AUTOMOBILE INDUSTRY

DR. S. M. ALAM
(feedback@pgeconomist.com)

Nov 28 - Dec 4, 20
11

An automobile, auto car, motor car or car is a wheeled motor vehicle used for transporting passengers. Most definitions of the term specify that automobiles are designed to run primarily on roads, have seating for one to eight people, typically have four wheels, and constructed principally for the transport of people rather than goods.

The term motor car has also been used in the context of electrified rail systems to denote a car, which functions as a small locomotive but also provides space for passengers and baggage. These locomotive cars were often used on suburban routes by both interurban and intercity railroad systems.

Around the world, there were about 806 million cars and light trucks on the road in 2007. The numbers are increasing rapidly, especially in China and India.

The auto manufacturing industry is considered to be highly capital and labor intensive. The major costs for producing and selling automobiles include:

* Labor - While machines and robots are playing a greater role in manufacturing vehicles, there are still substantial labor costs in designing and engineering automobiles.

* Materials - Everything from steel, aluminum, dashboards, seats, tires, etc. are purchased from suppliers.

* Advertising - Each year automakers spend billions on print and broadcast advertising; furthermore, they spend large amounts of money on market research to anticipate consumer trends and preferences.

The auto market is thought to be made primarily of automakers, but auto parts make up another lucrative sector of the market. The major areas of auto parts manufacturing are:

* Original Equipment Manufacturers - The big auto manufacturers do produce some of their own parts, but they can not produce every part and component that goes into a new vehicle. Companies in this industry manufacture everything from door handles to seats.

* Replacement Parts Production and Distribution - These are the parts that are replaced after the purchase of a vehicle. Air filters, oil filers, and replacement lights are examples.

* Rubber Fabrication - This includes everything from tires, hoses, belts, etc.

A large proportion of revenue comes from selling automobiles. The parts market, however, is even more lucrative. A new car costs 300 to 400 per cent less than that is fabricated by an individual from the essential components.

Advantage of automobile: The benefits may include on-demand transportation, mobility, independence, and convenience.

The invention of the automobile was without doubt one of the most ground braking advancements in human technology. Today, we cannot imagine a world without it anymore. A large portion of our everyday life is dominated by cars.

Doubtlessly, cars have an enormous economic value. Without the automobile and derivations like trucks, the productivity of a modern economy would seriously be affected. The biggest part of transportation of goods is still conducted by trucks.

But, the automobile does not only contribute to modern economies as a means of transportation, it also has profound effects on the availability and distribution of working places. Having a car largely increases a family's mobility and flexibility.

Because of the possibility to commute, the advantages of life on the countryside can still be enjoyed while being occupied in an urban region.

In 2008, more than 70 million motor vehicles including cars and commercial vehicles were produced worldwide. In 2007, a total of 71.9 million new automobiles were sold worldwide: 22.9 million in Europe, 21.4 million in Asia-Pacific, 19.4 million in USA and Canada, 4.4 million in Latin America, 2.4 million in the Middle East and 1.4 million in Africa.

The markets in North America and Japan were stagnant, while those in South America and other parts of Asia grew strongly. Of the major markets, China, Russia, Brazil, and India saw the most rapid growth.

The numbers are increasing rapidly, especially in China and India. In the opinion of some, urban transport systems based around the car have proved unsustainable, consuming excessive energy, affecting the health of populations, and delivering a declining level of service despite increasing investments. Many of these negative impacts fall disproportionately on those social groups who are also least likely to own and drive cars. The sustainable transport movement focuses on solutions to these problems.

In 2008, with rapidly rising oil prices, industries such as the automotive industry are experiencing a combination of pricing pressures from raw material costs and changes in consumer buying habits.

The industry is also facing increasing external competition from the public transport sector, as consumers re-evaluate their private vehicle usage. Roughly, half of the US's 51 light vehicle plants are projected to permanently close in the coming years, with the loss of another 200,000 jobs in the sector, on top of the 560,000 jobs lost this decade.

Combined with robust growth in China, in 2009, this resulted in China becoming the largest automobile producer and market in the world. China 2009 sales had increased to 13.6 million, a significant increase from one million of domestic car sales in 2000.

