OVERVIEW

OF
INDUSTRY
TABLE OF CONTENT
IMPORTANCE..............................................................................................................3
HISTORY.....................................................................................................................3
TRENDS.................................................................................................................... 13
TREND ANALYSIS......................................................................................................17
PLANT CAPACITY.......................................................................................................19
PAK-SUZUKI MOTORS...............................................................................................20
HONDA ATLAS..........................................................................................................20
INDUS MOTORS........................................................................................................ 20
DEWAN FAROOQUE MOTORS....................................................................................21
DAIHATSU ................................................................................................................ 21
STRENGHTS.............................................................................................................. 26
WEAKNESSES............................................................................................................28
OPPORTUNITIES........................................................................................................29
THREATS................................................................................................................... 30
Per Capita Income ...................................................................................................31
Auto Financing .........................................................................................................32
ECONOMIC CONDITONS............................................................................................32
Effective regulatory framework................................................................................41
Maintenance procedures & facilities.........................................................................42
Policy on in-use vehicles...........................................................................................43
Cost to consumers....................................................................................................43
COST TO ECONOMY..................................................................................................45
PRICE HIKE FOR AGRICULTUARL MACHINERY...........................................................45
Impact on local parts and parties ............................................................................47
Tariff structures issue is still unresolved...................................................................47
 INTRODUCTION
AND BACKGROUND
INTRODUCTION-AUTOMOBILE INDUSTRY:
The automotive industry is the industry involved in the design, development, manufacture,
marketing, and sale of motor vehicles. It is one of the most vital and idiosyncratic Sector in
Pakistan consists of immense engineering technology. This sector provides superior technology
inflows in Pakistan by setting up high-quality plant in various location of Pakistan. There are 39
assemblers, manufacturing cars, including light vehicles, buses, trucks and tractors, in the
country. Further, Pakistan is manufacturing almost all body parts and mechanical parts, plastic
components, tyres, batteries, seats and some parts of car engines. However, some critical parts of
the units are still imported by the assemblers.

IMPORTANCE

Globally, the automobile industry is considered to be the mother of all industries. It is a key
driver of economic growth and technology transfer and a creator of jobs. It incorporates almost
every facet of engineering be it electrical, technical or mechanical.

It is a well known fact that countries that have achieved major industrial growth in the last
century have focused on the auto industry, for example USA, Japan and, in more recent times,
India, Korea, Thailand, Taiwan, Malaysia, etc.

HISTORY

The automotive assembling in Pakistan started in 1950s when National Motors Limited, a public
limited company and the pioneer in the industry came into existence. Established by General
Motors of USA, National Motors assembled passenger cars as well as commercial vehicles
which carried “General Motors” brands such as Bedford, Vauxhall, Chevrolet and Holden.

A regular car industry started in the country in 1983, when Suzuki commenced production
eyeing the small and LCV car segment of 800cc-1000cc range, and introduced Suzuki car which
targeted the middle-income group (constituting the larger segment of the market) by providing
an affordable car. Then there was a long gap until the early 90’s.

In 1993 Indus Motor Company manufactured its first Toyota Corolla in Pakistan. Soon after
Honda Atlas came with the Civic and Gandhara Nissan entered the market with Sunny. Some
years later Dewan Motors set up a plant to manufacture Hyundai and Kia vehicles in Pakistan.
Since then the market has changed all together.

As for the vendor industry, the initial focus of auto parts manufacturing units established in
1950s, 1960s and 1970s was limited to tractors, buses & truck parts as well as to cater the need
of after sales market of different automobiles. However, the major advancement in the industry
took place during the 80's when for the first time Suzuki commenced production in Pakistan.
After that other assemblers of cars and motorcycles were also established. The establishment of
assembling plants gives the encouragement to local industry to enter in auto parts manufacturing.
Overall 80s and 90s are the decade when the auto parts industry start to develop rapidly.

GETTING THE WHEEL IN MOTION

1949: Vauxhall Cars introduced by General Motors &

Sales. Bedford Trucks introduced by General Motors &
Sales. Ford Trucks introduced by Ali Automobiles.

1953: Exide battery started production.

1956: Dodge Cars introduced by Haroon Industries.

1958: Ford Angela Cars introduced by Ali Automobiles.

1959: Ford Pickups introduced by Ali Automobiles.

1960: Ford Combi introduced by Ali Automobiles.

1961: Precision auto parts manufacturing started at Allwin

Engineering.

1962: Lamberate Scooter introduced by Wazir Ali

Engineering. Jeep CJ 5, 6, & 7 introduced by Kandawala
Industries. Bedford Truck assembling started at Ghandara
Motors.

1963: Mack Trucks introduced by Hye Sons. General Tyres

& Rubber Company started...

1983: Pak Suzuki commenced production of 800 cc car.

1993: Indus motors begins manufacturing Toyota Corolla.
CURRENT SCENARIO
At present Pakistan’s automobile industry is mostly dominated by foreign assemblers, most of
them being Japanese.

Pak Suzuki was the first, and is still the market leader. Apart from Pak Suzuki industry
constitutes of several other joint venture companies, some domestic firms and leading
automobile manufacturers namely Toyota, Nissan, Honda, Hino, Hyundai, etc.

With the significant jump in the local auto industry the interest of other car makers including
those of European type; Renault, Volks Wagon and Black Cab, and Chinese; Go now, Roma etc
to establish in Pakistan aswell.

As for the performance in general, the automobile sector has been registering high growth for the
last four or five years due to the country’s business friendly policies along with lower tariff rates,
persistent growth in GDP, and per capita income. According to latest report, during the last five
years, the auto industry has shown tremendous growth and the production of cars have increased
by 27.9 percent, trucks - 41.01 per cent, light carriage vehicles (LCV) - 27.31 per cent, farm
tractors - 13.16 per cent, motorcycles - 31.85 per cent and only the production of buses has
decreased by 53.18 per cent. Iran has also offered joint venture in auto parts.

The local automobile industry has experienced impediment and decline in its different segments
as compared to earlier where the industry observed tremendous high growth in terms of
production and sales.

The auto industry will invest Rs225 billion in the next few years to achieve a new target of
500,000 cars a year, generating more than 30,000 jobs. At the current rate, by 2010 the country
would make 500,000 cars a year and pay Rs100 billion in taxes, provided the government
ensures a long-term and consistent policy to protect the interests of local industry and to attract
fresh investment.

With over 192,000 people directly employed within the auto sector and an expected increase to
about 250,000 by 2010, it can play an important role in our socio-economic development. Since
2001-02, the automobile market has grown by over 40 per cent per annum and if an average
growth of 30 per cent is maintained during the coming years, the country’s auto market will
cross the milestone of 500,000 units by the year 2010.
AUTO INDUSTRY IN CHINA,
INDIA AND PAKISTAN

Tata Motors is set to launch its low-cost Nano minicar Monday, March 23, according to
media reports from India. With a starting price of about $1,945, which doesn't include
dealer markup and other charges that consumers will pay, the Nano will be one of the
world's cheapest cars. This product launch comes at a time when the auto industry is
facing a severe downturn, attributed to the worldwide consumer credit crunch amidst a
serious global financial crisis.

Like other auto makers around the world, Tata Motors is also contending with declining
demand, both for its bread-and-butter commercial vehicles in India and its luxury
brands, Jaguar and Land Rover. The company reported its first quarterly net loss in
seven years in the October-December 2008 quarter, and saw its debt rating cut by
ratings firms. More immediately, Tata Motors faces a June deadline to repay $2 billion
in loans related to its Jaguar-Land Rover acquisition from Ford Motor Co. last year,
 according to the Wall Street Journal.

The automobile industry in India—the tenth largest in the world with an annual output
of 2 million units last year—is expected to become one of the major global automotive
industries in the future. A number of domestic companies produce automobiles in India
and the growing presence of multinational investment, too, has led to an increase in
overall growth. Following the economic reforms of 1991 the Indian automotive industry
has demonstrated sustained growth as a result of increased competitiveness and
reduced restrictions. The monthly sales of passenger cars in India exceed 100,000 units,
according to a related Wikipedia entry.

In comparison with the rest of the world, the Chinese market for automobiles appears to
be relatively robust. Monthly auto sales in China surpassed those in the U.S. for the first
time in January, but automakers and industry watchers say the news may tell us more
about the troubles in the U.S. than about China's growing car market, says a report
published in San Francisco Chronicle.

Data released in February by the China Association of Automobile Manufacturers shows

735,000 new cars were sold in China last month, down 14.4 percent from the record of
860,000 set in January 2008. U.S. sales, meanwhile, fell 37 percent to 656,976 vehicles
— a 26-year low.

In Pakistan, Engineering Development Board (EDB) is attempting to increase the GDP

contribution of the automotive sector to 5.6%, boost car production capacity to half a
million units as well as attract an investment of US$ 3 billion and reach an auto export
target of US$ 650 million.

In addition to the growing defense industry, auto industry can become a driving force
for the much needed manufacturing industrial base in Pakistan to create significant
employment opportunities for its large population. Last year, the auto sector
contributed US$ 3.6 billion, only about 2% of the GDP, to the national economy, and
employed about 192,000 people.

Pakistan's auto parts manufacturing is a billion US dollars a year industry. Sixty percent
of its output goes to the motor cycle industry, 22% is for cars, and the rest is consumed
by trucks, buses & tractors.
After a significant growth spurt in 2002-2006, the auto sector is feeling the pain of
economic slow-down in Pakistan. The industry is continuing in a slump which began in
the previous financial year and according to Business Monitor International's recently
published Pakistan Automotives Report, the industry’s performance this year will get
worse. In FY08, which ended in June 2008, total vehicle sales fell by 6.2%. The
downturn carried over into FY09, with sales for the first half of the year (July to
December 2008) down by 48% year-on-year to 52,927 units for cars and light
commercial vehicles (LCVs), while compared with November, sales for December were
down 55%. These results support BMI’s forecast for a drop in sales of cars and LCVs to
around 112,000 units in FY09. BMI expects the total auto market in Pakistan to contract
by over 32%, with the worst damage done in the car and bus segments, which is forecast
to fall by 45% each. Pakistan’s Economic Co-ordination Committee (ECC) is to consider
a tax cut of 10% for domestic car manufacturers, which has been proposed by the
Ministry of Industries and Production. However, the plan is not without its opposition,
as the Federal Board of Revenue is reportedly against supporting individual sectors as
this would prompt other industries to seek help. Moreover, with just five carmakers
producing locally, the automotive industry is relatively small. On the other hand, the
industry is also largely self-sufficient as the majority of its output is sold within
Pakistan; this reduces the country’s reliance on imports and raises issues such as the
protection of local jobs and the industry’s contribution to the overall economy.

