LAHORE: The 2016 was a top-gear year for the auto sector peers as all the three manufacturers saw their production revving up by 5-15 percent. The production of truck, buses, and tractors sped up but motorcycles hit a bump in the road.
The most prominent development in the sector was the announcement of new automobile development policy rolled out after a delay of three years. This policy, though, did not please the existing original equipment manufacturers but it removed uncertainty plaguing the market as the industry was operating without any future vision.
The Auto Industry Development Programme (AIDP) has given incentives to the new entrants in order to bring more competition in the domestic market that is dominated by three Japanese giants only.
However at present no definite plans for new investments by new entrants have materialized although two leading European brands have expressed interest in producing their brands in Pakistan. One of them is Renault of France and the other is the German carmaker Audi.
There are no two opinions that both the brands will enrich the passenger car variety in the country; however, interest shown by luxury car producer Audi has surprised many but people are unaware of the fact that imported Audi sales crossed 950 units in 2016. This is a high number of sales for a luxury car.
If the company establishes an assembly plant in the country it would be commercially viable to operate with local sales ranging from 1000-1500 units a year.
The 2016 AIDP allows the new entrants to import a certain quantity of units --completely built versions at concessional duties. This has been done on the hope that these new entrants would then localize their parts in accordance with the localization achieved by existing players in their respective categories. Since the interested parties are well respected global player, the auto industry expects they would honor their commitment to localize production. Earlier experience with new entrants, granted similar facility has been bitter as some unknown producers imported the CBUs at concessional duties but did not start assembly plants.
The existing players know the new entrants won’t be able to compete with them if they did not localize their parts. With car sales going up the prospects for new entrants are looking brighter. This realization has forced the existing players to increase locally made contents in their variants. Until last year, the existing players were complacent and least worried about foreign competition. However, car demand in Pakistan is constantly on rise.
In the calendar year 2016, the industry expects to produce 2,35,000-2,40,000 cars. On top of that about 55,000 used imported cars have been marketed. The used cars have raised the quality expectations of local consumers. Now the domestic variants are also offering fully loaded models with latest gadgets similar to ones found in imported used cars.
If the government succeeded in luring two or three reputable new entrants, it would disturb the comfort zone in which the existing players are operating. Each of the three existing car assemblers is catering to different segments of the society. Pak Suzuki Motor Company offers variants for lower segment of consumers.
Toyota commands market in both rural and urban centers because of its robust engine and suspension. Honda is more popular among young urbanites because of its high-tech as well as delicate features. Renault variants would challenge each existing brand, while Audi would definitely capture luxury car market.
The auto parts manufacturers also saw a good year and consolidation of their setups because of regular orders. The number of vendors has declined in 2016 because the high-tech competitors outdid many low- tech rivals.
They are dependent on the performance of the existing car assemblers. The new AIDP offers nothing for the auto parts manufacturers in the short term. They would get orders when the new entrants start assembling these cars in the country in the next three years.
The truck and bus assemblers saw their productions increase substantially from a very low base as public and goods transport has not yet come of age in Pakistan. Jeep production has literally stopped in the country. Motorcycle production has remained stagnant in last three years.
The bike-making units based on Chinese technology lost substantial market in 2016 because the largest Japanese manufacturer lowered its prices to reduce the gap between Chinese and Japanese motorcycles. The sluggishness in motorcycle sales was mainly due to lack of cash in rural economy due to the failure of crops.