AUTOMOBILE INDUSTRY

S.KAMAL HAYDER KAZMI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
Oct 17 - 23, 2011

Automobile industry has been an active and growing field in Pakistan for a long time. The industry contributes towards the nation's economy in the form of technology transfer, employment, investment and much more.

It contributed over Rs23 billion to the national exchequer in 2003-04. As the industry is growing, so are the automobile companies.

The industry is in the process of increasing production capacity to meet customer demands. Throughout the 90's the annual automobile production remained constant around 45,000 but due to consistent policies and positive macroeconomic conditions, the production boomed 120,000 units/annum in just four years.

Despite significant production volumes, transfer or technology remains low. Majority of cars have dual fuel options, and are mostly run on CNG, which is more affordable than petrol.

As of 2010, Pakistan did not adopt any automotive emission or safety standards. Therefore, cars manufactured and sold in the country are still carburetor based and do not meet any international emission standards.

The industry gained the growth momentum in the fiscal year ended June 2009-10 and registered a healthy growth of 49.6 per cent over 2008-09. The increase was made possible due to better economic conditions and reentry of commercial banks in consumer financing, which helped strengthen the demand for consumer goods, despite rising cost pressures.

Total industry's production during 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. 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 from July 2010.

However, the major players like Indus Motor and Pak Suzuki also showed impressive growth in sales by 49 per cent and 41 per cent respectively. The market share of Honda Atlas shrank to 10 per cent as compared to 11 per cent in 2009. Indus Motor's market share increased from 35 per cent to 37 per cent from 2009-10 on the back of strong Toyota Corolla's demand and sales. Pak Suzuki is steadfast at 52 per cent while Dewan motors dropped from two per cent to one per cent due to weak sales of their popular pick-up Shehzore.

The performance of the car assemblers remained lackluster during FY09 owing to the economic meltdown in the country. Although all the factors which were present in FY09 are still prominent in FY10, the sales of the car segment overall took a considerable leap from selling a total of 82,844 cars during Jul'08-Jun'09 to 123,957 cars during Jul'09-Jun'10, a whopping 50 per cent increase.

The industry was recorded positive growth in cars, LCVs/Jeeps and two/three wheelers during July-March-2010-11 as compared the preceding year whereas the buses, trucks and tractors witnessed a decline in their production as compared to the previous year.

The persistent fall in local production of trucks and buses is mainly due to their falling demand in view of growing imports.

The industry showed recovery in two/three wheelers with 13 per cent growth over previous year. There is some recovery in passenger cars and light commercial vehicles (LCVs) and in comparison to the previous year production of passengers cars grew 16.4 per cent.

Similarly, there is growth in LCVs by 20 per cent in comparison with the corresponding period last year. The production in the farm tractors was only fractionally down by only 2.2 per cent compared with the corresponding period of the previous year.

The industry explored the export market. 7563 motorcycles and 64 auto rickshaws were exported in the last financial year. However, 9022 motorcycles and 72 auto rickshaws were exported in July-March, 2010-11. The car/LCV sector also exported 359 vehicles and parts worth US $1.58 million in the last financial year and 397 vehicles and parts worth US$ 1.66 million in the current year in July-March, 2010-11.

The growth in the industry across the world depends heavily on economic growth and availability of financing from financial institutions sat favorable terms.

The industry also faced acute inflationary pressures due to rise in input costs and continuous depreciation of the rupee against Yen and US dollar.

The auto vending industry is faced with challenges of availability of raw materials, production assets, sophisticated tools including dies and moulds, machining facilities, trained and productive workers, supervisory staff and the management and absence of a culture of research and development.

The technologies for sophisticated components due to high cost, royalties and license fee etc., remained a barrier in their acquisitions. In the competitive development phase (2005-2012), the vendors besides the above challenges are now faced with issues of prices, quality and timely supplies.

CONCLUSION

No doubt, the local assemblers are interested in only introducing high priced cars to cater to a particular rich segment of the society. Prices of automobile are very high in Pakistan. The government should allow commercial imports of reconditioned cars to give relief to the price-hit people.