GROWING UNREST AMONGST VENDORS
Feb 7 - 13, 2011
With 1,600 vending units specializing in various technologies including sheet metal, plastics, rubbers, castings, forging, electrical etc., employing latest technical know-how and producing parts, as per global quality standards, Pakistan is fortunate to enjoy a vibrant auto industry.
The auto industry is currently faced with a number of problems. There is increased competition from imported cars and importantly used cars. This is threatening the future domestic sales in the country. The levy of 15 per cent on import of high tech part in the automobile sector has also aggravated the situation by adding additional pressure on cost of goods. An already depreciated rupee versus dollar, inflation, and import duty on parts will most likely lead to a rise in price for most car manufacturers alike.
Currently, motorcycles and tractors have achieved 90 per cent localization, while passenger cars localization varies from 55 per cent up to 70 per cent depending on model by model. A number of world leaders in manufacturing of cars, tractors, motorcycles and heavy vehicles including Suzuki, Toyota, Honda, Hyundai, Massey, Fiat, Hino, Isuzu, Nissan and Daewoo are locally assembling vehicles in Pakistan.
Investments by these companies are refection of confidence of these companies in Pakistan's market potential. The government needs to further motivate these investors and their vendors through continuation of stable and business friendly policies. However, due to depreciation in Pak rupee, high prices of raw material, energy crisis and host of other issues local auto industry is facing problems which may pile up in times ahead, experts of auto industry told Page.
Almost 400 manufacturers of automobile components employ over 200,000 workers and their future of jobs is at stake due to anti-automobile industry steps. The local auto industry, which contributes billions of rupees to national exchequer as taxes and duties, would have to face problems in the wake of government decision allowing import of used cars.
Manufacturing sector, the second largest sector of the economy, has performed well in the year 2009-10 with growth rate of 5.2 per cent. Production in large scale manufacturing increased by 4.4 per cent, which was mainly caused by the improvement in sub-groups of automobile (31.6 per cent), tyre and tubes (29.5 per cent), electronic (23.6 per cent), fertilizer (10.9 per cent) and pharmaceutical (7.6 per cent). However, the country's manufacturing sector in current fiscal is facing pressure.
The automobile industry gained the growth momentum in the fiscal year ended June 2009-10 and registered a healthy growth of 49.6 per cent over the fiscal year of 2008-09. The increase was made possible due to better economic conditions and re-entry of commercial banks in consumer financing, which helped strengthen the demand for consumer goods, despite rising cost pressures, experts believe.
The total industry production from July 2009 to June 2010 was 121,647 units as against 84,308 units in 2008-09, up 44.3 per cent. The sales were also increased to 123,957 units against 82,844 units, up 49.6 per cent. The production and sales of Honda Atlas increased and 3,960 units were produced and 4,319 units were sold during the first quarter ended June 30, 2010, up by 62. 3 per cent and 72.3 per cent respectively over the corresponding period last year. The growth was evident despite the cost pressures built due to high inflation and depreciating Pak rupee against US dollar and Japanese yen. It led to increase in car prices a couple of times during the last fiscal year.
In the fiscal budget of 2010-11, the government raised the sales tax from 16 per cent to 17 per cent, amid the controversy of Value Added Tax (VAT). The import of the additional sales tax was passed on to the consumers and prices of all models were adjusted upward.
In the wake of decline in demand, Honda and Toyota have already slashed prices of their different models, whereas Pak Suzuki is also expected to revise its price downward shortly.
A spokesman of Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam) has said almost 400 manufacturers of automobile components employing over 200,000 workers anxiously await their fate as the vested interests in the government of Pakistan unfold their step-by-step plans to decimate the automobile industry.
According to him, the federal cabinet, on January 26th, overruled the Prime Minister's prudent directive to reverse the earlier ECC decision to increase the age of second hand cars to 5 years. Still not content, the strong lobby, representing the traders of used cars into Pakistan, is now moving to the next step in destroying the auto-parts manufacturing base in the country.
He said Pakistan desperately needs industry-friendly policies that lead to employment generation and alleviation of poverty, rather than appeasement of elite class having power to spend millions on used vehicles and luxuries not manufactured in the country. Worst of all, he said, it seems that the ministry of industries and production, supposedly a protector of local production, is fully supportive of the conspiracy against the local vendors industry, under the garb of teaching a lesson to the Japanese car manufacturers. In this situation, there is a growing unrest in the vendor factories, he added.
He appealed to the Prime Minister of Pakistan for compassion and bold leadership to protect the work force and industrial infrastructure in the auto parts manufacturing industry, the third largest contributor to national exchequer and offering tremendous potential in terms of promoting industrialization, technological know-how, defense production, foreign exchange savings and export promotion.
Experts are of the firm view that the government needs to play the role of facilitator for the industry for its growth.