Pakistan is among the group of 40 countries in the world that produce automobiles. The auto-industry here employs around 3 million workers and has achieved a high level of localisation. A large number of vendors are associated with the industry and producing close to 70 per cent of the parts used in vehicles locally.
Just like any other industry, the government claims to have provided incentives and protection to the auto industry and imposed restrictions on commercial import of used vehicles. The import of new vehicles is allowed on payment of import duties and tax. However, import of 3-year old vehicles is allowed under different schemes to facilitate expatriate Pakistanis who have spent a particular time period abroad. All the second-hand imported vehicles one sees on roads have been imported under these schemes.
As per a study of Pakistan Institute of Trade and Development (PITAD), a government run-organisation, major assemblers/manufacturers in the country include Pak Suzuki Motors Limited, Karachi, Indus Motor Company Limited, Karachi and Honda Atlas Cars Limited, Lahore. Manufacturers/assemblers smaller in size than these three big companies include Deewan Farooq Motors (Hyundai, Kia), Nexus Automobiles pvt Ltd (Chevrolet), Adam Motor Co Ltd (Revo), Raja Auto Cars Ltd (Fiat) and Gandhara Nissan Limited (Nissan). These five smaller assemblers have closed down manufacturing in the country due to stiff competition, stagnant economy, inflation and low demand faced by their brand of vehicles due to (what they claim) extensive import and smuggling of used cars.
Against this backdrop, the government is working on an auto policy that can lure in more investors and new players in the auto industry, address the concerns of local assemblers and vendors and create more jobs for locals.
An Auto Industry Development Policy (AIDP) was announced in 2007 for five years but it has not been revised since 2012 when it expired. One of objectives of the proposed new policy is also to give more choices to consumers, especially those with limited budgets, to buy cheaper cars. One way to ensure this is bringing new assemblers in the market and increasing the volumes. Right now people can buy used imported vehicles in low-cost range such as 660 cc cars. They have very limited options to buy locally produced new cars in the same range.
As the new policy is expected around the announcement of this year’s budget, different players have raised their concerns and started lobbying with the government to secure their stakes. While the importers of used vehicles protest imposition of regulatory duties and high rate of token tax on these vehicles, the local manufacturers and vendors complain about excessive import and smuggling of used vehicles and parts. Consumers feel irritated on the shortage of supply of new vehicles in the market, their availability on payment of premium and their inferior quality viz a viz imported vehicles. Another major concern of theirs is that the government policies for the sector are not long-term and short-term revisions in them prove detrimental.
TNS talked to these players and sought their input on how to make the new policy consumer-friendly and create a win-win situation for stakeholders.
A representative of the Original Equipment Manufacturers (OEMs) states that approximately 250,000 used vehicles have been imported in the country over the last decade, capturing significant part of the market and leading to closure of several manufacturing plants. He tells TNS that the cars smuggled and regularised under different amnesty schemes are in addition to these. He says they have demanded the government stop smuggling and misuse of schemes meant for expatriates by limiting the number of imported vehicles to one per passport holder over a particular time period. What is happening at the moment is that dozens of cars can be imported on one passport and even from countries other than that of an expatriate’s country of residence.
He says consumers are wrongly impressed by used imported vehicles without knowing that these are being imported into Pakistan without certification by any pre-shipment agency. Many of these vehicles have tampered odometers showing low mileage, are stolen ones, have rusted interiors, were damage from water flooding, carry accident marks on the chassis and are not usable and road-worthy.
On the contrary, India imposes different non-tariff barriers. For example, only the import of right-hand-drive vehicles is allowed and speedometer has to be in kilometres per hour. Submission of certificate of conformance to India motor vehicle act and approval from the Indian testing agency is also necessary.
The OEM representative contests that tariffs on import of new Completely Built Units (CBUs) are reasonably low in the region. Effective Protection Rate (EPR) in Pakistan ranges from 57 per cent to 74 per cent for 800cc to 1300cc vehicles at 50 per cent localisation levels. Whereas in India, this rate is 112 per cent at 90 per cent localisation and 910 per cent at 10 per cent localisation. In Thailand, the EPR is 86 per cent at 90 per cent localisation and 536 per cent at 10 per cent localisation, he adds.
Rizwan Goraya, spokesman for Jail Road Lahore Car Dealers’ Association, has a different opinion. He tells TNS that a recent government decision on the behest of car assemblers has led to huge losses to importers. He says the government had allowed duty-free import of hybrid cars and many people placed orders of models like Prius. But lately, he says, it has imposed a regulatory duty which comes to from Rs 250,000 to Rs 300,000. Similarly, the token tax for local vehicles is Rs 12,000 but for an imported one in the same engine capacity it is Rs 40,000. Still the local manufacturers claim they are not protected in government policies, he states.
Goraya adds that despite all these issues the imported 660 cc cars and 1000 cc Vitz are very popular models whereas the lowest priced standard Suzuki Mehran is available for Rs 660,000 ex-factory. It does not even have a defogger and the model has not been upgraded since 1989, he adds demanding the government ask car assemblers to add value to their vehicles.
Amir Allawala, ex-chairman Pakistan Automotive Parts and Accessories Manufacturers (PAPAAM), tells TNS that they have given their input and hope the auto policy is implemented in its true spirit. The previous policy was not properly implemented except the tariffs part that pertained to tax collection. The measures needed to help the sector grow were not taken.
Allawala says the government must announce a fixed long-term policy on the import of used vehicles so that local parts manufacturers can make their plans accordingly. If they revise policies abruptly, the investment of local parts manufacturers would go waste. He says they support new entrants and the government must give them incentives so that they can come here and offer choices to consumers in different price ranges.
A welcome development, however, is that there is something for the consumers as well. For example, the government is likely to ask assemblers to phase out passenger vehicle models older than 10 years, introduce recall system in line with global practice to recall faulty vehicles, introduce airbags and Anti-lock Brake System (ABS) in vehicles, reduce advance amount payable at the time of booking, compensate buyers in case of excessive delay in delivery, introduction of liberal auto car financing schemes and so on.
Ali Habib, Chairman Indus Motors Company (IMC) that has partnered with Toyota Motors, Japan, tells TNS that the locally assembled Corolla is amongst the most competitively priced cars in the world. The global price of Corolla which was $19000 in 1993 is $15000 at the moment but its impact has not been fully passed on to locals due to devaluation of rupee against dollars, he adds.
On prices, Habib says 33 per cent of the prices of locally manufactured vehicles comprise government levies, duty and taxes. If the taxes are reduced the prices will automatically come down. He says they are asked to increase their production but for this a sustained demand in the market has to be ensured. The demand for vehicles increased rapidly after 2003, spurred by easy auto finance availability, but collapsed in 2008 due to financial crisis and other reasons.
The government shall introduce a well thought out policy that gives a roadmap to the industry. If there are short-term policies, he says, plant capacities cannot be increased as the demand will be for a very limited period. Once the demand plummets, the increase in capacity will become redundant and the staff will have to be laid off, he concludes.