The SBP in its first quarterly (July-December of FY18) report, "The State of Pakistan''s Economy" has discussed regulatory duty on automobile sector saying that with the imposition of regulatory duty the effective protection is available to local manufacturers. In addition, the price differential between imported and local cars has also increased further.
In response to higher import cost, a part of the demand for automobiles would shift away from imported models to local brands. However, given that the local manufacturers are already operating at near capacity, this additional demand would result in lengthening the waiting time for the car delivery. Consumers currently wait for 6 to 9 months for the car delivery depending on variant, the report said.
Furthermore, the growing demand and limited supply means the local manufacturers would now have greater pricing power in the market. "Thus, the imposition of regulatory duty is against the essence of the Automotive Development Policy 2016-21 that explicitly outlines efficiency and productivity improvement through policy of tariff reduction to improve local competition," the SBP maintained.
Such deviation from a cornerstone of the policy would hurt the long-term prospects of the industry envisioned in the document, it added.
The report revealed that the auto industry gained momentum in Q1-FY18 by registering a growth of 29.3 percent against 2.9 percent during same period last year. The demand for automobiles remained strong as rising income levels, together with low interest rates, led to a significant uptick in auto financing.
Moreover, a positive reception of newly-introduced variants, coupled with rapidly growing ride-hailing services like Careem and Uber (especially in the metropolitan areas) further fueled consumer interest in the car and jeeps segment.
In response, producers increased their work hour durations to match customer requirements. Notably, capacity utilization for 3 big players of the segment reached over 100 percent. Thus, all these factors allowed the industry to produce a record 55 thousand cars in the first quarter of the year.
Overall car and jeep production and capacity utilization has reached 102 percent in first quarter of this fiscal year compared to 82 percent on last quarter of FY17.
Tractor sales more than doubled as the impact of last year''s impressive harvests and sales tax relaxation continued into FY18 as well. The former factor was also at play behind higher sales of motorbikes. Robust construction activities and enhanced transportation and trade, meanwhile, continued to drive demand for heavy commercial vehicles up; as a result, the sale of such vehicles grew by 22.7 percent in Q1-FY18 on top of 61.9 percent in Q1-FY17.
The SBP believes that in light of ongoing infrastructural undertakings in the country, the auto sector looks primed for another healthy performance.
"Recent imposition of regulatory duties on the automobile sector is expected to create a favorable situation during the year as it may further enhance domestic production. It is pertinent to note, however, that these measures undermine the rudiments of Automotive Development Policy 2016-21,"the SBP concluded.