Pakistan-Automobile-Industry

					REPORT ON PAKISTANI AUTO MOBILE INDUSTRY
COURSE INSTRUCTOR: -

December 9

2009

MADAM RUBINA

PREPARED BY: IMRAN YOUSAF (BBD-07-21) MUHAMMAD ALI (BBD-07-35)

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REPORT ON PAKISTANI AUTO MOBILE INDUSTRY 2009

Acknowledgement
In the name of “Allah”, the most beneficent and merciful who gave us strength and knowledge to complete this report. This report is a part of our course “Pakistan Economy”. This has proved to be a great experience. I would like to express our gratitude to our Pakistan Economy teacher Madam Rubina who gave us this opportunity to fulfill this report. We would also like to thank our colleagues who participated in a focus group session. They gave us many helpful comments which helped us a lot in preparing our report.

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OVERVIEW
Auto market is one of the largest segments in world trade. Changing models, improving fuel efficiency, cutting costs and enhancing user comfort without compromising quality are the most important challenges of the auto industry in a fast globalizing world. The first phase of automotive assembling in Pakistan started in 1950 with Bed Ford truck followed by Ford Prefect, Ford Cortina and Dodge Dart. The indigenized parts in these vehicles did not exceed 20% with only exception of Bed Ford trucks with a deletion level of 80%. By the end of 70s practically all automobile assembling in Pakistan ceased. The 2nd phase of Automobile assembly started in 1983 with the introduction of FX 800 CC Suzuki Car. In 1989 Pak. Suzuki changed the Model of FX 800 CC with Mehran 800CC. Pak Suzuki thereafter in 1992 introduced Khyber 1000 CC and 1300 CC Margalla but the indigenization levels from 1983 to 1995 were not significant (i.e. Mehran 30%, Khyber 20%, and Margalla, 15%). In 1993, Indus Motors Company Ltd., Karachi introduced Toyota Corolla. Honda Atlas cars (Pak) Ltd Lahore in 1994 introduced Honda Civic having 1300CC engine capacity. Indus Motors, Dewan Farooq Motors and Pak Suzuki introduced smaller Cars i.e. Cuore, Cultus and Santro of engine capacities 850 cc, 1000 cc respectively in 2000. This was known as era of competitiveness. Up to 1995, the deletion cell of MOI&P was formulating and monitoring the deletion programs. The industry specific deletion programs were formulated to specify local content requirements for cars, motorcycles, Buses and Trucks Tractors etc. The deletion policy finalized in 1996 has the following features:    Industry Specific Deletion program. No roll back from achieved Deletion Levels. Even handled Tariff Protection at all levels of processing.

The deletion levels were finalized by the sub-committees for cars, LCVs, Motorcycles and tractors etc., constituted by indigenization committee of EDB on the basis of technology levels prevalent in the engineering industry of Pakistan. The Industry specific deletion program (ISDP) books were published and distributed amongst the stakeholders, which resulted in a significant improvement in indigenization.

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Major Policies after year 2005:
1. Tariff Based Systems (TBS) 2. Auto Industry Development Program (AIDP). July 1st 2006, the deletion programs for the Automotive Sector have been replaced by the Tariff Based System (TBS). The deletion programs have gradually been phased out under the WTO regime to become TRIMs compliant. The TBS is the outcome of a long drawn consultative dialogue between all stakeholders including OEMs and Vendors, belonging to different sub-sectors of the Automobile Industry. The TBS has been developed with the following overriding objectives:

     

Preservation & promotion of technologies that have been developed in the country Protection to the present job structure in the auto sector. Promote job creation Protect the existing & planned investment by the OEMs & Vendors Promote new investment Expand the consumer base to create economies of scale

The basic framework of Tariff Based System is as under:

1. Imports in CKD condition would be allowed only to assemblers having adequate assembly
facilities and registered as such by the concerned Federal Government Agency.

2. Parts/ components indigenized by June 2004 have been placed at higher rate of Customs
Duty.

3. Parts not indigenized would be allowed at CKD rate of Custom Duty.
Introduction of Statutory Regulatory Order (SRO):

1. SRO 656 (I) / 2006 dated June 22, 2006 (For OEMs) 2. SRO 693 (I) / 2006 dated July 1, 2006 (For OEMs) 3. SRO 655(I) / 2006 dated June 22, 2006 (For Vendors)
For the purpose to handle the switching from ISDP to TBS and to ensure stable policies the consultations on the development of AIDP kicked off from the 8th March, 2006 Workshop at Islamabad by clearly defining the objectives at a time when the industry was switching over from the deletion programs to a competitive tariff based system. There was realization that the transition phase may affect the rapid growth and sustainable development of auto industry. A comprehensive development program with pre-announced tariffs to provide predictable and stable environment was therefore much needed and the finalization and approval of AIDP by the government was held on 13th November, 2007

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Policy Wise Growth of Auto Sector (PC + LCV):

PC + LCV Automobile Market
300

More than 30 policy changes
250

Taxi Scheme
Units in Thousand
200

150 Units in Thousand 100

50

0

Source: PAMA

Reasons for Rapid Growth (end 2002): 1. Increase in Car Financing. 2. Economic Growth. 3. AIDP Announced.