Among the automakers, Indus Motors and Pakistan Suzuki reported positive earnings:
The two leading car assemblers PSMC and INDUS posted positive earnings for 2008.
PSMC reported operating losses of Rs 399 million. However, increase in other income
by 77 percent offset their losses helping PSMC post positive earnings of Rs 26 million,
according to Daily Times. Honda posted a loss after tax of Rs 190 million for the period
July-December 2008 after a decline in net sales by 5 percent and a massive surge in
operating expenses over the corresponding period last year.

The poor state of the industry is reflected in BMI’s Business Environment Rating for the
automotive industry in Asia Pacific, where Pakistan is in last place on a score of 42.4 out
of a possible 100. The market is held back by low production growth potential and an
average rating for sales growth. However, as a signatory to the Trade Related
Intellectual Property Rights Agreement (TRIPS) under the auspices of the World Trade
Organization (WTO), the country’s regulatory environment scores well. A number of
free trade agreements also contribute to this criterion, although forming FTAs with non-
Asian countries would improve this rating further. Despite low marks for bureaucracy
and corruption, the market does score well for its long-term economic risk and policy
continuity.

With just a handful of manufacturers, Pakistan’s competitive landscape remains narrow.

Japanese car manufacturers control most of the country’s passenger car production and
sales. Figures for FY08 show that Suzuki-brand models represented 62% of total
Pakistani passenger car production and 51.7% of sales. Toyota is gaining, however, with
Corolla becoming the country’s best-selling model in the first half of FY09.
According to Daily Times, as many as 60,000 workers and staffers in Pakistan's auto
sector have lost their jobs from July, 2008 to January, 2009 due to falling demand for
cars. More jobs cuts are feared with continuing weakness in demand.

Given strong underlying growth dynamics in South Asia, the negative feedback effects of
the global financial crisis are expected to be temporary. A relatively rapid rebound is
expected in 2010, with a projected revival of GDP growth to 7.2 per cent. The long term
prospects for the auto industry in the continent of Asia appear to be quite favorable. As
the current financial crisis ebbs, there will be significant pent-up demand for
automobiles in Asia, including India, Pakistan and China, that will drive the growth in
auto industry.

INDUSTRY
ANALYSIS
MARKET STRUCTURE
The market structure of the automobile industry in Pakistan is concentrated. In economics term,
we could say it is an oligopoly, which is characterized by imperfect competition in which the
industry is dominated by a small number of suppliers. This is because the auto industry is highly
capital-intensive requiring high investments and the products are expensive. Hence the barriers
to entry are high resulting in the presence of limited number of suppliers.

The automobile industry is divided amongst the Assemblers of the vehicles and their Vendors.
Out of the total contribution to the GDP of Rs.198.26 billion, Rs.159.89 billion is from the
Assemblers and the remaining Rs.38.37 billion is from the Vendor industry.

The vendor industry may not at first sight seem very important, but a thorough study of the
automobile industry shows how important the vendors are. The government has introduced
numerous policies in the past to support this industry, an example of which is the Deletion
policy. A few of the benefits of the Vendor industry could be:
o Help government save foreign exchange from local production of auto parts
o Provide employment to a lot of people
o Undertake investment programs; as of figures from June 2005, the vendor industry has
invested a total of around Rs.82 billion. (Source: www.paapam.com)

Now, let us look at the major divisions in the automobile industry.

 Automobile Industry

Automobile Assemblers Vendors

Motor
Cars,
Tractors
Trucks, cycles,
LCVs
Buses
2Wheelers,
3Wheelers

The overview of technical collaboration for the above mentioned categories of automobile
assemblies can be seen from the following table:

Overview of Technical Collaboration in Automobile Industry

Category Number of Technical Collaborations
manufacturers/ Status
Assemblers
Cars 6 Japan=4
Republic of Korea=2
Italy=1
Paksitan=1 (Adam-Revo)
LCVs 3 Japan=2
Republic of Korea=1
Jeeps 1 Japan=1
Trucks and Buses 4 Japan=3
Sweden=1
Tractors 3 United Kingdom=1
Italy=1
Romania=1
2-/3-wheelers 8 Japan=3
Italy=1
China=3
Pakistan (local brands)=2
Total 25 27
Source: Pakistan Automotive Manufacturers Association

TRENDS
SALES AND PRODUCTION OF CARS & LCVs
SALES AND PRODUCTION OF BUSES & TRUCKS

Truck:
Buses:

Production Volume 2007-2008

CONTRIBUTION TO GDP

EMPLOYMENT LEVELS

LEVEL OF INVESTMENTS
REVENUE GOP

(Source: PAAPAMwww.paapam.com)

TREND ANALYSIS

Last year, the auto sector contributed US$ 3.6 billion, only about 2% of the GDP, to the national
economy, and employed about 192,000 people.

Pakistan's auto parts manufacturing is a billion US dollars a year industry. Sixty percent of its
output goes to the motor cycle industry, 22% is for cars, and the rest is consumed by trucks,
buses & tractors.

As we can see in the graphs given above, there has been an overall growth in the industry. The
contribution to GDP has increased throughout and is expected to reach somewhere around
Rs.350 billion by the end of this decade. The contribution to GDP increased because of several
factors like:
o Increase in demand for automobiles

Similarly, the level of employment is currently around 250,000 and the investment level is
around Rs.150 billion. Both of these are expected to rise to 300000 employed people and Rs.235
billion of investment by the year 2010. As there is a lot of Demand Supply gap, numerous
international players are entering the local automobile market and bringing in huge investments.
These investments in turn lead to an increase in the level of employment.
The Gross Operating Profits for the automobile industry have also increased tremendously. This
is mainly due to the fact that the Pakistani auto industry is entering the phase in which it is
coming close to reaching the economies of scale. Other factors responsible for increasing GOP
are:
o Availability of low cost human resources
o Domestic replacement parts market; localization

Demand Supply gap

Previously there was a enormous gap between the demand and supply of the locally
manufacturer cars an estimated the gap is of 40,000 units therefore the major local manufacturer
boost their production capacity to meet that gap in order to avoid the premium amount that bring
an additional burden and a negative impact on the customers. Previously the customer have to
wait for the delivery of cars ranging from two to seven months but due to enhancing the capacity
by Pak Suzuki 120K to 150K, Honda Atlas 30K to 35K & Toyota Indus 41K to 47K per annum
the average delivery days of the local assembled cars ranging from one week to 45 days with
some variants in colors or seasonal fluctuation. Toyota Indus has a further plan to enhance their
capacity to 70K per annum. This sort of action helps to minimize the gap between demand and
supply
 MAJOR
AUTOMOBILE
ASSEMBLERS

Pakistani Automobile Sector Consist of four mainplayers in the domestic market and their
cumulative share is about 95% of the total car Markets these includes:

• Pak Suzuki Motors Company

• Indus Motors Corporations
• Honda Atlas
• Dewan Farooque Motors Limited

Among the above four Pak Suzuki enjoys the position

as a market leader (62%) than by the Indus motors
(27%) followed by Honda Atlas (9%) & Dewan
motors (2%) respectively

PLANT CAPACITY
On the general, the plant capacities for the auto industry assemblers have been increasing with
time. The plant capacities for some of the major players of the Pakistani automobile industry
have been mentioned below.

CAR
Pak Suzuki Motor Co. Ltd. 68,000
Indus Motor Co. Ltd. 34,000 *
Honda Atlas Cars (Pakistan) Ltd. 30,000
Dewan Farooque Motors Ltd. 15,000
Ghandhara Nissan Ltd. 6,000

* Planned: 50,000 by September 2005

PAK-SUZUKI MOTORS

Suzuki is the leading name in small commercial vehicles and passenger cars. Suzuki commenced
its operation by assembling small 800 cc cars. Suzuki has so far a sole leader in 800cc and
1000cc passenger cars as well as 1000cc jeep Potohar. But the emergence of so many
competitors in the market will definitely trigger a very hard time to Pak Suzuki. Suzuki has
launched Mehran 800cc, Cultus 1000cc, Liana 1.3 & 1.6 cc, Bolan van & Ravi pickup 800cc and
Potohar jeep. The total production capacity of Suzuki Motors is about 125,000 units and the total
actual production in 2005-06 was 82,597. The sales volume of Suzuki is highest among the
competitors. According to Pakistan Association of Automotive Parts and Accessories
Manufacturers (PAAPAM), Suzuki has achieved the 70 per cent indigenization status in 800cc
Mehran car. Localization in other products like Alto, Ravi (Pick-up) and Cultus are also close to
70 percent.

HONDA ATLAS

-06 Honda started its operation in Pakistan in 1994. Honda is enjoying its key position in the
segment of 1300 cc and above. Honda had launched many models like Civic 1800 cc, (earlier
1500 cc), City 1300 cc etc. VTI brand continued to be popular among customers. The company
had been consistently following the Industry Specific Deletion programme setup by the
Government. It achieved the proposed localization target of 42 per cent until June, 1999 which
saved about Rs.120 million in financial year. To achieve the deletion target company had
continuously been assisting the local vendors in cost, quality and inventory management.
Currently the actual plant capacity at Honda Motors is around 40,000 units and the actual
production during 2005is 29880 units.

