars.
PAGE: WHAT INCENTIVES DO YOU NEED FROM THE GOVERNMENT OF PAKISTAN?
H.M. SHEHZAD: At present, the import duty on used cars up to 1800 cc is fixed and payable in dollars. The only hurdle here is that the formula for fixation of the duty should be discussed with stakeholders also. As mentioned earlier, the government should treat the used car sector also as an industry and should make it competitive. The facility of import of used cars under baggage, gift, and TR schemes for overseas Pakistanis should be dovetailed with the overall import regime just as for CBU cars. The age of the importable car should be increased to more than 5 years and depreciation for calculation of duty should be increased from 1 to 2 per cent. It may be recalled that during 2006-07, all restrictions on age were removed; with the result that 72000 cars were imported and government earned revenues of Rs40 billion. In the absence of any sort of intra brand competition and near monopolistic situation, these measures are most necessary to provide consumers with a choice of providing affordable cars of good quality to the Pakistani consumers.