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  • Jul 4th, 2012
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Economic Development is a natural objective of every country, but the manner its leaders chart the path affects its people and communities, as well as the effectiveness of the effort. Surely the best desired objective would be to improve the quality of life of all, with extra focus on the less fortunate and the less endowed. In which case it is not alone the filtering effect from above that millions must wait for, but should be coupled with sturdier and sustained grass root efforts. Not being an economist, I propose a simple model of economic growth as under:

Each aspect of the model needs discussion along with a plan of action with a timeframe, as we professionals are wont to do. However, I shall restrict myself to the manufacturing sector which is synonymous with economic development and that too, the automotive industry.

AUTOMOTIVE INDUSTRY The importance of the automotive industry in any economy is perhaps beyond measure. But its significance can be estimated by the fact that engineering forms about 62 percent of the world trade, and auto engineering is about 13 percent of that. This is higher than textile and clothing that forms 6.2 percent of world trade.

The automotive industry has opened wider market areas for business and commerce and also reduced the overall cost of transportation by using methods such as mass production, mass marketing, and the globalisation of production that encompasses the assembling of products with parts made world-wide.

As a result of easier and faster transportation, economies have become dependent on the mobility that automobiles, trucks, and buses provide. This mobility allowed remote populations to interact with one another, which increased commerce. The transportation of goods to consumers and consumers to goods has become an industry in itself.

In Pakistan too, the automotive industry which is one of the most documented industry in the country, has invested about Rs 92 billion and has contributed Rs 71 billion to the national exchequer last year. The output from the industry in the last fiscal year was:





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Cars & LCVs 154,000 Units

2 Wheelers 1.6 million units

3 Wheelers 44,107 units

Trucks & Buses 3,300 units

Tractors 69,203 units

Parts & Components Rs 145 billion

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ECONOMIC RELATIONSHIP Personal mobility gives power; both visual and virtual. Thus it is greatly desired by everyone. It is part of personal freedom. It creates personal space and has dynamics of its own. People cherish it and thus defend it. The vehicle a person drives is a reflection of the person and is like a fashion statement of the individual. It becomes a part of his personality. This is an excellent driver for the industry to grow.

All governments are well aware of the well-documented non-linear relationship between economic growth and personal mobility. As the per capita income rises, so does per capita car ownership- not in a straight line, but in a classic "S- Curve".

Rates of vehicle ownership stay low during the initial phases of economic growth, but as the level of sustained broad prosperity takes shape and urbanisation patterns change, vehicle sales take off. Eventually, the growth rate levels off but at a much higher level of per capita than before.

The automotive industry has great linkages both forward and backwards and is thus a good promoter of various economic activities. Numerous industries support it as insurance, security, petroleum, roadway design, construction, testing centers, workshop, etc. Still some other industries as motels, drive-in theatres, fast food restaurants owe their existence to the mobility provided by the automotive sector.

Because of the industry's vast linkages and the enormous effect on large and varied technologies Peter Drucker, the management guru, called Automotive Industry "Industry of Industries". Malaysia recognising its significance to the economy and included it in their development plan under "Manufacturing Plus Plus".

TECHNOLOGICALLY SPEAKING Automobile production consumes large amounts of iron, steel, aluminium and natural rubber. The automobile industry also consumes more copper, glass, zinc, leather, plastic, lead and platinum than any other industry.

It has given birth to many, many technologies and processes which have found application in many engineering fields from avionics to kitchen equipment.

The regularity of model changes have not only brought forth changes in shape but also changes in technology with the objective of making the vehicle more efficient, greener and more economical. On an average automotive companies spend 3% of their sales revenue in R&D, thus new technological ideas spew forth all the time.

To spend significantly & effectively, size is very important. Suzuki Motors is now in the process of shifting its design engineering and allied fields to India, where their production has crossed the million mark.

In Pakistan, no real R&D work is undertaken as the low volume is a great inhibitor. The 4-5 year model changes and dynamics of technology, give the players no respite and sums running in billions are invested regularly, to meet the consumer needs. The more the localisation the larger is the investment, as whatever was developed in the last model has to be redeveloped for the new model plus additional parts that are economic to make locally.

More would be economical with volume, thus many parts including engine and transmission parts are not made, as the investment made has to have an economic return over the model life. The industry needs to reach the take off volume ~ 500,000 units, when the world players will get interested in our market and there will be a quantum leap in technological growth and all allied indices will show a marked improvement. In Pakistan about 35 technology Transfer Agreements have been signed and the current level of localisation in our vehicles, by value, is as follows:





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Motorcars & LCVs 55-72%

2 Wheelers 90%

3 Wheelers 75%

Trucks & Buses 40-45%

Tractor 85-90%

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This is a very healthy localisation level at our production levels and many complex and technologically advanced parts as steering knuckle, steering wheel, shocks and struts, brake discs, body panels, car air conditioner, aluminium radiator, flywheel, manifolds, lights, wiring harnesses, garnishes, wheels, instrument panel, weather strips, etc.

EMPLOYMENT The auto industry is ranked amongst the largest employers in the world generating jobs for millions of people and providing the basis for a multitude of related service and support industries.

In India, SIAM claims, about 1% of their population is employed in the automotive and allied sector. In Malaysia every 4th employed person works in this industry and in Germany every 7th employed person is associated with Automotive and Allied Industry. As is obvious the industry has a great multiplier effect on employment because of the multifaceted sections required to support it and ratio of 1:12 is considered the norm.

In Pakistan the direct employment in automotive industry including the 350 registered auto parts manufactures is 192,000, and at 1:12, the indirect employment is estimated at 2,304,000 persons.

WAY FORWARD Vehicle manufacturing is a high profile industry that generates enormous revenue, employs millions of people and is often a proxy for a nation's manufacturing prowess and economic influence. In Pakistan only 12 persons out of 1000 own a car. The world average is 120; Malaysia and Thailand are above 200. The potential to grow and contribute to the economy in a big way is evident. The way forward is to adopt and promote volume enhancement policies and let the automotive industry become the engine of economic growth and development.

(The writer is Vice Chairman, Thal Limited)

Copyright Business Recorder, 2012


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