The history of Pakistan's Automotive Industry is one of the oldest in the Asian countries. The Industry started semi knockdown production of trucks (Bedford) in 1949 by (General Motors, which marked the start of the Industry's history after the independence from British India. From this year onwards the Industry has not shown steady growth and thus lags behind and is overtaken by other countries in Asia such as China. Thailand and India which entered in the market in 1980s, consequently its positioning in the global market is also questioned.
The automobile industry in Pakistan includes companies involved in the production/assembling of passenger cars, light commercial vehicles, trucks, buses, tractors and motorcycles. The auto spare parts industry is an allied of the auto industry. The auto & allied industry form a major manufacturing sector in Pakistan.
Car sales hit to 180,079 units in 2015-2016 as compared to 151,134 units in 2014-2015, followed by a jump in truck sales to 5,550 units from 4,111 and bus sales to 1,017 from 569 units. The impressive figures of 2015-16 were backed by 50,000 units of Suzuki Bolan and Ravi sold under Punjab Taxi Scheme.
It is believed that car sales will grow at 5-year (2016-20) compound annual growth rate (CAGR) of 12 Pc due to improving law and order situation in the country, rising auto financing owing to 42-year low interest rates and increasing disposable income.
However, in the real substance, automobiles and the auto sector mean much more than this. It represents mobility, transportation and communication. It represents an industry that has a strong impact on a dozen other sectors may it be steel, vending, petrol or even employment. Hence auto sales reflect not only the basic human desire for mobility but these are also an important economic indicator. For the development of Automobile Sector Pakistan has many positive factors such as low cost of labor and access to entire Central Asia Market, but at the same time it has to address many shortcomings. Our Academia still has to look into the fact that here is not any public institute which offers majors in Automobile engineering. Moreover transfer of technology and local manufacturing of vehicle components are minimal. Although, the Automotive Parts industry has shown an active growth in the last many years and a variety of automotive parts have been developed locally but still the full implantation of deletion program has not yet been achieved due to vested interests of Vehicle Assemblers resulting the shortage of technology transfer in the vendor industry.
Pakistan has the 6th largest population while 50% of the total population is below 30 years in age. There are 90 million young potential consumers demand for cars and other passenger vehicles is being increased day by day but existing auto manufacturers and assemblers are unable to match the demand. In Automobile Sector such as buses, LCVs, trucks and jeeps & cars registered growth of 81.95%, 68.53%, 41.68% and 29.73%, respectively FY 2016. The only decline witnessed in the production of tractors which declined by 38.63%. After the oil & petroleum sector, auto industry sector in Pakistan is the second largest taxpayer in the country.
The overall performance of Pakistan Automotive Sector has not met its true potential. Although Motorcycle Segment has shown commendable results but the Car segment with few exceptions is providing lesser technology and features as compared to global market. Especially in small cars segment the technology still used has been phased out in the international market and the safety features like air bags and ABS Brakes etc are not provided and most of the cars come with inefficient fuel technology engines. Car Assemblers are continuously increasing prices and making huge profits by not providing Pakistani consumer with the features essential in global markets of the same make and model. Hence the value provided to the consumer is lesser than the cost paid.
The passenger car segment in Pakistan till date is dominated by three major players who have many issues like lack of safety and reliability features, surplus production capacities and lack of competition in Pakistan Market.
Instead of addressing these issues the Government relaxed the import of used cars and as a result record imports of almost 57000 units were imported in 2011-12. This gave a severe blow to the existing automotive sector and the allied industries. Although the Auto Industry Development Plan (AIDP) 2007-12 aimed in encouraging the OEMs, Auto Parts Manufacturers and vendors to develop critical components and acquire technology transfer but this policy remained unable to deliver due to many issues like formulation of quality standards and specifications could not be done, overlooking the ground and market realities, ignoring consumer issues of low quality and high prices and not hand holding the vendor industry to enter into joint ventures with international auto parts manufacturing companies and acquiring new technology and techniques. Similarly the Government run organizations like PITAC, TUSDEQ and PSQC did not play their role in upgrading the local auto parts industry. The misuse of SRO's like 577(1)/2005 which provides exemption on the duties on import of used cars and 655(1)/2006 and 656(1)/2006 have also in a way hindered the growth in local Automotive Industry.
There are approximately around 2,000-2,400 companies operating in the automotive parts market in Pakistan. A large number of these are involved in the production of aftermarket parts 200-240 companies supply parts for OEM (original equipment manufacturer) production.
In 1995, the government announced the Product Specific Deletion Program (PSDP) to clearly define localization rules. Hence, the parts industry resulted in steady growth in terms of production volume, whilst still having the objective to obtain international competitiveness in terms of quality and various other factors, since it is not subject to competition with foreign products.
In 2007 the Tariff Base System (TBS) was introduced and the role of PSDP ended. TBS permits imports of parts that were locally available (provided that customs duties were paid) - hence, automakers were allowed to expand their sourcing choices. Strong competitive pressure was faced by local parts suppliers. But due to depreciation of Pak Rupee they are switching back to local sources as the imports are becoming more expensive and profit margins being reduced.
Research and development is essential for the growth of this sector Government should encourage R&D by giving sales tax exemptions on new products, or cost-sharing with local firms through technology development funds.
Foreign collaborations and increased investments in the domestic sphere can phenomenally re-establish the industry along sustainable lines. However, these new linkages should be initiated with an aim to satisfy the local demand for increased comfort and safely at par with international standards. Only then can the much-touted automobile policy actually realize its vision of bringing in economic prosperity.
Therefore, it is strongly recommended that before devising any policy Government at all levels should consult all the stakeholders that are Automobile Assemblers and automobile parts manufacturers. The import of CBUs and / or Used Cars must be discouraged and local industry must be facilitated in order to enhance employment and economic activity in the country which will in turn contribute largely in national exchequer and development of country.
(The writer is Chairman, United Business Group, Vice President & Incharge Headquarters SAARC CCI Pakistan, Former President, FPCCI & LCCI,Chief Executive, Guard Group)