SANDWICHED BETWEEN RISING INPUT COST AND WEAKENING RUPEE

INTERVIEW RAZA ANSARI, DIRECTOR MARKETING DIVISION, INDUS MOTOR COMPANY

AMANULLAH BASHAR
(feedback@pgeconomist.com)
Nov 15 - 21, 20
10

Director Marketing Division, Indus Motor Company (IMC) Raza Ansari, on the back of his 20 years association with Indus Motor Company in various senior positions, is actually fully involved and keeps his discerning eyes on all sorts of developments in the automobile industry.

His extensive exposure to the auto industry has enabled him to speak on related issues without any pause, which adds many dimensions to professional career.

Replying to a question of increase in price of cars in Pakistan Raza gave an overall picture of the auto industry in Pakistan. He said that most of the vehicles produced in Pakistan are based on Japanese technology. Since the world has become a global village we import vehicles in CKDs from different parts of the world, yet the exchange rate is playing a major role in determining the car prices in Pakistan. Because the local currency or in exact term rupee has depreciated to such an extent that when the new model of Corolla was launched in 2008 the Yen was 65 paisa while it has gone up over a rupee today obviously adding to the cost of manufacturing while the Japanese currency has appreciated 15 year high against dollar as well.

On the other hand, Pakistani currency is also weakening against major currency of the world because of economic situation in the country. All these developments are not only affecting the auto industry but also have trapped over 60 allied industries supplying auto parts to automobile manufacturers. These auto parts suppliers also import raw material, components, and sub components from outside the country. It is not the exchange rate depreciation alone, which is hurting the industry but the cost of local material has also gone up into double digit.

For example, the price of steel has gone up, price of electricity has increased, and price of gas has risen, which have tremendously affected the industry. We have already shared this break up of rising costs with the government at all levels including engineering development board, ministry of commerce, and other relevant quarters.

However as a manufacturer we try our level best to increase price at minimum level and we absorb the cost to save the consumers as the buying power in Pakistan is not so high. We are passing on minimum rise to the consumer naturally to retain them in the market. We are taking all judicious steps to enhance indigenisation, which helps containing the price.

In this respect, Raza disclosed that IMC has heavily invested and has set up three press shops within the assembly plant. In the first phase, the company has invested Rs82 billon rupees to set up a press shop three years ago which helped localisation of a large volume of local parts.

When asked to explain the percentage of deletion or localisation achieved by IMC, Raza said that instead of measuring in terms of percentage now it has been mutually agreed to localise on component basis. In this situation one manufacturer has two choices either he produces the component locally or imports. If that component is imported other than CKD form that has to cost much higher import duty on the import of that component.

Hence, the industry is more emphasising on localisation of parts on component basis that is helping the objective of transfer of technology besides keeping the cost low as well. He made it clear that localisation is not mandatory for the auto industry yet it quite

This cost saving efforts the management of Toyota Corporation has given a go ahead signal for further expansion which would certainly help to localise those parts which are not localised today. This expansion would help a total localisation of the total body of the car, he said. While giving break down of the total cost, he said that one third of the cost goes to imports while another one third cost of the unit goes into government taxes. He said that when speaking about the vehicles of corolla class in Pakistan IMC has the largest number of localisation of parts in this segment. In that direction we paid over Rs17 billion to our 60 suppliers for procurement of parts last year.

Speaking about the market for automobile in Pakistan, he said that it was around two lakh twenty thousand units in 2006-07 which has been dropped to the level of one lakh eighty thousand units in 2007-08 and it was not the end of the story of declining sales number it was one lakh five thousand in 2008-09 including imported cars. Though it was improved in 2010 to one lakh forty five thousand, yet the current wave of rising cost has left no option but to pass on the input cost to the consumer to the minimum level.

This drop in volume and increase in cost has severally affected the vendor industry as well. In fact, it is highly in the interest to protect the vendors to save the auto industry because even if one vendor is thrown out of business the manufacturing process can come to a halt, he warned.

Despite all odds and difficult situation, Raza was hopeful that the industry would soon regain with the recovery of economy and has the potential to cater to the need of vehicles in the neighborhood of Pakistan. The principal companies are also committed to the economic potential of Pakistan in view of its strategic value, which would help to use this place as an export base in future.

INDUS MOTOR PROFILE

Indus Motor Company (IMC) is a joint venture of the House of Habib, Toyota Motor Corporation Japan (TMC), and Toyota Tsusho Corporation Japan (TTC). The company manufactures and markets Toyota and Daihatsu vehicles in Pakistan.

It is IMC's Vision to be "the most respected and successful enterprise, delighting customers with a wide range of products and solutions in the automobile industry with the best people and the best technology."

The company's production facilities are located at Port Bin Qasim Industrial Zone near Karachi, with the modern, state-of-the-art plant that started production in February 1993 set up with an initial investment of Rs1.2 billion. The company is ISO-14001 and 9001 certified, with the total investment of the project now exceeding Rs 8.5 billion, employing over 2,000 people. This is one of the few Toyota manufacturing sites in the world that manufactures both Toyota and Daihatsu vehicles on the same production line, with the plant's current annual production capacity being over 50,000 vehicles. To ensure the highest level of productivity and quality, the world-renowned Toyota Production System is practiced at the plant. The company's products renowned for their quality, durability, safety, fuel economy, resale value, and style, are admired by the customers in Pakistan.

CONCERN BEYOND CARS

Indus Motor Company aims to demonstrate responsible corporate conduct throughout the entire spectrum of its activities and operations: from providing high quality and safe products to voluntary support of a broad range of social activities in the area of business connect, respecting workplace human rights, adhering to environmentally safe industrial practices, providing technical and managerial assistance to vendors, building long-term value for its shareholders and customers, providing marketing and consumer information, and above all, aligning its corporate activities, as far as possible, with reasonable societal expectations. Through its CSR program and slogan, "Concern beyond Cars", IMC has contributed over Rs170 million in the past 5 years for health, education, welfare, environment and road safety projects, thus playing a significant role in the communities where it operates.

Some awards received by Indus Motor Company.

Asian CSR Award 2007
Forbes Asia's Annual Best Companies Under a Billion List 2007, 2008
IMC listed in the top 25 companies of Karachi Stock Exchange, 2006, 2007, 2008
Helpline Trust "CSR Award" 2006, 2008
Helpline Trust "Putting Consumer First" 2009
Environment Excellence Award 2004, 2005, 2006, 2007, 2008
Employers Federation of Pakistan 2007
ICAP Best Corporate Report 2006
National Consumers Choice Awards 2005, 2006, 2007
Pakistan Centre of Philanthropy, 8th highest philanthropic contribution 2007
MAP Corporate Excellence Award 2005-06, 2006-07, 2007-08, 2008-09
IMC's 2006-07 COP, recognised as "Notable" by UN Global Compact
Best Annual Report Cover 2006-07, 2007-08, 2008-09