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March 29, 2016
 

The failure of previous Auto Policy

 

As confessed by the Engineering Development Board and Ministry of Industries & Production, the overall performance of Pakistan Automotive Sector has been unable to meet its true potential, except for motorcycle manufacturing. Car assemblers, with very few exceptions, are using technology and providing features lesser as compared to similar cars in the global market. In the small car segment, the technologies being used are obsolete and have been phased out in the global market. Domestic consumers are also being deprived of best available technologies and basic safety considerations like air bags, ABS etc. Manufacturers continue to rely on fuel-inefficient technologies leading to resort to alternate cheaper fuels whereas engines are not so designed, thereby burdening the consumers further. The existing market segmentation has allowed car assemblers to operate within closed, captive market which offers restricted options to buyers.

Vehicles assemblers in Pakistan



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As confessed by the Engineering Development Board and Ministry of Industries & Production, the overall performance of Pakistan Automotive Sector has been unable to meet its true potential, except for motorcycle manufacturing. Car assemblers, with very few exceptions, are using technology and providing features lesser as compared to similar cars in the global market. In the small car segment, the technologies being used are obsolete and have been phased out in the global market. Domestic consumers are also being deprived of best available technologies and basic safety considerations like air bags, ABS etc. Manufacturers continue to rely on fuel-inefficient technologies leading to resort to alternate cheaper fuels whereas engines are not so designed, thereby burdening the consumers further. The existing market segmentation has allowed car assemblers to operate within closed, captive market which offers restricted options to buyers.

In terms of performance, the passenger car segment in Pakistan is essentially dominated by three Japanese companies having issues of lack of safety and reliability features with surplus unutilized production capacities and lack of competition. Used car imports were allowed by the government on the back of growing demand supply gap owing largely to delayed deliveries by OEMs and their inability to offer consumers choices of variants and price. Market share is highly concentrated in the 800cc and 1000cc segment which is dominated with 100 percent market share by one company as the sole producer of cars in these engine capacities.

With regard to consumer welfare in terms of price, choice, quality and after sales services, it is revealed that the consumers are generally un-satisfied with the locally produced car prices, unjustified delays in delivery and the over-charging.

Automotive Industry Development Programme (AIDP) 2007-12 was formulated with the assumption that the industry will have to be supported through five year tariff plan and various non-tariff measures for the overall development of the auto sector with regard to technology, productivity, HRD, cluster development etc. However, during AIDP period from 2007-2012, tariff rate were not implemented as projected in approved five year plan and consequently did not yield desire results.

Production of Cars in Pakistan

The Auto Industry Development Committee (AIDC) responsible for steering the policy did not achieve various set objectives. For instance, the important issue of formulation of standards and specifications could not be addressed due to weak implementation mechanism. The policy did not respond well to dynamic scenarios and market realities. For instance, production and volume targets for vehicles were based on the assumption of continued car financing and leasing facilities, which were affected adversely by market trends.

The policy was mainly modeled on various extraneous factors with insufficient provisions to adapt it to local circumstances and conditions on need basis. Consumer welfare was ignored as issues of affordability and quality were not resolved. There is a general perception that the vehicles assembled or manufactured in Pakistan have higher prices and low quality standards. The new investors’ policy failed to take-off with intent. On reflection it appears that the conditions laid down for new investors were not realistic. The EDB claims that the implementation of the policy was restrained by the lack of support from government funding and persistent efforts of the local industry to maintain status quo on one pretext or another.