INDUS MOTORS

The Company was incorporated in Pakistan as a public limited company in December 1989 and
started commercial production in May 1993. So far, it has launched models like Corolla XLi
1300cc, GLi 1300cc, 2.0D, Altis VVTI 1800 cc, Hilux 4X2 S/C and 4x4 S/C. The total installed
capacity of Toyota Motors is 50,000 units and actual production in 200-06 was 33670 units.
Corolla has also fast pace towards localization of 68.1 per cent on all its models which range
from 1300 to 2000 cc. The company is trying to get high deletion level in all its product line.
DEWAN FAROOQUE MOTORS

It is the major competitor which has commenced its operation with a wide range of products in
domestic automobile market. Dewan Motors is basically a collaboration with Hyundai, Kia,,
Sang Young -Korean auto manufacturers. The initial response to Dewan's offering in the market
with record company booking of its Santro Plus. It has launched its Kia classic 1300 cc car with
sophisticated features. In future wide range of models like Kia Shuma 1500-1800cc car, Kia
Sportage 2000 cc sports utility are expected to launch in the market. Dewan has also launched its
1.5 tons Shehzore, the assembly of Hyundai light commercial vehicle has already started at the
Sindh Engineering Plant in Karachi under contractual agreement.

It has also started importing CBUs of BMW, Rolls Royce, MiniCooper and expects to begin
business in Renault soon.

Dewan's presence in the market will give the major move to the auto industry in Pakistan. The
intense competition will give the benefit to the potential buyer in the market.

DAIHATSU

Daihatsu, another new player in the market with its Cuore 850 cc, increased the competition in
the market. Daihatsu and Indus Motor signed an agreement to launch the Coure in market. The
project worth Rs.750 million was developed at Port Qasim between Daihatsu and Indus Motor to
produce Coure. Daihatsu also heated up the competition in small car segments.
VENDING INDUSTRY
Through indigenous technical resources and technical tie-ups with well-known global
companies, the auto parts industry has by and large developed into a well-organized sector of
the country.

There are 400 organized units in the auto parts industry, most of which are registered vendors to
assemblers/OEMs. Many of these are bound to supply only to OEMs as per their agreements, but
due to low demand by the assemblers, they are forced to sell their products in the replacement
market in one or the other way. These units efficiently manufacture sophisticated parts like
piston, engine valves, gaskets, camshafts, shock absorbers, struts, steering mechanism, cylinder
head, wheel hubs, brake drums, wheel bumpers, instruments and instrument panel, gear of all
types, radiators, cylinder liners, blinkers and light/lamps, door locks and auto air
conditioners.Along with the organized sector, a good number of small and large units
(approximately 1200) are operating in un-organized sector. In fact, 90% of automotive parts
industry constitutes of Small and Medium size Enterprises (SMEs), out of which about 95% are
self-financed. These units produce a wide range of parts for the replacement market.

Production Details

The production of auto parts can be broadly categorized into following segments:

• Parts for Cars and Light Commercial Vehicles (LCVs)

• Parts for Two Wheelers and Three Wheelers
• Tractor Parts
• Parts for Trucks and Buses
• Parts for After Sales Market

An automobile consists of more than 20,000 components, with each performing a different
function. The product ranges of above segments can be broadly classified into following broad
categories.

• Engine Parts
• Body Parts
• Trims
• Suspension Parts
• Electrical Parts

Bodies parts are the largest sub-segment around 34% of units are involved in manufacturing of
body parts for all segments. After that, suspension parts is the second largest as around 22% of
units are involved in manufacturing suspension parts.
The segment wise details of manufacturing units are not available as many manufacturers are
producing parts for multiple segments. The existing installed capacities of assemblers in different
segments in Pakistan are as follows:

ANNUAL PLANT CAPACITY

CAR
Pak Suzuki Motor Co. Ltd. 68,000
Indus Motor Co. Ltd. 34,000 *
Honda Atlas Cars (Pakistan) Ltd. 30,000
Dewan Farooque Motors Ltd. 15,000
Ghandhara Nissan Ltd. 6,000

LCV & 4X4

12,000 (LCV 11,000, 4x4
Pak Suzuki Motor Co. Ltd.
1,000)
Indus Motor Co. Ltd. 8,000
Dewam Farooque Motors Ltd. 10,000
4x4 Land Rover
Sigma Motors (Pvt.) Ltd. Manufactured at
Ghandhara Nissan Plant.

SUV
Dewan Farooque Motors Ltd. Not declared

TRUCK
Hinopak Motors Ltd. 10,000
Ghandhara Industries Ltd. 3,000
Sind Engineering Ltd. 3,000
VPL Limited 500 ****
Master Motor Corporation Ltd. 8,050

BUS
Hinopak Motors Ltd. 2,000
Sind Engineering Ltd. 1,000
Ghandhara Industries Ltd. 1,800 ***
Ghandhara Nissan Ltd. -

TRACTOR
Al-Ghazi Tractors Ltd. 25,000
Millat Tractors Ltd. 25,000

MOTORCYCLE
Atlas Honda Ltd. 400,000
Dawood Yamaha Ltd. 200,000
Suzuki Motorcycles Pakistan Ltd. 65,000
Saigols Qingqi Motors Ltd. 100,000
Pakistan Cycle Industrial Cooperative 42,000 **
Society Ltd. (Sohrab)

* Planned: 50,000 by September 2005.

** Planned: 60,000 by December 2005.

*** No bus body manufacturing facility. Bus chassis included under Truck.

**** Plant closed.

SWOT ANALYSIS
STRENGHTS
o Opportunity for growth

The automobile market in Pakistan is one market, the decline of which cannot be seen in
the coming decade or so. There has been an increase in the production capacity of the
automobiles from time to time, e.g. Suzuki increased its capacity to more than 120,000
units and Indus Motors now has a capacity of 50000 units. With an automobile in the
Pakistani auto industry coming out of the assembly plant in an average time of 6 minutes,
there is still a wide gap between the demand and supply in the automobile market. Not
only seeing this gap but also the fact that for the third time in a row this year the overall
sale of locally assembled cars showed a growth of 10.4 per cent during July-November
2006, compared to the same period of last year, several international automobile players
like the Renault, Volkswagen and the Black Cabs, are steeping in with their range of
automobiles to cater to the different segments of the automobile market.
(Source: Local cars’ sale grows by 10.4pc in five months: 64,996 units sold, DAWN)

o Presence of world class automotive manufacturers in each segment.

In the Pakistani automobile industry, we have some world-class players who are not only
able to provide vehicles according to the international standards, but are also able to
provide the people/consumers with a range of automobiles designed for different
purposes and according to the financial conditions of the people. The following table
gives a brief view of the automobile players in different segments

Type Companies
Cars PakSuzuki
Indus Motors
Bus/Trucks HinoPak Motors Ltd
Gandhara Industries
Tractors Millat Tractors Ltd (Massey-Ferguson)
Al-Ghazi Tractors (Fiat)

o Availability of low cost human resource

The human resource capital in Pakistan is considered as one of the cheapest available;
although not as skilled as that of China and India, the two being immediate neighbours of
Pakistan, but the low rates give us a comparative advantage after these workers have been
trained according to the specification of the industry and their jobs requirements. One of
the reasons for the low cost human resource capital is the deficiency of employment
opportunities, due to which people are willing to work for low wage rates.

o OEM quality standards are largely achievable

OEM stands for Original Equipment Manufacturers. In Pakistan, we have a few

assemblers and vendors who fulfil the standard requirements of quality to be able to be
recognized as the OEMs. The main OEM in Pakistan is the Pak Suzuki.
 o Good mechanical skills

Although we lag behind in the field of research and development, but when it comes to
the mechanical skills, we have them in abundance. Apart from getting skilled through
some institute, there is a general trend among workforce involved with the automobile
industry to transfer their knowledge to others and give them a lot of practical exposure.
E.g. a workshop might have a main fixer and an assistant (commonly known as Chota)
working with him. By the time, this assistant grows and tries to get into some automobile
company, he will have attained high level of mechanical skills.

o Now gaining economies of scale

We all know the concept of the Economies of Scale. The more you produce the lower
your cost of production gets but this is only valid till a particular level, after which the
costs can rise. The Pakistani automobile industry has now enetered the stage when its
costs of production will go down.

WEAKNESSES

o Inability to fill the Demand and Supply gap…causing people to start the premium
business

One of the main weaknesses faced by the industry is the inability to fill the Demand-
Supply gap in the automobile industry. Until recently, people have had to wait for long
time durations (e.g. Civic=6-8 months, Coure=4 months, etc) even after having paid the
full price of the car. Speaking of advance payments, one can easily generalize how much
the auto industry takes in advance from the customers by just the example of Indus
Motors which annually takes more than Rs.6.6 billion in advance payments. Taking
advantage of these long waiting periods, a lot of people started providing the prospective
customers, the cars they wanted at a price above the factory tag value: the difference
being called the premium. This practice actually discouraged a lot of people from buying
the locally assembled cars; instead they went for the used imported cars which were
readily available.

o No long term vision or policy

For any organization to develop and grow, it needs to plan-plan for the coming years.
Until recently, there had not been long term vision or policy. According to the customer
relationship (CR) head at Indus Motors, the automobile policies were changed 30 times
between 1988 and 1944. An industry needs to plan for the coming time; it cant just
 change everything with the blink of an eye. The GM of Pak Suzuki when interviewed
said that the government should make policies for five years or so, so that the players of
the automobile industry are able to better plan for the future.

o Lack of product design and engineering capability (research)

As far as the research concerning the automobile industry is concerned, all the research is
done in the home countries of the automobile players, e.g. japan, Korea, etc. This has one
major disadvantage; when the research is done in some other country, the product might
not be very well suited for the market it is supposed to be sold in. It may not be able to
fulfill the requirements of the local customers.

o Lack of technology up gradation

On the average, the automation of the assembly plants in the Pakistani automobile
industry is around 50 percent. This is very low as compared to the international
automobile industry.

o High cost of financing

The financing rates which were once close to around 6 percent have now gone up to
somewhere close to 9 or 10 percent. This has caused a decline in sales of automobiles on
financing.

o High cost of utilities

o Lack of efficiency due to previous protection from deletion policy

The auto sector has not been very efficient in Pakistan because of the protection that it
provided to by the government. After the WTO trade liberalization and the abandonment
of some of the protectionism policies, the auto industry had to face a lot of problems in
regard to the imported cars.

