NOT A TRUE BAROMETER OF INDUSTRIAL GROWTH

SHAMSUL GHANI
(feedback@pgeconomist.com)
Feb 7 - 13, 20
11

Pakistans auto sector, despite a killing inflation and frequent bouts of unilateral increase in auto prices, keeps on thriving, thanks to a decrepit and totally incapacitated public transport system.

A sustained increase in the numbers of cars and motor cycles produced and sold does not have to do anything with the overall large scale manufacturing sector which has registered a negative growth of more than two percent during the first half of the current financial year. The sustained increase in the number of motor cycles produced and sold represents a constant struggle of the lower middle class against the mafia-managed public transport system. The struggle becomes more excruciating when bans on pillion riding are imposed because of bribing by the transport mafia.

VEHICLE . LAST 15 YEARS 15-YEAR AVERAGE FY-10 JUL-DEC FY-10 JUL-DEC FY-11 CHANGE %
Total Cars P 1292609 86174 121647 53974 62952 16.6
S 1181899 78793 123957 53565 59646 11.4
Trucks P 39272 2618 3425 1493 1432 (4.0)
S 31894 2126 3620 1498 1384 (7.6)
Buses P 15209 1014 628 320 242 (24.4)
S 13614 908 657 289 243 (15.9)
Jeeps/LCVs P 17957 1197 1172 519 504 (2.9)
S 14435 962 1201 472 381 (19.3)
Pick-ups P 155682 10379 15768 7455 8961 20.2
S 143458 9564 16496 7479 8072 7.9
Farm Tractors P 540319 36021 71607 34027 32719 (3.8)
S 499967 33331 71512 33609 32743 (2.6)
Motor Cycles& 3-wheelers P 4392355 292824 736861 350286 389477 11.2
S 4187814 279188 737759 349542 388215 11.06
Production (P) and Sales (S)

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 production in the first half of FY-11 recorded an increase of 16.6 per cent over the corresponding period of FY-10. On the same scale, an increase of more than 11 per cent in the production as well as sales of motorcycles confirm peoples' marked shift from reliance on public sector transport to dependence on their personal transport. A drop of 24.4 per cent in the production of buses corroborates that view.

The sustained growth in the production and sales of personal transport vehicles shows that people have somehow managed to strike a trade-off between their transport needs and other basic necessities. Forced cuts in food and clothing expenses are cruel proposition given the rampant inflation and bleak horizons of commodity prices. This is not a positive development as it betrays peoples' mistrust of their rulers who are supposed to take good care of their transport and other social needs. They have already shown their doubt of government's ability to protect their life and property by putting reliance on community and personal security systems. These developments are quite serious and can potentially drive people away from the democratic course.

Trucks are the backbone of logistic system and take important part in the transportation and distribution of agricultural produce and industrial goods. Sustained growth in this segment is indicative of an overall and balanced economic growth. A negative growth of four per cent in the production of trucks shows the inadequacy and vulnerability of our logistic system. A decrease of 3.8 per cent in the production of farm tractors is still more disturbing as it affects our agriculture and external economy. Coming back to the cars segment, the overall production growth of 16.6 per cent is divided in sub-segments as 1300 cc and above 16.2 per cent; 1000-1300 cc 2.9 per cent; and below 1000 cc 26.5 per cent. Cars below 1000 cc are mainly used by the middle-middle-class people. During Jul-Dec 2010, 21984 units of such cars were produced out which 21033 units were sold. This segment of car buyers always lives in a seller's market. The manufacturers keep on raising car prices unilaterally and frequently. The cartel of car manufacturers maintains a close liaison with the concerned government quarters to block any move that hurts their vested interests. Any government decision to allow imports of used cars is effectively thwarted through use of dubious public relations.

A recent such decision by the economic coordination committee allowing import of used cars is waiting implementation. At the behest of the auto manufacturers, certain government departments/ministries are creating bureaucratic hurdles. The ministry of commerce, while giving assurance to issue required notification, is reported having delayed the issue for some perceived clarification and re-clarification. There is every likelihood that the manufacturers' cartel is at work making last ditch effort to get the decision reversed. They have been successful in such attempts in the past and rightly hope to get it done again. More shocking is the news that Suzuki manufacturers, taking full advantage of government indecision, have increased the prices of their cars, which in fact were expected to come down in the wake of government permission to import cars used up to five years.

The fears of All Pakistan Motor Dealers Association chairman that Toyota and Honda are also going to increase their prices, are not unfounded. His advice to the government to allow imports of all vehicles and increase depreciation value from one percent to two percent could not have come at a worse time. This is like putting the government, which is already struggling to implement its initial decision, in two minds thereby allowing more ground to the manufacturers' cartel.

Who is going to save the middle class car users from the clutches of auto manufacturers and corrupt government functionaries? Perhaps the competition commission of Pakistan whose chairperson has recently said that the Competition Act does not prevent business firms from having or gaining a large market share for their products or services. However, the abuse of dominant position is anti-competitive and is strictly prohibited by the law.

According to a news item, the CCP chairperson is going to be investigated by the NAB for an alleged embezzlement of Rs35 million. So, low-price car users, wait until the NAB dust settles down.