The European automotive market has always boasted a higher number of smaller cars than the United States. With the high fuel prices and the world petroleum crisis, the United States may see its automotive market become more like the European market with fewer large vehicles on the road and more small cars.

For luxurious cars, with the current volatility in oil prices, going for smaller cars is not only smart, but also trendy. And, because fashion is of high importance with the upper classes, the little green cars with luxury trimmings become quite plausible.

PAKISTAN

Pakistan's auto-industry is making fast progress. The automobile and allied products sector in the country has attained a vital position aided by an unprecedented growth in the country's industrialization and its rapid expansion. The automotive sector has shown an increased growth during recent years.

The government's continued support to the automobile and auto parts manufacturing sector has been the key source of encouragement to the manufactures as well as aftermarket vendors to move in and reap entrenched benefits that Pakistan has to offer.

In addition, the increasing number of banks in public and private sectors and financial institutions has greatly boosted up affordability of consumers, and consequently turning out benefits to auto and allied parts manufactures.

Due to increase in purchasing power of the costumers, the industry players are enjoying very healthy profit margins on automobiles.

Normally, automobile industrial units are engaged in the assembly/manufacturing of cars, jeeps, LCVs, trucks, buses, motorcycles, and tractors.

At present, there are over 1,270 industrial units engaged in manufacturing of components, parts and accessories for cars buses, trucks, and motorcycles.

The automobile industry has been an active and growing field for a long time. Most cars in the country have dual fuel options and are run on CNG (compressed natural gas) which is more affordable than petrol (gasoline).

Locally assembled passenger vehicles are i) Suzuki Mehran ii) Suzuki Alto, iii) Suzuki Cultus, iv) Suzuki Ravi, v) Suzuki Bolan, vi) Suzuki Liana, vii) Toyota Corolla, viii) Honda Civic, ix) Honda City, x) Nissan Sunny, xi) Daihatsu Cuore

Automotive industry has been an active and growing field in Pakistan for a long time. Despite significant production volumes, transfer of technology and localization of vehicle components remains low.

Pakistan produced its first vehicle in 1953, at the National Motors Limited established in Karachi to assemble Bedford trucks. Subsequently, buses, light trucks, and cars were assembled in the same plant.

The industry was highly regulated until the early 1990's. After deregulation, major Japanese manufacturers entered in the market thereby creating some competition in this sector.

Assemblers of Hino trucks, Suzuki cars (1984), Mazda trucks, Toyota (1993), and Honda (1994) in particular, entered once deregulation was introduced. Assembly of Daihatsu and Hyundai cars (1999) and various brands of LCVs and range of mini-trucks commenced recently.

From 1953 to 2011, the journey of auto industry has been rough, tough, and sometime very smooth.

Car industry saw boom in 2006-07 when sales touched record peak of 180,834 thanks to rising car financing up to 70-80 per cent by banks due to low interest rates and rising rural buying.

Since then, the industry has been surviving hard to reach the same sales level amid high interest rates and Yen appreciation against the rupee but high farm income is giving much support to car sales.

The car industry has invested over Rs20 billion in the last four to five years to meet growing demand. The direct employment in car industry hovers between 5,500-6,000 persons. Motorcycle production hit the country's record level of over 1.5 million units in 2010-11.

Auto sector now employs 192,000 people directly and around 1.2 million indirectly and has Rs98 billion of investments and contributes Rs63 billion as indirect tax in the national exchequer. Auto sector remains the second largest payer of indirect taxes after the petroleum sector.

Rising per capita income with changing demographics and an anticipated influx of 30 to 40 million young people in the economically active workforce in the next few years provides a stimulus to the industry to expand and grow.

In Pakistan, there are 11 cars in 1,000 persons, which is one of the lowest ratio in the emerging economies, which itself speaks of high potential of growth in the auto sector and more so in the car production.