OPPORTUNITIES

o Potential for market growth due to wide gap in population to vehicle ratio

In Pakistan the population to vehicle ratio is around 8 cars to 1000 people. This is a
significantly low ratio which can be improved. There is a lot of room for improvement in
the industry. Keeping this in view, international assemblers are entering the local auto
industry.
 o Domestic replacement parts market

The indigenization program has led to massive production of spare parts by local vendors
which are comparatively cheaper than the ones which are imported from other countries.
The automobile industry can exploit this domestic market to get spare parts at cheaper
rates. This could help reduce the overall costs of production and make it economiacally
more competitive with the imported used cars.

o Global spare parts market of discontinued vehicles

o Due to environmental pollution, the government is encouraging environmentally

efficient vehicles

o Target of government to increase the share of manufacturing to 30% by 2030

o Increased purchasing power of consumers

The per capita income of the masses have increased to around $800 per annum. This has
resulted in higher purchasing power and an increase in the prospective consumer market.
The auto industry can actually exploit this situation and increase their share of the
market.

o Long Term Auto Policy 2007-2012

The new auto policy which would be announced in the budget for 2007 is a result of
collaboration amongst the assemblers and the vendors. This policy has optimal levels of
tariffs and other factors which could actually help the local industry to grow.

THREATS

o Import of CBUs in Pakistan.

Last year the total imports of used cars (CBU) was around 46000 units. This is a very
large figure and can create problems for the local industry. A lot of people have started
buying these imported cars because of several reasons like: more design and models
 availability, readily available and in some cases cheaper than what you would get had
you gone for a locally assembled car.

o Continuous depreciation of rupee against top world currencies

o Roll back of industrial development under WTO regime

o Smuggling, under-invoicing and dumping of auto parts

The dumping of auto parts in the local markets is creating problems for the local parts
making firms and the vendors. All the three mentioned above not only harm the auto
industry but also fail to provide the national exchequer with foreign exchange (duties)

o Too many regulatory and taxation agencies

o TBS and low tariff rate

There has been a huge amount of imports of the used cars because if lower tariff rates.
Our import tariffs dropped to 35percent from 50percent which actually resulted in import
of over 46000 CBU. The government has been scaling down import tariffs on CBU since
2001-02 in order to narrow down the growing gap between the demand and supply of
cars, which has led to the charging of exorbitant premium on the new local cars. The
industry sources contend that Pakistan’s current tariff regime provided lesser protection
to the local car assemblers as compared with India. India has only 20 per cent duty on the
completely knocked down units (CKD) and 100.2 per cent on CBU as compared to
Pakistan’s 35 per cent duty on CKD and very low tariff (50-75 per cent) on CBU.
(Source: Import of new, used cars picking up, DAWN)

FACTORS EFFECTING DEMAND FOR

AUTOMOBILES
Per Capita Income
Car demand, being income elastic, is largely dependent on per capita income. Currently the per
capita income is above $800 per annum. The increase in per capita income has led to the increase
in purchasing power, ultimately resulting in the increased demand for automobiles.
Auto Financing
In Pakistan auto-financing has played a major role in creating the demand for automobiles. The
whole process of financing started from somewhere around 24 percent; the trend at that time was
very different to what it is today. Interest rates having gone down as low as 7 percent, a
significant portion of the automobiles demanded currently are through the financing schemes.

Financing has indeed been the driving force for the automobile industry. On one hand it has
facilitated in achieving higher sales and on the other hand it is responsible for major investment
both in the assembling as well as auto parts manufacturing. According to some estimates billions
of rupees have been invested in parts manufacturing. According to an article, the vendors were
providing components when production of cars was less than 50,000 and at present they are
supporting the production of nearly 150,000 cars annually.

Lately limited auto financing and deteriorating conditions of economy (inflation and high interest
rates) have changed the picture.

CNG – a significant factor for Pakistan’s Automobile Industry

A closer look at the types (engine capacity) of cars sold indicates that most of the cars sold are of
1000cc or below. These are the cars being bought by most of the Pakistanis because of being
affordable and fuel-efficient. The latest figures show that nearly 60% of the cars sold in the
country have factory-fitted CNG kits.

ECONOMIC CONDITONS
Due to the economic problems like devaluation and inflation, and other problems like higher
income taxes, the disposable income of the consumers is shrinking, having a negative effect on
the demand of cars, especially the high-priced, larger cars segment.

The price increases and reduction in disposable incomes have resulted in an increased demand
for smaller cars that are also more fuel-efficient. The demand for larger cars has though no
declined drastically, some effect on their sale can be observed.

FACTOR AFFECTING INDUSTRY

1. Increase in depreciation rate on import of used cars from 1% per month to 2% per
month

On the evening of 6th June 2005 the Central Board of Revenue, Ministry of Finance, issued SRO
No. 577(1)/2005 following the 2005-06 Federal Budget announcements. The SRO stated an
increase in the rate of depreciation from 1% per month to 2 % per month on used cars below
1800 cc imported into Pakistan.

As a consequence to this increase in the rate of depreciation, the import of used cars will now be
subject to only a nominal rate of duty of 25% for cars up to 1500cc and as little as 37.5% on
other cars. This will make the imported used cars cheaper than the locally manufactured cars.
Local manufacturers of cars are required to pay CKD (Completely Knocked Down) duty at 35%,
are required to achieve a substantial local content, and also include in their selling prices all costs
including mark-up and 15% sales tax thereon. All these transactions are part of the documented
economy.

For example, according to estimates, with the increase in depreciation rate, a two year old 800 cc
car imported at approximately Rs.115,000 (Yen 180,000) will attract a duty of Rs.125,000
( $4000 x .52 = $ 2080), thus costing Rs.240,000 which is considerably less than a locally
manufactured car of similar capacity.

Similarly, a two-year old 1000 cc car imported at approximately Rs. 140,000 (Yen 250,000) will
attract a duty of Rs 156,000 ($5000 x .52 = $ 2600), thus costing Rs 296,000 which is again
considerably less than a locally manufactured car of similar capacity.

Again, a two-year old 1300 cc car imported at approximately Rs. 225,000 (Yen 400,000) will
attract a duty of Rs 312,000 ($10000 x .52 = $ 5200), thus costing Rs 537,000 which is again
considerably less than a locally manufactured car of similar capacity.

The Budget 2005-06 has once again put the auto industry in a difficult situation. These budgetary
measures will stop the investment by OEMs and vendors. There has not yet been an
implementation of a long-term auto policy for the automobile industry. This point was
highlighted at a recent press conference by the Pakistan Association of Automotive Parts and
Accessories Manufacturers (PAAPAM). The association represented the whole auto industry and
expressed great deal of concern over the delays in implementations.

The increase in depreciation rate and reduction in CBU import duties will have a drastic negative
affect on employment and transfer of technology. Almost all auto manufacturers in Pakistan have
joint venture projects with foreign affiliates. Not only do the foreign partners provide foreign
exchange equity, but are also responsible for transfer of technology. Many of them are
responsible for Technical Assistance Agreements (TAA) with foreign component manufacturers.
All the above mentioned has been jeopardized by recent measures in the budget 2005-06. These
measures render Pakistan a less lucrative investment opportunity compared to other countries in
the region that have stable, long term and investment friendly policies for the automobile
industry.

2. Reduction in Customs Duties on Import of CBU (New) Cars

The duties on import of new cars had been further reduced in the budget for financial year 2005-
06. These duties had already been substantially reduced in the last 2004-05 budget. The
following table illustrates the change in CBU (Completely Built Up imported vehicles) duties
over the last 5 years.

NEW CUSTOM DUTY

PASSENGER
CAR
 2001- 2002- 2003- 2004- 2005-06
02 03 04 05
1801 cc ~ 250% 200% 150% 100% 75%
1601~1800 cc 150% 125% 125% 80% 65%
1501~1600 cc 150% 100% 100% 70%
1301~1500 cc 150% 100% 100% 50%
1001~1300 cc 120% 100% 100% 50%
~1000 cc 100% 75% 75% 50%

From the above table it is very clear that during the last five years; duties on import of new cars
have been reduced by almost three times and by more than half in the last two years only. This
reduction in duty is bound to have a negative impact on local automobile manufacturing and
does not augur well for increasing foreign investment in this sector in the country.

3. DEPRECIATION OF RUPEE AGAINST YEN AND USD

The changing exchange rates, especially depreciation of Pak rupee against Japanese yen and the
U.S dollar drastic cut in duty on imports of CBU from 65 to 15 percent, and exorbitant increase
in steel prices were some of the genuine concerns of the booming auto sector in Pakistan.
Otherwise, the vibrant automobile industry was giving strong signals for impressive growth in
production in the wake of capacity enhancement program being carried out by all the major
players.

4. ROLE OF JAPAN

Japan, which is the most valuable partner in the growth of the auto industry in Pakistan, can
contribute significantly to make auto sector a booming industry in the real sense. The auto
market in Pakistan is mainly dominated by the Japanese technology being its friendly nature and
economical. However, despite having a major share in Pakistan, there is a lot of room for transfer
of technology as the auto sector has yet to rely on imports for basic parts and accessories. Indus
Motors which is producing prestigious Japanese automobile models of Toyota, Corolla and
Cuore, claims to be the best in terms of quality and aiming to take lead in the production as well
as eyeing to be the most respected and successful enterprise in Pakistan.

.
5. INCREASE IN PRODUCTION CAPACITY

During the second half of the 90's, similar inconsistencies and frequent policy changes affected
the market negatively and production figures remained stagnant at under 50,000 units annually.
It was a result of consistent government auto policies during the last three years that spurred
market growth. Indus Motors, with an installed capacity of 26,000 units, had a production that
increased from 13,200 in 2000-01 to approximately 20,500 in 2002-03 and was projected to
reach 32,000 units by end of 2004. Pak Suzuki, with an installed capacity of 50,000 units, went
from a little over 19,000 in 2000-01 to over 38,650 in 2002-03 and was projected to reach 50,000
units by end of 2004. Honda Atlas, with an installed capacity of 6,000 units, increased from
5,800 in 2000-01 to approximately 8,400 in 2002-03 and was projected at 12,000 units by end of
2004. Dewan Farooque Motors was also expected to reach its full capacity of 20,000 units in the
current fiscal year. Gandhara Nissan at present the automobile production level is 150,000 per
annum in all and for 2010 the production levels estimated are no less than 500,000 per annum. In
about four to five years technology would be fully incorporated in the infrastructure of Pakistan
and this would lead to availability of locally assembled vehicles at lower reasonable prices.

