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Govt mulls initiating regulatory action against automakers

By Bilal Hussain
May 06, 2022

KARACHI: Irked by the frequent increase in car prices, auto industry regulator Engineering Development Board (EDB) has sent a notice to car assemblers, asking them to share their cost structure, justify price increase and meet on May 10.

“The government is extremely concerned and has taken a very serious view about the frequent price increases by local automobile manufacturers/assemblers,” wrote General Manager Policy EDB Asim Ayaz.

“This situation is clearly unacceptable, and the government may consider initiating regulatory measures, which may include fixation of prices under the Price Control Prevention of Profiteering and Hoarding Act, 1977,” the letter read.

“You are therefore directed to share your cost structure and provide/ justification for recent price increases by 7th May, 2022,” it added. “You are also further directed to ensure your presence in the subject meeting on 10th May, 2022 in the Committee Room of EDB.”

The letter has been sent to CEOs of Indus Motor Company, Honda Atlas Car, Pak Suzuki Motor Company, Lucky Motor Corporation, Al Haj Automotive, Al Haj FAW Motor, United Motors, Regal Automobile Industries, Master Changan Motors, Hyundai Nishat Motor and Sazgar Engineering Works.

“We will meet and explain to them (reasons behind price increase),” said IMC CEO Ali Asghar Jamali. However, Jamali said that car assemblers would not be sharing their cost structures as it was classified information.

“Cost structures are classified information,” Jamali said.

“It is extremely hard to plan anything in Pakistan currently,” said Ali Asad Hameed, CEO Sazgar Engineering Works. “It’s not just the USD hike, the raw material prices are (also) increasing which is forcing our principles to increase prices. USD is one of the biggest factors.”

Few days ago, IMC and Honda jacked up car prices by up to Rs170,000. Atlas Honda has increased bike prices, which saw the iconic Honda CD70 price cross the Rs100,000 mark.

Mashood Khan, an auto sector expert and former chairman, Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), said car assemblers appear to increase car prices together.

“It is because all of the companies are facing similar cost pressures such as rupee depreciation against dollar, increase in the prices of imported raw materials such as steel,” he explained.

Khan added that the auto sector around the world was facing a shortage of raw material.

HM Shahzad, Chairman, All Pakistan Motor Dealers Association, said increasing car prices would not bring the delivery period down because the demand was too high and the price factor would hardly dent the sales.

An industry official said car demand was unlikely to go down because of the prevailing political situation in the country.

“We have always seen car sales increase in an election year,” the source said.

The Ministry of Industries and Production also took similar notice last year asking car companies to provide justification for raising car prices. The letter instructed automobile manufacturers to provide their costing structures failing which, price fixation proceedings would need to be carried out unilaterally.

The letter added that it was unacceptable and the government might have no recourse but to initiate regulatory measures, which include fixation of prices under the Price Control and Prevention of Profiteering and Hoarding Act, 1977.

But auto companies said that international commodity prices, freight costs and rupee devaluation have forced them to jack up car prices. Nothing came out of it and assemblers have intermittently been raising car prices since then.

“The auto industry is linked to the international market. The raw material and parts’ cost are very different and the government cannot fix car prices,” replied Pakistan Automotive Manufacturers Association (PAMA) Director General Abdul Waheed Khan to a query.

Government officials held a meeting in March earlier this year of its auto industry monitoring committee, where the government officials have also asked auto assemblers to rationalise the significantly high car prices.

They have already formed a committee including officials of Paapam, Competition Commission of Pakistan (CCP), State Bank of Pakistan (SBP), Federal Board of Revenue (FBR), Ministry of Commerce and Ministry of Industries and Production.

Waheed said that Pakistan has a free market and there was a market mechanism where fixation of price was not possible.

A source in the auto industry said that the government takes notice when there was hue and cry from the public, but when it subsides the government forgets about it.