Jan 10 - 16, 2011

The auto and allied industry seems quite disturbed due to what they call inconsistent policies leaning more towards imports than caring for stability of the domestic industry.

Besides the policies, the sharp swinging of the rupee against international currencies especially dollar and Japanese yen has also been posing threats to the massive investment by automobile and allied vendor industries.

In fact, some senior stakeholders in the automobile sector including manufacturers, vendors had a detailed discussion on the issues perturbing the investors due to what they said inconsistent policies with a special reference to recent move of allowing used car up to five years of age and then withdrawal of the decision.

Those who were present in the discussion focusing on the issues confronted to the auto industry included Abdul Waheed, Director General Pakistan Automotive Manufacturers Association (PAMA), Pervez Ghias, Chief Executive Indus Motor Company (IMC), Raza Ansari, Director Marketing IMC, Mustafa Hasan Lakhani, GM Finance IMC besides senior journalists.

The manufacturers stressed that a level playing field should be provided to all stakeholders such as manufacturers, vendors and commercial importers.

If the import of used cars is unavoidable, it should be made commercial instead of allowing it under cover of different schemes like gift scheme or baggage scheme.

Speaking on the issue, Raza Ansari said that the investors of international brands come to this country with a commitment of long term investment and heavily depend upon the declared policies of the government, however abrupt changes in the policies shatter the confidence of the investors.

Consistent long-term policy is must for consolidation, progress and sustainable growth of the auto sector, which is the mother of all sort of industries and has been instrumental in magical growth of the leading economies around the world.

The confidence of the investors helps further investment towards expansion of existing OEMs and attracts new entrants in order to generate employment opportunities, billions of rupees of investment ventures and substantial share of revenues for national exchequer, this was stated by Abdul Waheed while he appreciated government decision on used car policy.

"The industry's request to the government is to focus on long-term benefits in its policy to get fruitful results in future," he said.

The three significant OEMs Pak Suzuki, Honda and Toyota alone invested over Rs20 billion during last 4 years. Their total capacity increased by over 100 per cent during the last 5 years and currently as a matter of fact the industry is utilizing only half of the capacity as the demand has substantially decreased.

He said that with the enhancement in capacity by OEM's a number of allied sector such as vendors of auto parts, paints suppliers, leather manufacturers, also had to increase their

capacities by investing million's of rupees. This also created more jobs, however, due to the downturn in the industry over the last few years these vendors have put on hold their investments and huge layoffs have been made. With consistency in the policies aimed towards a common goal of auto industry development as envisaged in AIDP, the industry can further flourish, from its current levels.

Mr. Waheed said that the automakers welcome the new OEMs in the Pakistan's market, as it will strengthen the auto industry with handsome investment and healthy competition.

However, the government should facilitate new entrants with soft loans, land provision, and infrastructure development instead of deviating from already agreed AIDP, he added.

He explained that the OEMs are importing components that are not produced in the country at 32.50 per cent duty, however, if they import any component that is produced in the country they have to pay a duty of 50 per cent. It is an agreed arrangement that protects the rights of the local vendors.

However, if the new entrant policy, as it has been published in some of the media, is approved, the new entrants are allowed to import 100 per cent components at 32.50 per cent duty without using local components for three years period. He said that this provision will severely affect the development and business of local auto-parts vendors and will also provide advantage to the new entrants against the already existing OEMs.

He said that proposed policy had also relaxed the custom levies for new entrants to import CKD at 5 per cent in first year, 10 per cent in second and 20 per cent in third year, which would deny level playing field to existing OEMs besides pushing the auto vendors out of the business.

Raza Ansari speaking on the occasion said that the local OEMs had been working aggressively on Auto Industry Development Program (AIDP) to bridge the supply and demand gap at the local level, which currently has been reduced to zero and the locally produced cars of IMC are available on the floors at its dealer network.

Raza Ansari said that during last 2 years, prices of some of the important input materials such as steel have increased by 26 per cent besides Japanese Yen appreciating by 22 per cent and US dollars by 6 per cent, however, IMC had increased its vehicles' prices by only 7 per cent during the said period.

He also said that many IMC variants being produced in Pakistan are still cheaper than India and Thailand. Moreover, IMC recently reduced prices of its branded vehicles to pass on the benefit to customers from localization of units.

Raza Ansari said that following the AIDP would help the government to improve the ailing economy of the country as local industry could not only save precious foreign exchange but also provide more revenues than imported vehicles and jobs to local youth while providing skill based training and developing highly competitive local engineering concerns through transfer of technology.

The local auto industry not only has the potential to meet the local demand but it is strong enough to export its vehicles to Middle East and African countries with continuous growth in the production capacity, he added.