OTHER FACTORS.

 low cost human resource

 low literacy rate
 lack of training and human resource development
PORTERS MODEL
THREAT OF NEW ENTRANTS
The threat of new entrants is high for the small car segment. This has strong implications for Pak
Suzuki which was enjoying a virtual monopoly in this segment up to now. However, the threat is
over all neutral for the whole industry.
 The capital costs for entry are high. This fact is clearly visible from the project costs of the
new entrants in the market. It ranges from approximately $12-50 million1. This is a great
barrier to entry.
 The capacity utilization of the existing plants is very low, approximately 50-55%2. This
means that the demand is less than the supply. This leaves little room for new entrants,
especially in the existing segments of the market. Only the small car segment characterized
by low prices and fuel-efficient cars offers an attractive opportunity which has already been
noticed by the car manufacturers.
 The cost of existing plants is high because of low deletion levels, approximately 45%, and
fluctuating exchange rates. This leaves little attractiveness for newer entrants.
 New planned projects are all in the small segment and are not expected to affect significantly
the large cars segment.

THREAT OF COMPETITION

 The main threat is from the imports. If the government changes its policy of protectionism,
the local industry would be completely damaged.
 Changes in the policy regarding the ban on reconditioned cars also poses a threat.
 Smuggling and illegal trade are damaging the auto market.
 Competition is fierce in the large market segment.
 Suzuki has lost its monopoly in the small cars segment.
 The structure is concentrated and only four major firms are operating.

1
2
BARGAINING POWER OF
CUSTOMERS
FAVORABLE:
 The customers have few alternatives available, as the import policies are strict. So they have
low negotiating powers.
 The dealers, as customers, are chosen themselves by the companies. This reduces their
bargaining power to a great extent.
UNFAVORABLE
 The customers have the used car market as an available market. Moreover, cars smuggled in
the country and resold also offer a good opportunity for the customers.
 The demand of cars is highly price-elastic as they are luxury goods.
 The institutional sales are declining as a result of austerity measures, both by the Government
and by the corporate sector.

THREAT OF SUBSTITUES
FAVORABLE
 Bad shape of the transportation system, as explained earlier, means that it does not offer a
good substitute to owning ones own car.
 Large family sizes, pollution, bad transportation system etc. prevents the use of motor cycles
as a reasonable substitute. Only people who cannot afford to buy a car will go for them.
 High import duties on imports of new cars and ban on the import of used cars saves the
industry from formidable competition.

UNFAVORABLE
 Smuggled goods offer a good substitute as they are cheap as well as of international quality.
 Used cars market is the greatest threat as substitute to new cars.
 As trade barriers decline, the threat of lifting the current ban on import of new and
reconditioned cars stands high and mighty on the industry.
BARGAINING POWER OF
SUPPLIERS

 As far as local vendors are concerned, the industry is suffering from under utilization. There
are more than 400 vendors and the number is increasing. This dilutes their bargaining power.
 The imported parts including CKD’s are supplied by the parent companies on favorable
terms. The only threat in this case is the exchange rate fluctuations.
PEST Analysis:
Impact of political, social, economic and technological changes on the industry structure:

• Political and social economic changes greatly affect the automobile industry.
• Major factors affecting the market being financing, interest rates, GDP, law and order
and political instability.
• 2008's 1st half was slightly better but the later half was hit by worst ever economic
downturn resulting into loss of huge demand.
• Declining trend in sales and production of cars from year 2007.*
• The loss in sales is mainly due to lack of financing options available to the customers.
• Global warming and related concerns regarding carbon emissions have heightened
sensitivity to gas mileage standards and environmental protection worldwide.
*source: PAMA
• Pakistan’s Economic Co-ordination Committee (ECC) is to consider a tax cut of 10% for
domestic car manufacturers, which has been proposed by the Ministry of Industries and
Production.
 ISSUES
AND
PROBLEMS

Effective regulatory framework

The government of Pakistan attempted to address the problem of automobiles being sold on
premium and the huge demand-supply gap, by opening up the avenues of importing limited
quantities of used cars from abroad. However, this policy simply opened the flood gates of
imports of obsolete and outdated vehicles into Pakistan. While the main aim was to provide relief
to the masses, the imports of used luxury cars with price tags in the range of between Rupees ten
lacks and above have sky rocketed. Indeed, even in the small car segment, the majority of the
cars imported were priced well above Rupees Five lacks and that too for cars which were
initially manufactured in the year 1999.

While initially the huge consumer market was very happy with the allowance of import of used
cars, it quickly dawned upon them that they and the country was the ultimate loser. The simple
fact of the matter is that used car maintenance requirements far exceed those of new cars.
Additionally, customers found this too late, that there is no warranty or after sales service on the
used cars and that they purchased them on an 'as-is' basis with no reprieve for the customer even
if major defects are detected in the car right after taking delivery of the vehicle. There is also a
scarcity of availability of spare parts for such cars and even if they are now beginning to become
available they are priced very high.

The impact of such imports is far worse on the economy. Recent government released figures
reveal that the import of fully assembled automobiles drained away in excess of precious one
billion dollars out of the country. The majority of this drain-out can be attributed to the import of
used cars. Additionally, not only the used cars do not contribute positively to the economy they
actually become a permanent burden as none of their spare parts are made locally and have to be
imported from abroad which further strains our foreign currency reserves. Last but not the least,
since used cars automatically require more maintenance then brand new cars, customers spend
more time in workshops on average which results in further loss of time and productivity for
individuals and causes additional burden on the economy.

Maintenance procedures & facilities

Last year the government of Pakistan in good faith attempted to address this problem by opening
up the avenues of importing limited quantities of used cars from abroad vide three main schemes
viz a viz transfer of residence scheme, personal baggage scheme and the gift scheme. However,
this policy simply opened the flood gates of imports of obsolete and outdated vehicles into
Pakistan. While the aim was to provide relief to the masses, on the contrary the imports of used
luxury cars with price tags in the range of between Rupees ten lacs and above sky rocketed.
Indeed, even in the small car segment, the majority of the cars imported were priced well above
Rupees While initially the mass public was very happy with the allowance of import of used
cars, it quickly dawned upon them that they and the country was the ultimate loser. The simple
fact of the matter is that used car maintenance requirements far exceed those of new cars.
Additionally, customers found too late that there is no warranty or after sales service on the used
cars and that they purchased them on an 'as-is' basis with no reprieve for the customer even if
major defects are detected in the car right after taking delivery of the vehicle. There is also a
dearth of availability of spare parts for such cars and even if they are now beginning to become
available they are priced very much higher.
Policy on in-use vehicles

It was the roadside side industry led by the dealers who had been stealing the benefits of the
policy of used cars. The used cars mushrooming at the roadside showrooms are enough to tell the
truth of the story. On one hand it may harm growth momentum of the local auto industry which
is visibly poised to catch up the demand while it is encouraging the flight of capital at a massive
scale at the cost of the local industry.

One of the remedial steps to check under-invoicing and other trade ills is the proposed Tariff
Based System (TBS). The automobile industry, Vendors, Engineering Development Board
(EDB) and the CBR have reached a consensus over immediate implementation of TBS
collectively finalized by all the stakeholders which should be complaint to WTO and of course to
the national interest.

Actually Pakistan was in the pre-motorization stage because at present the number of cars per
100 persons comes to merely 8 in Pakistan as compared to 10 in China, 12 India, 21 Indonesia,
23 Iran and 31 Sri Lana while 764 in the US. This leaves a huge space for investment as the
market appetite continues to grow in Pakistan.

Pervez Ghias, the CEO of Indus Motors, however agreed that stable political conditions,
improved international standing, economic growth and increase in auto financing in Pakistan
altogether have helped the auto industry in general and Indus Motors in particular to enhance
production from 2930 units in 1993 to 50,000 in 2005-06.As a result of reduction in duty, the
local market and roads were flooded by new and used cars and the six of the influx is increasing
dramatically which would ultimately affect the spirit and momentum of the manufacturing and
the down stream vendor industry in Pakistan.

Shah Saad Hussain, Director corporate and customer relations speaking on the occasion said in
2005 auto sector investment in the country that estimated at Rs103 billion while it projected at
Rs500 billion in 2020. The revenue received by government in 2005 was estimated at Rs40
billion, which may go up by Rs200 billion in 2010 and projected at Rs250 billion in 2020.

Cost to consumers

The din and noise of irrational car craze fuelled by remittances and powered by lease-financing,
may have died down, but the appetite of the indigenous auto industry to mint money does not
seem to have abated a bit. The industry relishes customers’ helplessness and deny them
bookings. Such an abnormal situation runs counter to ‘universal code of corporate governance’.
It also reflects adversely on government’s inadvertence to address customers’ concerns, reflected
in the media routinely. It was anticipated that import of cars in CBU condition would ease the
situation and make availability of cars hassle-free at competitive rates. This has not happened.
The bane of premium or ‘on’ money, coined in local parlance for premium, still rules the roost.
Realizing booking charges on the spot, running into thousands, unheard in business channels, is
another unholy stain, besmirching the auto-industry. Delivery of cars at door-steps, the dates
dished out by auto sector by months, are a norm not an exception. With a view to make hay
while the sun shines, the gimmick of assemblers to release vehicles in the market to regulate
quantum of demand for cars with an ulterior motive of maximizing profit-taking, is another
attempt to exploit customers’ helplessness. In the face of such a contrived scenario, the claims of
the companies, promising prompt delivery of vehicles, following hyped investment by billions,
looks hollow like boastful politicians, promising moon to voters at the time of elections or
making country next Asian Tiger. To cash in on customers’ choice for a popular hue, some
dealers do not demur to demand extra bucks, collecting their share in the pound of flesh from
their corpus. The government’s directive, binding assemblers, pay mark-up on deposits, if
delivery dates exceed two months, is being obeyed faithfully by most assemblers in stark
disavowals. If the prices of cars escalate in-between booking and delivery dates, buyers are
barred to cast a passing glance at their dreamt wheelers, until they shed the differential, despite
full payment, made in advance. Trade ethics warrant fair play in business dealings. If one makes
full payment, one is entitled to delivery of car on the spot. If, for reasons unknown, it is not
possible to deliver and the prices escalate in-between booking and delivery dates, customers are
entitled to receive possession of the products at the old price. The differentials could be due, if
bookings are made only on token advances. In the past, handsome sums were squeezed from
customers, despite full advance payments at the time of bookings. The pricing of assemblers’
products is also not without concern when compared to cost of corresponding products,
prevailing in the neighboring country. More so, when operating conditions like cheap labor and
land, besides knocked off levies, are almost identical in both countries. Financial benefits,
accruing from the steep dip in the exchange rate of the greenback in the past, staying the course
for a long time, were not transferred to customers. But, when the value of the dollar appreciated
and that too for a very short stint, the assemblers lost no time in raise the prices.