The Automobile sector of Pakistan comprises assembly and manufacturing units for production of cars (3 units), tractors (8 units), trucks/buses (10 units), jeeps (2 units), LCVs/pickups/vans (8 units), and two/three wheelers (113 units). In addition, the downstream vending industry comprises around 2,000 parts manufacturers, out of which about 400 are in the organised sector. The local car market is dominated by Japanese brands of Toyota, Honda, and Suzuki. In the cars segment, Japanese manufacturers share the entire market, whereas their share in motorcycle production is 41 percent.

motorcycle production in Pakistan

The present production capacity of cars including vans/jeep/pickups/LCVs is 285,500 against which 185,000 units were produced in 2014-15, 136,000 units in 2013-14, 137,000 in 2012-13 and 175,526 in 2011-12. The low production volumes were mainly due to higher imports of cars in 2011-12 (56,973), 2012-13 (45,481), 2013-14 (29,036) and 2014-15 (23,000). Production in the country during first eight months from July 2015 to February 2016, however, rose to 149,000 units compared to 102,000 units in the same period of last year, but mainly due to introduction of new models. The car industry currently comprises three large players with Japanese principals. Pak Suzuki holds a dominant position with a market share of 50 percent. Both Toyota and Honda have roughly comparable market shares at 34 percent and 26 percent, respectively. Furthermore, the share of the 1300-1800cc segment is 52 percent, followed by 800cc with 36 percent, and 1,000cc with 12 percent.

Import of 1,000cc and below category comprises 73 percent of total imports, indicating that the demand for small cars is being met through imports as domestic production does not offer the acceptable product. Interestingly, Toyota and Honda have no presence in small car category. In cars with engine capacities below 1,000cc, Suzuki is currently the only manufacturer, whereas Suzuki also competes with Honda and Toyota in the 1,300cc capacity. Suzuki has a monopoly in the small car segment, while the larger car market is split mostly between Honda and Toyota. Hyundai, Suzuki’s last competitor, has been out of production since early 2014. FAW, the Chinese carmaker, has just entered the passenger car segment (1,000cc and 1,300cc) under technical license with a local firm Al-Haj, but these cars have not yet registered significant sales.

Year wise production of motorcycles in Pakistan

 

MOTORCYCLE INDUSTRY – A SUCCESS STORY

Motorcycle segment in Pakistan has seen rapid change in recent years, the most important which has been the increase in volume. The accompanying figure illustrates that the present production capacity of motorcycles/auto rickshaws is 4,189,800 units against which 1,748,337 units (1,699,764 motorcycles and 48,573 auto rickshaw) were produced in 2014-15, 1,746,531 in 2013-14 and 1,692,657 in 2012-13. In the motorcycle category, 70cc motorcycles dominate the market with production of 1,348,053 units. However, other categories of 100cc, 125cc and 150cc have also started generating significant market demand.

The increase in volumes was accompanied by a parallel increase in number of players operating in the market. The number of registered assemblers had increased from just nine in 1997-98 to more than a hundred in 2013-14.  A high level of indigenisation (80-85 percent) was achieved thus not only substituting imports but also resulting in lowering the costs of production. Due to these levels of indigenisation and increase in volumes, prices of motorcycles have declined correspondingly to the benefit of end consumers.

Motorcycle Factories in Pakistan-1

A unique feature of the Pakistani motorcycle market has been the presence of 70cc motorcycles. The table shows that the 70cc motorcycle has a steady market share of over 79 percent, while 100cc motorcycles have a share of 8 percent. Interestingly, 125cc motorcycles share is 11 percent, which shows preference of consumers to switch to the higher cc segment.

There are thirty-one manufacturers of Motorcycle Rickshaws in Pakistan, producing 100cc and 200cc engine capacity vehicles, operating close to full capacity utilisation. The auto rickshaw industry holds a lot of promise for Pakistan. The basic auto rickshaw which is being produced for transport of passengers only is now also altered and converted by many assemblers into different variants for use as light cargo delivery vehicles and mobile workshop etc. Some companies have exported auto rickshaws and motorcycles to Bangladesh, Sri Lanka and Afghanistan. Exports of motorcycles and auto rickshaw can pick up significantly if relevant government authorities are ready to offer tax incentives to this industry.

-Published on pages#20-22, March-2016 edition of MOBILE WORLD Magazine





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