Feb 7 - 13, 20

Mutual understanding between the policy makers as well as the stakeholders in the automobile industry regarding demand of the tough economic situation and a breathing space required for the industry is pre-requisite for the benefit of the economy as well as for the auto industry. It will be in the interest of the two sides to understand each other's problems such as need of enhancing revenue on the part of the government. For the investors, the predictability of the policies is of prime importance, which give the guidelines for investments and future growth.

Despite the fact that the economy is confronted with difficult situation, Parvez was confident in the economic future of Pakistan that, he said, would certainly become an export base of international brands to neighbouring countries like Bangladesh, Afghanistan central Asia and the African countries.

He was confident that the policy makers would take stock of the difficulties faced by the auto industry and the duty exemption of certain parts currently available would remain intact. He suggested budgetary proposals for next financial year in the larger interest of the industry, which is not only generating employment opportunities at a massive scale, but is playing a significant role in human resource development through its technical training program.

Parvez Ghias, Chief Executive Officer of Indus Motor Company (IMC) said these while analysing the situation created in the follow up of the government decision to allow import of used cars up to five years of age in an interview. He said that primarily the government has taken a plea for the decision of allowing import of used cars to contain increasing prices of cars.

IMC chief explained that contrary to this version, actually the industry did its best to absorb the impact of appreciation of international currencies against Pak rupee, instead of passing it on to the customers. For that purpose, Indus Motors preferred to go for localization of maximum number of parts and made huge investment on its recently established press shops helping the company to offset the escalation in input cost such as rising electricity and gas tariffs.

The government's tax is one of the major components in the price basket of a unit, which comes to one third of the total cost of a car.

Indus Motor Company Limited is a leading automobile manufacturer in the country, of Toyota and Daihatsu brands. Prior to joining Indus Motor, Parvez Ghias was Vice President and CFO at Engro Chemical Pakistan Limited where he served as a member of the Board of Directors.

Parvez Ghias is a fellow of the Institute of Chartered Accountants from England & Wales and member of several faculties of the institute and holds a bachelor's degree in economics and statistics.

About the issue of increase in car prices, Parvez said it was blown up out of proportion by the vested interest obviously with an intention to damage the local industry base, which is generating job opportunities to thousands of local youth.

Look at the pattern of price increase, he said. IMC increased its prices by only seven per cent during last two years i.e. January 2009 till December 2010 while the reasons behind that increase in locally produced car price were not hidden from customers who understand that our currency has devalued much more and the prices of each and every commodity has skyrocketed during the said period.

During the same period, the rates of natural gas have increased by 13 per cent, electricity by 34 per cent, diesel by 34 per cent and petrol by 20 per cent. In the international market during the same period, the rate of steel has increased by 27 per cent from $586 to $746 per ton while the rates of polypropylene, aluminium, copper and lead have increased by 67, 35, 24 and 45 per cent. These are important inputs in car production while the local OEMs absorbed most of the increase in cost and have passed on only a small amount of the cost differential to the customers.

Besides the inflated prices of the inputs at the local market, the rate of US dollar has increased by 6.1 per cent against the rupee from Jun 2009 till date, while the rupee has depreciated 20 per cent against Japanese Yen during the same period increasing the cost of imported parts used in locally made vehicles. The carmakers generally had to adjust the prices keeping in view the increase in cost of production. However, he added, that the producers have also made downward adjustments in rates whenever they got some space.

Another impression that previous instance of allowing 5 years old cars did not affect the local OEMs is incorrect, as the demand is exceeding supply and local manufacturers have invested billions of rupees to enhance their productivity to bridge the same gap. But, the present statistics reveal otherwise as demand has gone down less than 125,000 cars annually and the production capacity has increased more than 275,000 cars per annum.

Auto industry is already trying very hard to cope up with the difficult circumstances to provide jobs and business opportunities to Pakistani citizens and produce world-class vehicles at lower prices than its international models produced and sold globally.

When asked to comment on the booming auto industry across the border, he said actually a level playing field has been ensured with the consistency in policies while it was also the reflection of a strong economic growth in the neighbouring country. However, as compared to India, Pakistan is a much bigger market for Toyota cars in terms of sales number, he pointed out.

It is also important to point out that the survival of a huge vendor industry providing jobs directly and through out sourcing heavily depends upon the stability and growth of the auto manufacturing sector, hence the rise and fall of the two sectors are inter-related.

It is in the interest of the local industry, which is a major source of revenue for the government, to discourage import of used cars.