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July 21, 2011

‘Indus Motor to move court if new entrants allowed duty concession’

 
July 21, 2011

KARACHI: Indus Motor Company Ltd (IMCL), producer of the top-selling Toyota car in Pakistan, plans to move the court if the government provides duty concessions to new entrants in the automobile sector, a senior official of the company said.
“Why not?” Parvez Ghias, Chief Executive Officer IMCL, said in an interview. “Constitutionally, I have a right to consider filing a case.”
In early this year, the government hinted at relaxing its auto policy for new entrants to rein in existing manufacturers upon their failure to reduce car prices.
The policy never came, but the government did loosen the noose on the import of used cars by increasing the age limit from three to five years.
“Our objection to the new entrants’ policy is the treatment that, we think, will disrupt the market,” Ghias said.
“The government may give them land on concession or a tax holiday, but not duty concessions as it will create distortion in the market.”
He stressed the government to go by the Auto Industry Development Plan (AIDP), which bars the entry of any ‘fly-by night operator’, producing less than 500,000 cars.
The auto industry in Pakistan came out of its 15-year slumber in 2001 to enter a golden era of high demand backed by easy financing, consistent policy and improved per capita income.
Those were the years when the government announced AIDP with the aim to ramp up production from the then 200,000 to 500,000 cars. The plan, however, fizzled out amid recession in the following years and production at one point fell to as low as 100,000 cars per annum to settle at 134,000 in FY2011.
“For this fiscal year, the industry target is 175,000 cars. The maximum we can is to double this figure, but the AIDP target of 500,000 is far from possibility under current circumstances,” Ghias said.
The CEO IMCL said that his company was in negotiation with the government on the AIDP, which would expire in June, 2012.
Pakistan, having a ratio of

13 vehicles per thousand people, is comparable with India and China. Local assemblers, however, have long been blaming economy of scale for high prices.
Five years ago, the government allowed import of 10-year old cars in the country as the local industry was unable to keep pace with the rising demand. In subsequent years, imports were gradually tightened and the age limit was reduced to 3 years.
But the price issue clawed back again and to give a strong message to the stubborn auto industry, the government revised back the age limit of imported cars from 3 to 5 years in December, 2010.
According to the industry data, 16,000 used cars were imported during first half of 2011 as a result of the import relaxation.
CEO Indus Motor says imports have been affecting local production negatively.
“There was some logic when the imports were relaxed first (in 2005). The whole industry invested to increase capacity, but unfortunately the market crumbled,” he said.
“Now we all are sitting on surplus capacity and the relaxation in imports is hurting us.”
Despite the odds, Indus Motor is upbeat on Pakistani market. Ghias says there are ‘short-term hiccups’, but fundamentally the long-term outlook looks bright.
The company has not stopped talking about new products and is thinking of an alternate strategy for its small-car segment.
“We are stuck in Cuore,” Ghias said. “I am going to dialogue with Daihatsu for other products as part of our long-term strategy.”
He didn’t rule out the possibility of going for small-sized, fuel-efficient K-cars, a type of vehicle that has already been imported as used cars in bulk quantity and selling like hot cakes due to attractive prices. “K-car could be one of the options. But they are not going to be cheap,” Ghias added.

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