By By Hina Mahgul Rind
In this regard the auto industry is trying to get a bailout package from the government in the form of policy relaxation. The industry has been in negotiations with the government for quite sometime, to pursue it at this crucial and highly volatile juncture.
The government should implement the AIDP in letter and spirit without any violations and changes to it, to sustain the existence and future growth of the local auto industry.
The News has learnt that the government might waive off 35 per cent LC margin on imports which was announced by the State Bank of Pakistan (SBP) in May 2008 in its monetary policy measures which directly affects cash flows of OEMs and their vendors.
However, further meetings with the government are expected in the near future and the negotiation process will be continued to draft a more auto industry friendly policy.
The auto industry is trying to reinitiate dialogue for the revision of AIDP which includes withdrawal of 5 per cent FED imposed on cars with an engine capacity higher than 850cc, reduction of depreciation limit from 2 per cent per month to 1 per cent per month subject to a maximum of 25 per cent, reduction of imported used vehicle life from three years to two years, registration of used imported vehicle in the name of returning Pakistanis for at least 1 year, removal of FED on royalty and technical fee at the rate of 10 per cent of remittance, relaxation of SBP monetary measures to make interest rates and auto financing affordable, removal of 35 per cent and 100 per cent LC margin on imports, consultation of industry on free trade agreements/regional trade agreements, and that sales tax be brought down to the earlier 15 per cent.
The government announced auto-related tariff for the next five years in respect to cars/LCVs that should be made a part of the Finance ACT 2008, and a clear cut action plan be developed for the implementation of various components of AIDP.
The growth of the auto sector has been curbed in the previous fiscal year, factors included; a gradual weakening of the global economy, leading to upward fluctuations in the prices of oil and currencies of trade, all of which built pressure on Pakistan's already weak economy. Other factors include political and economic instability, deviations from the agreed auto policy, tightening of monetary policy, rising interest rates, foreign currency appreciation (Yen appreciated by 12.3 per cent in 2008 to Rs0.66), increase in the prices of oil, steel (increased 51 per cent YOY) and other inputs and imports of used cars. The rising trend in inflation and food prices as well as lost work time due to power outages as a result of energy shortage in the country has also had an adverse impact on the local auto industry.
These factors have had a direct impact on the local auto industry sales, which declined by 8.2 per cent in the first half of FY08 alone to 187,000 units.
The final nail was driven in by the Budget 2008-09 implemented by the Government of Pakistan which put further pressure on consumer oriented buying, resulting in rising inflation as well as a non-competitive playing field which has seen a drop of over 50 per cent in sales for the auto industry over the course of 3 months.
Similarly, the global auto industry is in recession and many of the renowned auto brands are in turmoil. Recently, the US auto industry asked for a bailout package for the collapsing industry, when news reports were published that facing massive job losses, the White House and congressional Democrats are working to provide about $15 billion in loans to prevent Detroit's weakened auto industry from collapsing.
After yielding to President George W Bush on a key point, House Speaker Nancy Pelosi said the House would consider the legislation to provide "short-term and limited assistance" to the US auto industry while it undergoes "major restructuring."