Auto Industry of Pakistan

RECENT REPORT OF AUTO INDUSTRY OF PAKISTAN

Caught in a traffic jam in some major cities of Pakistan, one feels there are too many automobiles in this country. But the fact of the matter is that our country is heavily under-motorised. This is bad considering that in developed world, the automobile industry is the second largest one after the steel and iron industry. It contributes more than 10 per cent in the total output of the manufacturing industry of the developed countries, and employs 10 per cent of their populations, plus, it develops a whole chain of vendor industries.

The under-motorisation of this country is not just symptomatic of underdevelopment. A potential growth gap also exists in our automobile industry. The two factors responsible for this gap are a weak transport sector, and lack of government incentive for the general investor. For years and years, transporters had remained shy to invest in this sector. This was usually attributed to on one hand, increased operational costs and, on the other, absence of better and long-term policies for the automotive industries. The problems of public transport seemed to have become insurmountable and needed bold initiative on part of the government for solutions. This situation has shown slight improvement. Some barriers to development have now been removed and the automobile industry has started to hope for a better tomorrow.

Pakistan's automobile industry is a fast developing sector that needs no foreword or introduction. The swift expansion of the industry has been in large part due to the events of September 11th, which although it wrought mass havoc on world economies, was instrumental in attracting a flood of home remittances from abroad. Apart from this, a lot of credit also goes to the Musharraf government as the auto industry flourished amply due to the conducive investment policies drafted under his fine governance. This has the effect of aiding industries such as the automobile sector. The result has been an astonishing growth with the auto industry posting a growth of 20 per cent and the demand for new cars increasing by around 50 per cent.

The increased demand for Pakistani automobiles has been highly beneficial for the country's economy. Furthermore, contrary to statements by certain groups, the industry has increased production significantly with several units now operating second shifts. One of the achievements of the industry has been its major transformation of the country's domestic vendor base by making it more export oriented. The system works in such a way that before the domestically manufactured parts are used, they are tested by the original equipment manufacturers at their own facilities and awarded a certification of quality. These increased exports have resulted in the industry contributing almost Rs.30 billion to the country's GOP and export of parts worth $27 million annually. The growth of the industry is but a small indication of the tremendous and lucrative investment opportunities that lie ahead. From its very onset, the sector has been attracting investment and has strong potential to attract investors in the future too. The current total investment by the OEMs in Pakistan is over 8 billion. Nevertheless, this volume in the industry and its contributions were also available in early 90's, but could not be sustained because of the policies of the government at that time.

The automobile sector has also been aided by leasing companies and low interest bank loans, which have made it possible for a larger segment of the population to own a car of their choice. In spite of this critics are of the opinion that Indian automobiles of the same make and quality are cheaper than their Pakistani counterparts. While this may be true, it is unfair to draw comparisons between these two vastly different markets as the automobile industry in India is far more developed and the localisation of parts is much greater. The Pakistani industry is trying to achieve similar success with the support of sound government policies.

While car sales in general fell by 21 per cent in July due to the monsoon rains, sales when compared with the same month last year, recorded an impressive growth of 56 per cent. OEMs such as IMC, Dewan Farooque and Suzuki in particular registered record increase in sales of their brands especially due to an increase in production levels and lowered prices. Much of the progress achieve by the auto industry has been marred by so called investors who extract excess payments from customers on the promise of delivering automobiles earlier than the normal waiting period. Understanding the predicament of its customers, the industry has taken measures to increase awareness regarding this malpractice and some car makers have even guarded against this possibility by announcing a fixed booking amount. However, the onus for this also lies with customers who are often unwilling to wait for the delivery of their cars. In this regard, certain parties have suggested a one-time import of used cars in order to eliminate the logjam of bookings. However, an abrupt flood of automobiles in the country would do more harm than good. This would merely be a short-term solution to an issue that requires sustained efforts. Furthermore, logic dictates that if demand continues to grow at the rate that it is currently, the logjam would occur yet again, only to be met by the adhoc import of more used cars, eventually leading to a situation that would not be beneficial to the local industry. The Pakistani auto industry has made sustained efforts to meet growing demand by increasing supply and reducing delivery periods of automobiles.

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