Astonished by unprecedented demand for new cars despite availability of imported ones,
assemblers have chosen to use banks and leasing companies to do bookings and perform all
unholy acts on their bidding. Charging soaring interest and processing fee by leasing institutions,
is yet another issue. The adoption of such a circuitous route is detrimental to customers’
interests, who ultimately end up virtually paying double price, fixed by a company. The quality
of cars, when compared to matching models of imported ones, leaves a lot to be desired. Stunned
by over-whelming demand, assemblers churn out units, caring two hoots for the quality of their
makes. Scarcely a car escapes the bane to retrace its foot prints to high profiled 3S, for
rectification of defects, detected by buyers. Blanket recall by an assembler of a popular make in
the past, exhorting customers, reach for removal of defect in the front wheel of their cars, is a
case in point. Car advertisements, almost non-existent during initial years of the craze, now
intermittently appear in the print media. These ads, though long on qualities but short on pricing,
do not accord well with the basic principle of advertising—-right to choose’ from the lot
available in the market. In India, manufacturers do not demur to quote price in their ads in bold
and bright figures to educate their customers, enabling them make right choices. Financing car
buy through leasing has rendered more harm than good to most middle class members, a
vanishing breed. No doubt, the introduction of leasing factor in auto industry generates jobs,
accelerating industrial wheels, but its side effects prove to be more lethal than all ills, clubbed
together, confronting the car market. Unable to manage hefty instalments, poor purchasers who
initially manage down payments, are at pains to pay instalments, beefing up with the rise in
interest rates imperceptibly. They default and ultimately find their cars, landing in the junk yard
of the leasing institutions, while their down payments and paid up instalments going down the
drain. Permitting expenditure of big money by billions on pursuits, bordering on luxury as
against investment on social sectors, clamouring for funds, nowhere nears the targeted
government’s goal of good governance. And the arbitrary extension of the leasing policy to
embrace imported vehicles and electrical gadgets mostly made on foreign soil, whirl industrial
wheels abroad, veering off policy off the track. Fearing fierce competition from car imports, the
nervous assemblers initially resorted to releasing SOS calls, apprehending annihilation of auto
industry. Officials sitting in Islamabad , rushed to their rescue for obvious reasons, clogging
labyrinth of several muffled ifs and buts to the import policy. To please the upper classes, duty
slabs for cars used by them above 1300 cc, were substantially slashed, but the poor plebs, going
for 800 to 1300cc motors, were denied any such concession. The end result is, that we are back
at square one while the auto-sector continues to go from bad to worse.

The imbalance in the local car market is because of government policy, which is tilted in favor of
car manufacturers who are large multinational companies. This disbalance imposes a high cost
on domestic car buyers. The reason most often stated by government functionaries for such
liberal concessions to the local car-makers is the lure of large amounts of foreign investment to
be brought by them. But if the source of investment made by these car-makers is recycled
advance payments made to them by Pakistani car buyers, then there appears to be little
justification for such excessive protection to them.

COST TO ECONOMY

The impact of imports is far worse on the economy than one normally considers. Recent
government released figures reveal that the import of fully assembled automobiles drained away
in excess of precious one billion dollars out of the country. The majority of this drain-out can be
attributed to the import of used cars. Additionally, not only the used cars do not contribute
positively to the economy they actually become a permanent burden as none of their spare parts
are made locally and have to be imported from abroad which further strains our foreign currency
reserves. Last but not the least, since used cars automatically require more maintenance then
brand new cars, customers spend more time in workshops on average which results in further
loss of time and productivity for individuals and causes additional burden on the economy.
By imposing prohibitively high tariffs on the import of new cars which gives excessive market
protection to the local car- makers, the government has made them complacent and slow to react.
The local car makers and car buyers will both benefit, in the long run, by increased competition
brought about by lower tariffs on the import of new cars. If tariffs on imported cars are reduced,
supply of better quality and reasonably priced cars will increase; local car- makers will become
more efficient and will continue to thrive. In this scenario car prices will fall, quality will
improve and immediate delivery will ensure that premiums disappear.

PRICE HIKE FOR AGRICULTUARL MACHINERY

The prices of locally-assembled tractors have increased by up to 50 percent during the last one
month primarily due to the rising prices of auto parts which has forced growers to cancel deals to
purchase around 500 tractors.

Growers, mostly from the Sindh province, said there has been a sharp rise in tractor prices during
the last periods and deals to buy around 500 tractors had been cancelled out in 2004..

“A tractor of 50 horsepower, which was available at

Rs.400,000 a month ago, is now tagged at Rs.650,000
to Rs.700,000,” said Qamar-uz-Zaman Shah,
chairman Sindh Agriculture Chamber (SCA). (Daily
Times, 2004 archives)

The federal government in the federal budget allowed the import of tractors below 35 and above
100 horsepower with a 10 percent duty. But the duty was later enhanced to 20 percent. Currently,
four local assemblers are producing tractors ranging from 45 to 65 horsepower.

Tractor is a basic and very mandatory machinery for the agriculture sector. It should also be
declared duty free. Assemblers blame high input cost: But assemblers said the phenomenal jump
in the prices of spare parts has forced them to increase the prices of their products. They also said
the price increase is not as high as being projected by the growers.

“The maximum increase is around 30 percent to 40

percent,” said G M Yasin, director technical of GM
Tractors. “We are compelled to do so as prices of all
kinds of parts have gone up by over 50 percent.”

He cited the latest increase in the price of Exide Battery by around 40 percent. But he said
battery prices are expected to be reduced by 10 percent following negotiations with the company.
But Mr. Yasin ruled out the notion that rising prices had stopped buying by growers. He said
demand for tractors had increased significantly this year because of easy availability of credit at
cheaper rates. Vendors justify rise: Vendors justified the current increase in the prices of spare
parts but they said rates are expected to come back to a normal level within a couple of months.
They blame high prices of steel in the international market which has doubled their production
cost as they have to import steel at a much higher price.

“Steel prices are at all time in the international market due to heavy buying by China,” said a
senior member of the Pakistan Association of Automotive Parts & Accessories Manufacturers
(PAAPAM), who asked not to be named.
The expensive imports of raw materials for production have increased our cost and ultimately we
are passing it to our buyers. But we expect, as big vendors are discussing prices with major steel
exporters, steel prices are expected to ease in a month or two.
Impact on local parts and parties

The only ones who are still remain unhappy with the flourishing state of affairs are the investors
or middlemen who had vested interests and relied on a shortage of vehicles to achieve their
questionable ends. With increased volumes and faster availability, genuine buyers no longer need
to pay premium prices they once used to extort to guarantee immediate delivery. The question
then is, why is this lobby of anti-auto industry going on with their attacks. They should at least
acknowledge the facts rather than turning their backs at them.

The fact is that though Pakistan entered into the field of auto parts exports less than four years
ago, this year's target of US$ 55 million is likely to be exceeded. Vendors are even exporting
auto parts of vehicles that are not manufactured in Pakistan, such as Mercedes, Ford Van, Morris
and even the famous London taxi. To date only about 40 of the more than 500 registered auto
parts vendors registered with manufacturers of international car brands have entered the exports
arena. When the rest exploit the potential, as they are expected to do in the next couple of years,
there may well be a major boom for the auto engineering industry. To a great extent the credit for
the success of the auto parts industry goes to the vendor development programs organized by the
domestic auto industry, whose mainstay is technology transfer.