WORLDWIDE USE OF CARS PER 1,000 PERSONS

314 (Argentina), 653 (Australia), 556 (Austria), 482 (Bahrain), 539 (Belgium), 38 (Bhutan), 198 (Brazil), 698 (Brunei Darussalam), 597 (Canada),164 (Chile), 32 (China), 622 (Cyprus), 559 (Finland), 600 (France), 623 (Germany), 384 (Hungary), 773 (Iceland), 76 (Indonesia), 16 (Iran), 537 (Ireland), 305 (Israel), 677 (Italy), 595 (Japan), 137 (Jordan), 338 (Korea Rep), 291 (Libya), 558 (Malta), 150 (Mauritius), 244 (Mexico), 872 (Monaco), 61 (Mongolia), 71 (Morocco), 503 (Netherlands), 729 (New Zealand), 572 (Norway), 11 (Pakistan), 188 (Panama), 451(Poland), 724 (Qatar), 245 (Russia), 149 (Singapore), 159 (South Africa), 601 (Spain), 58 (Sri Lanka), 28 (Sudan), 523 (Sweden), 569 (Switzerland), 52 (Syria), 103 (Tunisia), 131 (Turkey), 140 (Ukraine), 313 (UAE), 527 (UK), 820 (USA), 147 (Venezuela), 13 (Vietnam), 35 (Yemen Rep), 18 (Zambia), 106 (Zimbabwe), and 183 (World average).

VEHICLES PRODUCTION IN SELECTED COUNTRIES (IN NUMBERS)

RANK COUNTRY/REGION 2010 2005 2000
- world 77,857,705 66,482,439 58,374,162
01 China 18,264,667 5,708,421 2,069,069
- European Union 17,102,459 18,176,860 17,142,142
02 Japan 9,625,940 10,799,659 10,140,796
03 United States 7,761,443 11,946,653 12,799,857
04 Germany 5,905,985 5,757,710 5,526,615
05 South Korea 4,271,941 3,699,350 3,114,998
06 Brazil 3,648,358 2,530,840 1,681,517
07 India 3,536,783 1,638,674 801,360
08 Spain 2,387,900 2,752,500 3,032,874
09 Mexico 2,345,124 1,624,238 1,935,527
10 France 2,227,742 3,549,008 3,348,361
11 Canada 2,071,026 2,688,363 2,961,636
12 Thailand 1,644,513 1,122,712 411,721
13 Iran 1,599,454 817,200 277,985
14 Russia 1,403,244 1,351,199 1,205,581
15 United Kingdom 1,393,463 1,803,109 1,813,894
16 Turkey 1,094,557 879,452 430,947
17 Czech Republic 1,076,385 602,237 455,492
18 Poland 869,376 613,200 504,972
19 Italy 838,400 1,038,352 1,738,315
20 Argentina 716,540 319,755 339,632
21 Indonesia 702,508 500,710 292,710
22 Malaysia 567,715 563,408 282,830
23 Slovakia 556,941 218,349 181,783
24 Belgium 555,302 928,965 1,033,294
25 South Africa 472,049 525,227 357,364
26 Romania 350,912 194,802 78,165
27 Taiwan 303,456 446,345 372,613
28 Australia 243,495 394,713 347,122
29 Sweden 217,084 339,229 301,343
30 Hungary 211,461 152,015 137,398
31 Slovenia 205,711 187,247 98,953
32 Portugal 158,723 226,834 245,784
33 Uzbekistan 156,880 94,437 52,264
34 Pakistan 109,433 153,393 102,578
35 Austria 104,814 253,279 141,026
36 Venezuela 104,357 135,425 123,324
37 Netherlands 94,106 102,204 98,823
38 Egypt 92,339 123,425 78,852
39 Ukraine 83,133 215,759 31,255
40 Philippines 63,530 64,492 38,877
41 Morocco 42,066 33,992 31,314
42 Colombia 41,714 109,333 23,979
43 Vietnam 32,920 31,600 6,862
44 Ecuador 22,335 32,254 41,047
45 Serbia 18,033 14,179 12,740
46 Belarus 16,650 26,995 19,324
47 Finland 6,500 21,644 38,926
48 Chile 4,700 6,660 5,245
OICA (International Organization of Motor Vehicle Manufacturers), April 2011