Feb 7 - 13, 20

In an unexpected move recently, the federal government gave green-signal to import of five-year old cars from overseas. The extension of age limit of imported cars from three to five year was, although, in the pipeline, there was unlikelihood that the government would take the decision in haste to the dismay of local car assemblers. Without taking the local car assemblers into confidence, the new relaxation is said to hurt the interest of local auto vendors. However, the government was driven to go against the wishes of local car assemblers because of uncontrolled rise in price of local cars, which are darkening the chance of accessibility of common persons to low cost cars.

Auto sector is said to be a driving force for several industries and following the government's supportive auto policy, auto sector has witnessed magnificent annual growth rates and staggering rise in production and sale of automobiles in Pakistan have been registered in this decade. The increase in local production of cars gave a rise to numbers of jobs in the auto sector and caused auto vendors to expand their operations to meet the needs of spare parts and variety of basic components of vehicles. According to an estimate, today more that 1.4 million people directly or indirectly belong to businesses of supplying parts to local assemblers. Any cause of decline in local production may deal a blow to auto vendors. Local assemblers are already underutilising their production capacities. Import of cars is said to slow down the process of transfer of technology, which, of course, is already insipid. Increase in research and development activities in auto sector is necessary to improve localisation in automobile making. Growth in production has stirred the local industry towards the development of essential components, which lack precision at the moment, and are yet to replace imported parts. However, the integration process might improve the expertise of local industry.

While people appreciating the government's approval to import of five-year-old cars come into the limelight usually because of their strong argument that age-extension would bring price advantage to high-price-hit customers, some harbour the equally valid concern about implications of this relaxation on local auto vendors. Opponents to this new policy fear that import of used cars would hamper the growth of local automobile industry. Relaxation in the import would open veritable floodgate to used imported cars to the demise of auto vendors depending on local car assembling to run the industry's wheel. This might be overcautious statement for many, but it is to draw attention towards market inching towards trading hub. Trade analysts are more concerned about misuse of the import policy by commercial car importers. This policy is, therefore, feared to pass on benefits to importers alone.

It is interesting to note that the government of Pakistan does not allow commercial imports and existing import policy is a kind of incentive to expatriates to import used cars in the country under personal baggage, gift, and transfer of residence schemes. When and how commercial importers sneak in to the channel starting from imported destination up to the hand of customer is not clear. Importers (known as car dealers to escape legal action) argue they act as an intermediary or agent. Critics said such dealers were abusing or misusing advantage bestowed on Pakistani 'migr' living aboard and above all, causing precious foreign exchange to go outside the country. A car dealer contended import would not cause flight of foreign exchange from the country since overseas Pakistani buy cars from money at their disposal abroad.

Pakistan Automotive Manufacturers Association (PAMA) has expressed its disappointments over the extension of age-limit. According to the reports, it fears drastic decline in revenue to the government as a result of the relaxation given to imported cars. Importantly, this would also impinge upon the efforts of localisation in the automobile industry and billion of rupees invested to increase indigenisation. PAMA has invested billion of rupees in the localisation of automobile industry during last few years. Automobile industry of Pakistan has to increase local content in the making of vehicles from a very insignificant portion. It is worthwhile to mention that local automobile industry has to rely on import for the essential components of vehicles.

Government is also said to loss substantial revenue because of further decrease in car assembling and sale. The imported cars would likely to capture the market share of local assemblers due to its price edge over local cars. If this happens, government revenue of 10 to 11 billion rupees from sale of local cars would be lost. The imported cars offset the decline in revenue, since these would also contribute handsome taxes to the national exchequers. Sale of passenger cars grew 11.4 per cent to 59,646 units in the July-Dec 2010 as compared to 53,565 units in the similar period last year while production of passenger cars were recorded at 62,952 units, depicting a rise of 16.7 per cent over 53,974 units.

Local assemblers of automobile are adamant of pushing up prices on the pretext of depreciation Pak rupee value against the Japanese yen and US dollar. Recently, Pak Suzuki, the largest holder of market share of passenger cars, has again raised the prices of its different models Rs11,000 to Rs25,000.

Car dealers condemn the recent rise in prices of local cars and are of the view that without further relaxation to import of cars in the country, the dominance of local assemblers will prevail to charge the price from customers without rhyme or reason. Import of cars will give price relief to customers, yet at the same time, it will upset the localisation process. Government needs to take a decision for the betterment of commoners with forestalling its negative implications on the economy.