In the recent period, the government has taken several steps, which are not only in contradiction to the essence of Auto Development Policy 2016-21 (ADP) but have adversely impacted the localization process in the country. If this continues, all industry efforts of production of 550,000 units under the Auto Policy 2016-21 will become futile, sources said.
Revenue loss of Rs 225 billion per annum and an employment loss of 1.8 million jobs will eventually result in reduction of the growth and expansion that has taken place in the industry over the last few years, the sources said, adding: "The industry needs the security of long term stable policies to implement long term investment plans and the government must ensure that a consistent environment is created to reap the benefits offered by this industry."
As per data of the Pakistan Automotive Manufacturers Association (PAMA), the sales of cars by Honda declined 66 percent on year on year basis. They sold 4,981 units in July 2018 which came down to just 1,694 units in July 2019. Similarly, the sales of Toyota witnessed the decline of 56 percent. The company sold 5,468cars in July 2018 but this figure was just 2,413units in July 2019. The sales of Suzuki registered a decline of 23 percent.
The source maintained that this crisis has made the auto manufacturers completely revisit their development and expansion plans and all the hopes of local manufacturers, new entrants, and the customer shaken, as the disposable income is depleted. "Increase in advance customs duty on all raw materials and imposition of 2.5 to 7.5 percent FED announced in the current budget proved deadly for the industry. Besides, huge devaluation of Pakistani currency against the U.S dollar in the recent times has severely affected all future plans of the industry," said the sources.
Approximately, Rs 140 billion have been invested by the local auto industry in the current years and around $1.3 billion is in process to be invested further by the new entrants, said the sources. Now, the sources added, local manufacturers have started holding their investments, lowering their productions which will result in reduction of local purchases from suppliers.
It may be noted that Honda kept its plant closed for 12 days in July while Indus Motor Company reduced production work to five days a week. This situation is very disappointing for the new entrants as well and they are not going to reap what they expected at the time of their investments, said a source, adding:
"This gloomy situation is also not profitable for the government since they would face tax collection shortage of around Rs 3 billion per month as a single car's prices has around 33 percent - 38 percent of taxes that go to the government."
Around 400 local vendors are also to get hurt by this situation because 50% - 60% of the price of a car is the value of localized parts installed in it, the industry source said, adding: "This situation has also posed a big threat to the employment of the industry as the local auto industry has direct employment of 300,000 and the indirect employment is 2.5 million."
"There is more stability required and the government should not support pro-import policies. In the long run, the government should have a tight control on exchange rate and it should strictly follow Auto Industry Development Program (AIDP) 2016-21." suggested the source.