Tariff structures issue is still unresolved

The automobile and auto parts manufacturers here on Tuesday rejected most of the tariff
structure proposed in the draft Auto Industry Development Programme (AIDP) as they expressed
the opinion that the industry would collapse in case abrupt changes in tax rates were introduced
in each budget.
However, the automobile industry agreed with the Engineering Development Board (EDB) on
the non-tariff part of the draft policy. Representatives of tractor manufacturers objected to the
issue of capped prices of tractors and they demanded of the government to get the tractor
industry rid of the “anomaly”. “Let the market forces determine the prices of tractor unit,” they
told a consultative workshop, which was held to hold further consultation on the AIDP, which is
to be finalized by the EDB by the end of this month.
Briefing reporters at the conclusion of the workshop, Imtiaz Rastgar, EDB CEO, said the local
automobile sector was included in the highly sensitive list and the Pak-China Free Trade
Agreement (FTA) would have no negative implications for the local industry. The automobile
industry would continue to be protected, said Zahid Yaqoob, an official of the EDB.
Mr Rastgar said there were some differences over the tariff structure. However, the auto
industry and auto parts manufacturers hailed the incentives being offered to the stakeholders in
the draft AIDP, he added. He said the EDB would be holding another meeting with stakeholders
next week to discuss the policy further.
He said the local assemblers had agreed that they would increase the local production of cars and
other automobiles with special emphasis on local manufacturing of high-value added
components. The EDB CEO was of the view that the local manufacturers lacked skill. This
lacking resulted in shortcoming in terms of maintaining quality.
He claimed that the representatives of automobile industry had largely agreed with the customs
duty proposed in the AIDP. He said prices of automobiles were always an issue and the
government and the automobile industry were always in consultation on the issue. He said a
long-term policy was the need of the industry, after it switched over from highly-protected
deletion programme to tariff-based system (TBS).
A representative of the industry said they had demanded of the government to give a tariff line
for the next nine years. Long-term tariff was essential as the industry was not in a position to
absorb abrupt shocks. The reduction in taxes on the import of vehicles should be done on three-
year basis, he said.
Speaking at the workshop, Federal Minister for Industries, Production and Special Initiatives
Jahangir Khan Tareen underlined the importance of the auto industry as key to the economic
development of the country. He said the auto industry, because of its forward and backward
linkages and economic multiplier effects, would continue to register a robust growth for a
considerable
 GOVERNMENT’S
ROLE

IMPORTS
The government has reduced the gap between CKD and CBU duties with the objective to ease
the mounting pressures on the automobile companies for timely deliveries which usually take
even more than 8 months for the models which are much in demand. Though the impact of the
import cars was not so severe during the current year but the size of CBU imports is likely to
take quantum jump in the coming days because the manufacturers have also shift their interest in
the trading as well. As an immediate impact, the government's step for reducing duties may
provide a cushion against the pressing market demand, yet it may become a gray area for the
industry and the economy as well in the long run. It may be in the interest of the economy and to
pave the way to provide a strong base to the auto industry as well as the downstream vendor
industries to provide duty protection when the dust settles down with the increase in volume of
production of the companies which are currently in process of expansion of their production
capacity.

POLICIES
(Earlier) Before the period of Nawaz Sharif and Benazir Bhutto the policies were very consistent
and stable.

However later the random changes in Government lead to political instability and resulting in as
many as 30 policy changes in shortest period of time.

(Current Scenario.) The duties on some of locally manufactured categories have been lowered by
50%. The proposed tariffs on import of new cars will give Pakistan the distinction of being a
country with the lowest tariffs on cars in the entire South East Asia. To consider as a case in
point, duties & taxes on CBUs alone in India stand at 146.13%.

Another drawback of the newly imposed measures is the restriction on local manufacturers to
sell vehicles only to NTN (National Tax Number) holders. In addition, it also demands that
records of every customer to whom vehicles are sold, be provided to the CBR. While the Auto
Industry is fully documented, contributing substantial revenues to the government, there are only
around 5.5 lac NTN number holders in the country. A majority of the population is not enlisted
with the taxation authorities, including those belonging to the agricultural sector as well as
overseas Pakistanis who send foreign exchange remittances to their families residing in Pakistan.
This policy would deprive a major population segment from purchasing locally manufactured
cars; leaving them with no option but to buy imported vehicles on which no such restriction has
been imposed.

The market-led growth, however, was encouraging the major players to increase production
capacity to reach the landmark of 300,000 during next five years.

By and large, all the stakeholders seem happy, the auto makers in terms of market potential,
expansion in plants and growth in profits.

The government on the other side looks comfortable with the performance of the automobile
sector due to contribution of increased revenues by this important segment of the large-scale
manufacturing sector.

Though it presents a rosy picture in the given circumstance in short terms, the long-term strategy,
however, calls for concrete steps on war footings to gradually move towards economy of the
scale if we have to tap the real potentials the auto industry offers. It was the auto industry which
set many precedence of changing the course of economic history in different countries of the
world which are now called economic giants both in Asia and the West.

The auto industry in fact needs a direction to achieve motorization level within the country as the
first step and to grab the market share available in the Central Asian States and Africa in the
second phase.

DELETION PROGRAM
 (Indigenization Program)
Earlier firm specific deletion program was being used in Pakistan. However, such a system
proved to be ineffective and was not able to encourage local manufacturers to opt for higher
deletion levels as no incentives were provided for enabling higher local content. In 1997, with
the formation of the Engineering Development Board of Pakistan, the deletion program was
rationalized, made transparent and industry specific. This local deletion program was formulated
up to June 2005.

This was a prominent initiative as Pakistan was the only country in the world which had
formulated the industry specific deletion program to specify local content requirements for cars,
motorcycles, buses & trucks, tractors etc. The basic purpose of this deletion program was to
develop and protect the local auto parts industry.
However it must be noted product development departments for various companies were because
of low volumes and an addition of higher technology components. For higher future targets,
more intensified efforts would have had been required under the same policy.

In engineering industry the Original Equipment Manufacturers (OEM) traditionally undertake to

draw, design and produce just a small number of critical parts, the remaining parts generally
from 80% to 90% are undertaken to the ancillary industry, sub-contracting and vendorization.
No-where in the world engineering industry developed without it. Automobile vendor industry in
Pakistan started with in-house production of low tech bulky items like seats, with the passage of
time and as the industry grew assemblers realized the benefits of the indigenous production of
selected non-functional items and the vendor industry start ed emerging.
The industry being dominated by Japanese cars, the government was keen for localization of
Japanese cars.
In addition to government conditions for localization, the deletion became a commercial
proposition in view of the world currency fluctuations.
The experience is that indigenization leads to lowering of the components.

TBS SYSTEM:
In contrast to the deletion policy, the TBS (Tariff Based System) looks at the industry with a
view to supervise and comply with the WTO requirements.

In the TBS there is a preferential treatment for new entrants, which is counter productive for the
overall development of the auto industry. For existing manufacturers, locally produced parts are
50% custom duty, whereas the government has granted permission to new auto manufacturers to
import 100% CKD at a custom duty of 35%. Hence, the new entrants into the industry have an
unfair advantage of 15%.

In the current scenario, local vendors who have made significant investment in the past will be
most affected.
TBS can also be termed as auto industry’s deletion program under which higher customs duty at
50% would be applied on components that are manufactured locally while duty at 35% would be
applied to parts that are not manufactured locally to encourage localization.

The Central Board of Revenue (CBR) released new tariffs for the import of completely built-up
units (CBUs) and completely knocked-down units (CKD) which were effective from July 1,
2006. According to the new Tariff Based System (TBS), import duty of 50 per cent would be
valid for such components/parts which were manufactured locally and were imported for the
assembly by the original equipment manufacturer (OEM) or by the commercial importers as
replacement parts for vehicle plying in the country including such motor vehicles, which were
not locally manufactured. Correspondingly, 35 per cent duty would be levied on all other
indigenized replacement parts, irrespective of the type and category of the vehicle, and for such
indigenized parts identified separately as were meant for vehicles (CBU) having less than 35pc
of duty.

According to the official, the auto industry would be free under the TBS to source its
components from where found it economical and that the manufacturers should not be forced to
buy from any specific sources.

Analysts say that with the new policy, the margin of protectionism to local manufacturers of
parts would now reduce to only 15 per cent in duty under the TBS system. They fear that some
international auto players would dump their parts in Pakistani market under the new system as
CBR has no mechanism to check under invoicing.

NEW LONG TERM AUTOPOLICY

(2007-11)
The Economic Coordination Committee (ECC) of the Cabinet has approved the long-term auto
policy. It has been designed for five-years. According to the government, it will not hurt the local
industry but rather attract new investments. The government has also decided not to change the
current import policy so that consumers’ interests could be protected.

Salient features

(a) 0.5 million new cars would be manufactured per year by 2011-12 against the current
production of 0.2 million.

(b) Total investment in car manufacturing would reach Rs225 billion by 2011-12 as compared to
Rs98 billion in 2005-06

(c) Automobile’s share in GDP would touch 5.6 percent against the current share of 2.8 percent.

(d) Contribution of automobile sector in the LMS manufacturing sector would increase to 25
percent in five years from its existing share of 16 percent
(e) Share in indirect tax would reach Rs190 billion in 2011-12 against Rs63 billion.

(f) The sector is presently providing employment to 192,000 people and the number would
increase to 2,50,000 by 2011-12

(g) 50 percent tariff for localized parts of cars in 2006-07, followed by 50 per cent in 2007-08, 50
percent in 2008-09, 47.5 percent in 2009-10, 45 per cent in 1010-11 and 45 percent in 2011-12.

(h) Tariff for non- localized parts has been proposed by 35 percent in 2006-07, followed by 35
percent in 2007-08, 32.5 percent in 2008-09, 32.5.5 percent in 2009-10, 30 percent in 2010-11
and 30 percent in 2011-12.

Reservations

According to the tables, it is clear that the government is more than eager to pursue the existing
policy. According to latest data, every month 3000 to 4000 cars are being imported. This means
import of around 40,000 cars in a year and 20-25 percent of local production, which ultimately
damages the local industry. It is estimated that the imports of auto sector cause $1.08 billion
trade deficit.

SUCCESS FACTORS
MOTORIZATION
According to an assessment, to reach Motorization level of countries in the region, Pakistan
needs to cross 500,000 units mark a year. Currently, Pakistan was on the bottom line with a
Motorization level of 8 cars per 1000 persons. Motorization figures available from other
countries indicate China has 10 cars per 1000 persons, India 12, Indonesia 21, Iran 23, Sri Lanka
25, Philippine 31, Turkey 67, UAE 193, Saudi Arabia 326, UK 426, Japan 543, New Zealand
580, Australia 619, Malaysia 641 and the USA 785.

The opening up of the banking system for consumer financing was of course the brainchild of
our economic managers which deserve appreciation. In fact, it was due to continued access to
credit, which played as the key driver especially for the large scale manufacturing growth in the
current economic scenario. The direct impact of continued easy monetary policy is more evident
in the robust growth of automobile sector in Pakistan.

Automobile industry recorded an increase of 23.7 percentage points in capacity utilization.

Within automobiles, the capacity utilization in tractors industry witnessed the largest increase of
44 percentage points, followed by motorcycles/scooters, light commercial vehicles, cars and
jeeps.

Despite having comprehensive expansion plans in hand by all the major automobile
manufacturers aiming at double their existing capacity, the leading auto assemblers were
compelled to import completely built units (CBU) as they are cheaper than the units produced
within the country. The import of cars is likely to take a quantum jump next year, said
representative of a leading car manufacturing company in Pakistan.

