LAHORE: Existing car manufacturers have accelerated localisation of car components in Pakistan after the announcement made by couple of reputable players of producing cars in the country under the new auto industry development programme.
Localisation has rapidly increased in the existing models being produced in Pakistan as they want to retain their share in the market by producing cars cheaply from local parts. Industry experts point out that the auto-vending industry provides huge advantage to the car assemblers.
The first advantage is that the assemblers do not have to keep a month’s inventory of parts. They simply send out their production schedule to each vendor six months in advance and the vendors produce the required parts and dispatch them to assembling factories on weekly or monthly basis on deferred payment.
For imported components, the car assemblers keep inventory of six months. The local vendors are more competitive as well. They have established themselves over years as reliable suppliers.
A decade back, only the smallest variant of Pak Suzuki has high localisation. No imported car could compete with that small car as its price was cheap. The medium size car sellers then realised the importance of localisation. Toyota Corolla today has the same percentage of local components as that in Suzuki Mehran.
Its price is so competitive in Pakistan that out of 500,000 used cars, none is Corolla. Honda of late has also accelerated localisation. The new entrants are allowed relaxation in the first, year as they can bring completely built units. In the next two years, they can fulfil the localisation requirements by using local batteries, tyres and some upholstery.
Selling brands similar to those being produced in Pakistan would be an uphill task for them. Realising this, some have asked the existing vendors to produce components for them. The vendors have mostly refused and have demanded the new entrants to bear the cost of tooling. They said the cost of dies and moulds is very high.
For the existing players they bear this cost which is recovered after a few years of regular supplies. The new entrants or the market has no idea about the future volumes of their brands. After refusal from the auto vendors the new entrants have shelved the plans for immediate localisation of parts. They intend to renegotiate with vendors sometime later as they are not required to localise parts for two to three years.
It is worth noting that as the existing players accelerate localisation of new parts, they have also deviated from the past practice of asking the vendors to produce the die or mould from their own cost and amortise the cost over a long period deducting a bit after each supply.
They have in fact informed their tier one vendors that the cost of moulds and dies would be paid upfront by them. They in fact want their top vendors to remain fully occupied in development of their new parts.
For the first time in Pakistan, all the existing players are launching their new variant with high degree of localisation. One of the car assembler is introducing a highly efficient variant of 650cc to replace its outdated small car of 1980s.
It has already ordered local vendors to start manufacturing its parts locally. The car at its introduction would be loaded with more local components than imported parts.
Leading auto vendors have advised the new entrants to act prudently. They fear that after refusal of the top tier vendors to develop parts for free, they may go to lower tier vendors that lack expertise in quality production.
They said in order to entrench their foot in the Pakistani market, they should explore localisation of parts now, as development of parts and subsequent approval by their principal takes few years.
They said if they failed to pick the right vendor, their parts would be rejected by their principles. Pakistan Association of Auto Parts and Accessories Manufacturers former chairman Nabeel Hashmi said the car industry seems to be on a sustainable growth path. He said Pakistan was one of the last remaining large populations to go through rapid growth in motorisation.