CAN'T WE LIVE WITHOUT IMPORT OF USED CARS?

AMANULLAH BASHAR
(feedback@pgeconomist.com)

July 16 - 22, 20
12

The downstream auto industry, closely linked with local auto industry for their bread and butter is in a fix due to import of used cars consequently demand for auto parts due to reduced production volume of the car producers.

The vendor industry feels that the influx of used cars in the country has been taking a heavy toll on local auto assemblers who purchase 60 percent of the auto parts from domestic manufacturers.

It may be mentioned that the domestic industry has tremendously developed during last few years mainly by investing huge capital but also with the help of agreements of transfer of technology with world renowned equipment makers. This includes hundreds of components such as bumpers, radiators, mufflers, batteries, tyres, wheels, air conditioners, wiring harnesses, instrument panels, steering wheels, sun-visors, seats, carpets, interior panels, sheet metal and plastic parts. All of this is being locally produced by more than 400 vending companies. Almost 2,200,000 skilled workers are directly and indirectly associated with these local vending companies.

But, these domestic auto parts manufacturers have now started feeling the brunt of the government's inconsistent policies as the demand for locally produced vehicles, especially cars, has slowed down. This is evident by the fact that the size of the local market has shrunk to currently 30 percent from its peak level of the year 2007 when some 200,000 vehicles were produced.

No doubt, this damage to the local market has been caused by the heavy inflow of five-year-old used cars. During the last 12 months almost 50,000 used vehicles have been imported, amounting to 30 percent of the total market demand for automobiles in the country, causing a loss of over Rs 14 billion revenue to the government in terms of relaxations allowed pertaining depreciation allowance.

For example, during the month of June 2012 approximately 8,000 used vehicles have been imported while the number in July 2012 might be 9000. It amounts to 30% of the total market demand for automobiles in the country.

It is strange thing that most of the imported cars of 1000cc (or higher) such as Vitz, Corolla, Belta, Premio, Axio, Mira, Probox, Land Cruiser and Pajero are being sold in the price range of Rs 1.1m to Rs 3.5m. One can guess now that these vehicles, mostly purchased by elites, are being imported at the cost of the local automobile industry's growth.

The scrupulous dealers purchase copies of passports and other relevant documents from so called overseas Pakistanis to flourish their businesses of used cars. And the government has joined them fulfilling their agenda to turn the country into junkyard of used vehicles at the cost of indigenous auto industry, which is providing jobs to hundreds of thousands of skilled and unskilled workers.

Vice Chairman Pakistan Association of Automotive Parts Accessories Manufacturers (PAAPAM) Munir A. K. Bana said, 'It has become clear that this decision of used cars import is not helping the government, the customer or the manufacturer.' The worst thing is that the government is allowing import of each and every thing into the country to jeopardize local industries instead of paying attention to the core issue of curtailing inflationary trends that are engulfing resources and endangering national integrity.

'It is the high time that the government, in order to put a halt on the loss of foreign exchange, should reverse the concessions granted in the shape of depreciation in customs duty upto 60 percent that is allowed on the import of used cars,' he reasoned.

It may be noted here that the country's foreign exchange reserves had fallen below $15b while the Pak Rupee has also depreciated against dollar, which is now close to Rs 96 per dollar. And the huge increase in the import of used cars has exerted pressure on the country's already widened current account deficit.

Owing to the recession all over the world, a large number of vehicles have become surplus in various countries and now they want to export these surplus vehicles to other countries to support their economies.

The Vice President PAAPAM further said that it is the government's primary responsibility to protect the masses employed with the domestic auto manufacturing industry. 'Therefore, the allowable age for the import of used vehicles must be reverted from five years to three years,' he added.

Sources said that higher engine capacity used cars imported during last fiscal year defy Government's claim of deviating from auto industry development plan, the officials justifying the relaxation in import policy had announced doing so to facilitate import of small segment cheaper cars for consumers.

As per details of custom data the used cars' import exceeded 50,000 mark by the end of this fiscal year with expected break-up of 8,000 cars of 800cc, 18,000 units of 1,000cc and 14,000 units of 1,300cc and above.

As per industry sources data, since July 2011 to May 2012 more than 41,500 used cars have been imported in the country. Besides this, they are causing a loss of over Rs 14 billion revenue to the government in terms of relaxations allowed pertaining depreciation allowance.

Moreover, industry experts said that dealers who were engaged in import of new cars are now investing in importing used cars which on one hand deprives the consumer of its hard earned money against 5 years old cars close to junk while eliminated a fair competition in shape of imported quality brand new vehicles which forced the local companies to improve their products.

As per data, during Jan-Dec 2008 period total 4,140 new cars and 7,931 used cars were imported in the country. During Jan-Dec 2009, some 1,842 new and 3,142 used cars entered Pakistani market. During Jan-Dec 2010, the country imported 2,428 new and 3,406 used cars. But, the situation changed dramatically during Jan-Dec 2011 period when only 2,019 new cars were imported against 30,615 used cars.

'The duty on used car of 800cc is Rs 158,400 against Rs 199,650 on a similar brand of new locally made car. For 1000cc cars the duty on imported used cars is Rs 198,000 which is Rs 313,500 on the same category of locally produced brand new car,' sources said, adding that this difference in duties is much with 1300cc (and above) cars because the importers of used cars pay Rs 396,000/unit duty against Rs. 627,000/unit paid by local car manufacturers on a new car of the same category.

Local auto industry, therefore, is appalled by the indifferent attitude of the government towards their plight. 'The government's intention was to provide small end users with low priced cars, but almost all the imported used cars are being sold either at par or in some cases a little higher than the market price of similar new cars produced in Pakistan.

Experts termed it an injustice to the consumer who is forced to pay exorbitant prices for five year old models, most of which have become obsolete and their spare parts are not available locally. However, sources termed the plea of some critics that the delivery time of locally produced cars is very high a thing that lacks conviction. First, they added, the government needs to revisit its policy on registration of cars. Second, if it is made mandatory that the car booked with the manufacturer by a person cannot be transferred before six months, it would shorten the delivery time and eliminate "on money".

PUNJAB TAXI SCHEME

Overall industry sales trend in Financial Year 2012 indicates 22% YoY growth, but only 8.6% when adjusted for Punjab taxi scheme orders 20,000 units completed in FY12). However, relaxed import policies continue to dent demand for locally assembled cars and LCVs, where as 41,500 used cars were imported during the period July-May 2012 compared to 7000 imported in FY 2011.