Since imported cars were comparatively cheaper than the ones manufactured or assembled
locally, majority of the leading auto manufacturers like Indus Motors which produces renowned
models of cars in Pakistan have started importing CBU units. According to industry sources, the
duty on CBUs has been reduced almost to the bottom line from 75 percent to 15 percent up to
1000cc, 1300cc 15 percent, 1300-1500cc 35 percent, 1500-1800cc 45 percent and 1800cc and
above 65 percent.

The current economic scenario, however, places the auto industry with the credit of one of the
major contributors to the economic growth of the country. The industry has impressive
expansion plans with the target to produce 300,000 cars, 3,000,000 motorcycles, 40,000 tractors
within next five years. This growth in production would mean to contribute Rs368 billion to the
GDP, Rs121 billion to the revenue, 300,000 job opportunities, investment of Rs233 billion,
import substitution worth over $5 billion and a substantial foreign exchange saving of around
$2.830 billion during next five years.
INVESTMENT
It is heartening to note that the auto sector has assumed a position where the market forces are
determining the stretch of investment as compared to other sectors where the efforts have to be
made to attract investment. According to figures released by PAAPAM, 2005, the target of
investment in car manufacturing segment was projected at Rs42 billion while investment in the
vendor industry is projected at Rs171 billion during next five years.

In fact, the current chaos in meeting the target of timely delivery to the genuine buyers is due to a
free for all situation encouraging resellers, investors, roadside dealers who are causing increase
in delivery times for genuine buyers as the current registration regulations do not stop investors
from charging premium.

DUTIES
In 2006-7 fiscal budget, Customs duty on CKD vehicles is being reduced from 20 percent to 10
percent and from 60 percent to 30 percent on CBU vehicles. While there would be no sales tax
on trucks and dumpers weighing more than five tonnes. The government has exempted customs
duty on five sectors and introduced new Tariff Based System (TBS) for the auto sector. Duty has
been rationalised on purpose-built taxi cabs, multi axle trucks and import of old/ used cars
importability in transfer of residence scheme, baggage and gift scheme (for age of car) to be
restricted to five years. Duty on equipment for assembly of CNG kits has also been exempted
along with bicycle parts and components.

The government has kept the previous import policy unchanged in the budget, but has planned to
ban import of cars which are above five-year old, as it negatively affects Central Board of
Revenue (CBR) revenue. In the current budget, old vehicle importers have paid over Rs. 20
billion to the CBR under the head of customs duties and other taxes. Up to now, investors have
imported approximately 35,000 old vehicles in the current year. The government has reduced the
duty slabs on the import of commercial vehicles from 60 percent to 30 percent on completely
built units (CBU). While some say that the import of commercial vehicles will not be a major
threat to local manufacturers the government hasn't changed the previous auto import policy,
much to the detriment of the local makers.
 RECOMMENDATIONS

In recent years ,the industry is operating in the private sector. Interestingly , even after years of
manufacturing the local car manufacturers have not been able to come up with the technical
expertise that would have allowed them to assemble automobile engines locally. This is a
disappointing fact for an industry that has been operational over here for more than 30 years
now.
The automobile industry had greatly benefited from the successive governments decision to
impose high import duties on the import of CBU’s into Pakistan. Through this decision the
government has been able to protect the local industry from competition from overseas. Instead
of responding positively to it, the local manufacturers have been further asking for concessions
and complaining about unstable Government policies. But currently when imports duties are
going down , local manufacturers are suffering tough competitions. Although they should have
become expert in work and quality so that these imported vehicles may win customer hearts.
They were actually pampered so they never realized to become more innovative and provide cars
that customers really wanted. Since times , they were involved in politics , so called creation of
ONS due long booking periods and lead to demand gaps.
The automobile industry had face a lot of difficulties by the year 2005 as according to the World
Trade Organization Agreement , all import duties and tariffs were to be abolished and as
Pakistan is a member of WTO, it would have to honor the agreement. In this case the
government was no longer be in a position to protect the local manufacturers against foreign
competition.
The govt. should chalk out a plan to highlight the persons per car at present and define what it
should be within a specific period in future along with the range of vehicles, and local content as
part of an overall vision. This would allow those who are a part of this industry to evolve a
strategy for achieving the targets set up by the Government.
The auto parts industry was worst hit by smuggling, as it had 80% share of the parts market. If
the Government was somehow able to reduce smuggling of auto parts by even 25%,the vendor
industry would grow by two-and-half fold. However, over the last few years, the government has
exposed the automobile industry to a potential risk of virtual annihilation as the authorities plan
on legalizing some 50,000 smuggled vehicles, through the tax rebate and waiver scheme, that
was currently being advertised by the CBR. Under the scheme, the smugglers have to pay only
normal duty on the vehicle which was be far less than on the old models. This scheme was prove
to be the second blow to the auto industry after the Yellow Cab Scheme that introduced around
25,000 cars into the country, virtually duty-free.
A greater interaction between the assemblers and the vending industry would also encourage the
development of the vending industry. It is imperative to take measures to ensure that vendors are
provided with the financing facilities. The banks should be made to play a more significant role
in the development of this sector.
The vending industry offers Pakistan a great opportunity to earn foreign exchange through
exports of spare parts. The Pakistani auto spare parts and components have been able to make
inroads in such developed markets such as the USA, UK, Germany, Italy and Turkey, not as
replacements but also as original components in many of the vehicles produced there. During the
last year, the auto components and parts exports helped Pakistan to earn $1 million. Though this
is a small amount, the receptive developed markets and their penetration by the Pakistani
vending industry offers Pakistan a huge potential in the years to come.
The automobile industry which has been in operation for more than a quarter of a century now, is
still unable to solve its own problems due to what the players in the industry called
'inconsistency' of the government policies. Like other industries, the development of automobile
industry, too, depends on persistent government policies. Any sudden changes in the official
priorities certainly affect the long-term planning of an industrial sector. This is particularly true
of the automobile industry where production units require heavy amount of capital investment
and long-term commitment. Therefore the Government should come up with stable policies for
the future.

INSTITUTIONAL SETUP
1. PAMA.
(Pakistan Automotive Manufacturers
Association)

Licensed by the Ministry of Commerce, Government of Pakistan under the Trade Organizations
Ordinance 1961 and registered under the Companies Act 1913 as a company with limited
liability . the basic objective of the organization is to promote progressive manufacture of
automotive vehicles (cars, commercial vehicles, motorcycles, farm tractors) in the country.

2. Pakistan Association of Automotive Parts & Accessories Manufacturers

(PAAPAM)

PAAPAM was formed in 1988 to represent and to provide technical and management
cooperation to its members. PAAPAM, with it’s almost a decade old history, has attained a level
of an indispensable and extremely effective link between the policy-making echelons at
Government and the whole entity of its member firms. They take up the problems of the auto
parts industry related to policy, fiscal, technical or commercial aspects on appropriate platforms
and also pursue them
with the respective Government departments. The association also organizes various seminars
and exhibitions.
PAAPAM is also represented through its members in the Government and business bodies such
as the indigenisation committee, National Engineering Manufacturers Export Councils,
Engineering Development Board, and FPCCI etc.

Engineering Development Board (EDB)

Is a Government Organization for promotion of Engineering industry in Pakistan with following

Terms of Reference

• Develop a long term vision for the development of the Engineering sector.
• Formulate and co ordinate Government policies relating to the Engineering sector
Promotion of export.
• Enhancement of technical training
• Formulate policies and guidelines for utilization of technical development and
engineering funds.
• Appeal for grievances.
• Management of deletion policy.

Export Promotion Bureau (EPB)

Is the primary agency of the Government of Pakistan engaged in promotion and boosting of
country's exports. Since its inception in 1963, it continues to facilitate the exporters in
overcoming difficulties faced by them, EPB helps exporters to participate in exhibitions abroad
and sends delegations to export markets with a view to explore new markets and develop the
traditional markets. EPB also initiate projects in various export sectors to train necessary
manpower that can
manage the export trade and industry. Export promotional activities are carried out in co-
ordination with trade bodies at home and Pakistan’s trade missions abroad.
PAAPAM members have close interaction with EPB and have participated in international
exhibitions in Frankfurt, Düsseldorf, Taiwan, Jakarta, Poland, Los Angeles and Tehran with their
support. PAAPAM has also organized number of exhibitions such as the PAPS’ ( 2007, 2000,
1995 ) with the collaboration of EPB.

PACO ( Pakistan automobile corporation)

The primary objective of the Corporation was the coordination and supervision of nationalized
automobile and tractor manufacturing companies. Its activities havebeen significantly curtailed
since the earlier change in Government Policy towards deregulation and privatization, whereby
many of its subsidiary companies have been privatized. Since 1990, the overall role of the
corporation has been redefined by the Government and it now stimulates production of defense
vehicle, acquisition of foreign technology and investment into the automobile sector in Pakistan.

Pakistan Council for Scientific and Industrial Research (PCSIR)

PCSIR is the largest research organization in Pakistan, which was established in 1953. Its main
objectives include systematic evaluation, development, value addition, and utilization of the
indigenous raw materials; conduct research and development work on problems that are being
faced by the industrial sector in
order to adopt measures for the application and utilization of research results and indigenization
of technical development through adaptation, modification, and improvement of existing
technologies appropriate to the local conditions. But unfortunately this centre is also not
fulfilling industry requirements due to lack of professionalism and linkages with industry.

Small and Medium Enterprise Development Authority (SMEDA)

The Small and Medium Enterprises Development Authority (SMEDA) was established in 1998
under the Ministry of Industries and Production in order to foster the development of SME in the
economy and was expected to take a key role in this process. Its functions include, inter alia, the
facilitation on policy making and the provision of overall planning, programming, research and
evaluation of matters related to SME in Pakistan; monitoring and evaluation; encouraging and
facilitating development of SME and to protect their interests.

BIBLIOGRAPHY:

• http://www.toyota-indus.com
• http://www.pama.org.pk

• http://www.autopakistan.com

• http://southasiainvestor.blogspot.com/2009/03/auto-industry-in-china-india-
and.html