LAHORE: Absence of non-filers from the auto market is the main cause of production slump as non-filers accounted for over 65 percent of the car sales in the country before this condition was imposed.
High car price-tags are also a factor and declining economic growth as well contributed to lower sales volumes. Sources in the car industry revealed that non-filers now account for only 4 percent of the cars that are booked by them.
It is indeed surprising that the details of cars purchased by non-filers was available with the Federal Board of Revenue even before they were banned from buying cars (and now allowed again).
The revenue authority however never took any action against them. Most probably there would again be no witch-hunting by the Federal Board of Revenue (FBR) but the fear factor and governments’ documentation rhetoric has kept the non-filers at bay.
Auto industry that has experienced similar decline during 2008-13 on account of economic slowdown but the production fell over a period of three years down to current levels before bouncing back towards recovery.
This government was in power during the 11 months of fiscal year 2018-19 but there was no significant decline in car production till June 2019 but soon after the announcement of 2019-20 budget the car production started plunging by around 40 percent up till December 2019. This time around the revival of the industry might take 5-7 years.
Some circles do blame higher prices and rupee devaluation as the cause of lower sales but sources say the carmakers agreed to addition federal excise duty following a discussion with the authorities, because before the announcement of the budget car sales were as slow as was the economy in the first year of this regime.
Even that was to some extent compensated by the virtual ban on import of used cars by commercial importers. The industry still thinks higher prices only dented car sales by around 15 percent.
Higher interest rates have also shaved off the car financing by another 15 percent but the 70 percent cash purchases made by the non-filers have mostly dried.
We have seen a decline in motorcycle sales as well but it is restricted to 16 percent only. There is no issue of filer or non-filer in two-wheeler sector.
The already established three Japanese players are feeling more heat from the new entrants that landed in this market with duty concessions. Even models that were localised by 65 percent by value are feeling the pressure.
Their import of 35 percent non-localised parts has become very expensive because of massive rupee devaluation and number of addition levies imposed on imports.
The import duty on parts localised in Pakistan is 45 percent for the three established players and 25 percent for the new entrants.
The vendors have to import raw materials like metal sheets or resins to make the parts. These raw materials are also subjected to higher duties and special regulatory duties.
For completely knocked down (CKD) parts kit (not produced in Pakistan) the established players pay 30 percent duty plus all additional ones and sales tax on duty paid value.
For the new entrants the duty is only 10 percent. This gives them a huge advantage over the established players. The new carmakers have now started making inroads into Pakistani market. The variants from KIA and Hyundai are catching local customers' eyes.
The localisation advantage has been lost to the low duties on CKD of new entrants. They new ones will only feel the heat when they start paying duties at par with the old ones after three years.
When the sales were going up the existing big players felt no threat from the new entrants but the slumping sales are now a big cause of concern for their well-established vendor base.
Until now no major tier one auto-vendor has closed down but they have pruned their workforce substantially. An industry insider said in the last eight months car parts vendors have laid off over 100,000 workers.
It is interesting to note that the regional sales pattern of cars is the same as it was in last ten years. Punjab accounts for 55-60 percent of total car sales, Sindh and Balochistan 28 and 30 percent of the total cars sold in Pakistan, and Islamabad upwards of 12-15 percent.