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Experts say rising cost of imported components driving up prices of locally assembled cars
Tuesday, March 16, 2010
By Mansoor Ahmad
LAHORE: Auto market experts have urged economic managers to analyse the reason as to why the rates of tractors are almost stable while prices of motorcycles have in declined but the car rates continue to climb up.
They pointed out that tractors manufactured in Pakistan are cheaper than that of other competitive economies like China and India because over 90 per cent of tractor components are produced in the country including the critical parts like engines. This is the reason that despite zero import duty tractors are not imported in the country.
The production of tractors in the country is constantly rising since last five year. The growth continued even during the most acute economic depression in 2008-09. In the same way more than 90 per cent of the motorcycle components are produced in the country.
A few years back the leading brands of motorcycles were selling for Rs80,000 to Rs86,000. Now the rates of the prime Japanese brands range from Rs65,000 to Rs73,000 while Chinese and Pakistani brands cost Rs40,000 to Rs50,000. The import duty on motorcycles is low at 25 per cent but the imports are negligible.
The motorcycle production ranged from 100,000 units to 127,000 units a year during the 1990 decade. The production has increased manifold in the present decade to of 750,000 units a year. The car prices in Pakistan have been constantly increasing during the past 10 years.
Even the increase in car production from 33,000 units at the start of the century to its peak of around 200,000 units a year in 2006-07 failed to make a dent in the car rates. Experts attribute this to low deletion level in the locally assembled cars, price transfer in the imported component and failure of the government to impose its announced policy increasing the duty on imported components from 35 per cent to 50 per cent to discourage use of imported parts.
The News found that Suzuki Mehran is the highest localised passenger car in the country. Seventy per cent of its components are produced by Pakistani vendors while 30 per cent are imported. It was also found that the cost of local components used in Mehran is around Rs115,000 per unit while the imported components that are only 30 per cent of the total cost Rs150,000.
Experts say one reason for higher cost of imported parts is that these are high precision components and another reason is price transfer as these parts reach the local assemblers through Japanese marketing companies. They allege that the flawed government policies are also fuelling high car rates.
They said the import duty on completely knocked down kit of car components not manufactured in Pakistan is still 35 per cent although the government was committed to increase it to 50 per cent last year to promote localization of auto-parts. They said next fiscal year as well as the car assemblers would be able to use the threat of adverse impact on foreign investment to keep the import duty on CKD at 35 per cent.
The News found that that baring one 800cc model, the deletion level is 30-50 per cent in all other cars and the cost of imported component is 75-85 per cent of the total production cost of the car. Experts say that currently the local market is dominated by Japanese brands that keep their local retail rates slightly lower than the cost of high duty paid imported vehicles. This they added discourages imports of dozens of quality brands from other countries.
Experts advised the government to lower the import duty on cars by 5 per cent per year till a level of 35 per cent import duty is achieved. They said this will break the monopoly of existing brands that would then be forced to go for localization of high tech parts for which expertise in Pakistan exists.
They said lowered car prices would boost sales as was proved in case of revival plan for Mehran a few years back when 10 per cent decrease in rates boosted its production from 400 units per month to 2,000 units per month.
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ISSN 1563-9479 
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