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The automobile industry in Pakistan can be broadly categorized into following segments:
     Cars and Light Commercial Vehicles (LCVs). Two and Three Wheelers. Tractors. Trucks and Buses. Vendor Industry.

The industry operates under franchise and technical cooperation agreements with Japanese, European and Korean manufacturers.

Current Investment, Contribution to GDP and Revenue to GOP:

Description Total Investment Total Contribution to GDP Total Revenue to GOP Source: PAMA   

2007-2008 Rs. 100 Billion 3.5% 10%

In 2007-2008 total investment in auto sector is about Rs. 100 Billion. In 2007-2008 total contribution of large scale manufacturing is 15% out of which auto sector contributes 3.5% to GDP. In 2007-2008 the contribution of revenue to Government of Pakistan by auto sector in the form of taxes is recorded 10% which is approximately Rs. 65 billion.

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Installed Capacity of Cars and Light Commercial Vehicles (LCVs):
Capacity unit/annum
Pak Suzuki Motor Co. Ltd, Karachi Public Limited Company with 72.82% shares and management held by Suzuki Motor Corporation, Japan. Indus Motor Co. Ltd, Karachi Joint venture between Habib Group, Pakistan, Toyota Tsusho Corporation, Japan (Toyota and Cuore Honda Atlas Cars (Pak) Ltd, Lahore Joint venture between Atlas Group Pakistan and Honda Motor Co. Japan. Ghandhara Nissan Ltd Technical cooperation agreement with Nissan Motors, Japan. Dewan Farooq Motors Ltd Technical cooperation agreement with Hyundai Corporation, South Korea.

150,000

50,000

20,000

6,000

25,000 251,000

Source: PAMA (Updated to FY. 2007-2008)

The automobile industry of Pakistan has travelled a long road to get to where it is now. The ups and downs, the shifts and turns have buffeted it many a times, but it displayed a resilience that had enabled it to counter adversities that it had come to face with and showed massive growth till 2006 but after that government introduced liberalized import policies TBS in replacement of ISDP which led Auto industry to stagnant growth.

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REPORT ON PAKISTANI AUTO MOBILE INDUSTRY 2009

PRESENT SITUATION OF CAR INDUSTRY:
Locally produced cars have taken an unexpected drastic downturn to the extent of frustrating all future growth prospects and projections. According to the current figures, in due comparison with the figures of last year for September to December period, the sales of cars has gone down by 15 percent. As a result the production has also gone down culminating with its impact on supply schedule; both import and local. This downturn has come at a crucial time as most of the manufacturing had just increased their investment in the expansion projects and vending industry had made equally huge investment to complement the capacity expansion exercise. The local vendors have now to face the curtailed orders, which may most hit the smaller ones with closures. All this obviously has also adversely impacted the government revenues in substantial terms. The government has suffered a revenue loss of Rs. One billion (9%) when September to December data is compared with last year. In the budget 2007-08, government announced a withholding @ 5 percent on purchase of cars which was reduced to 2.5 percent and imposed from 1st September 2007. The intension was obviously to enhance government revenue. The current situation however, has proved a reversal in collection of the revenue. Last year, the ECC approved the five years policy (AIDP) for auto sector prior to announcement of budget. Levy of such tax is a deviation from the spirit of preannounced policy thus causing anxiety to thee auto manufactures. The uplift in the car market is also suffering due to stringent regulations announced by State Bank of Pakistan recently for car financing. Moreover, the cost of financing has also increased interest rates from nearly 8 to 15 percent. With low custom duty rates for CBUs and unprecedented import of used cars, the local industry is putting utmost effort to survive and looking at the government not to deviate from the preannounced policy and ensure strict compliance of rules on import of used from cars and stop further release of smuggled vehicle

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PRODUCTION

Production of Cars:
CAR 1300-1600cc (2000cc Diesel) Honda (Civic) Honda (City) Suzuki (Baleno) Suzuki (Liana) Toyota (Corolla) Nissan (Sunny) Kia (Classic NGV) Kia (Spectra) 1000cc Suzuki (Khyber/ Cultus) Suzuki (Alto) Hyundai (Santro Plus) 800c Daihatsu (Cuore) Suzuki (Mehran) Suzuki (Bolan) TOTAL CARS: Source: PAMA 2002-03 4,610 3,786 2,608 ~ 12,861 51 459 384 8,097 4,775 3,114 4,580 16,748 4,359 66,432 2003-04 5,998 7,417 4,153 ~ 20,525 26 188 73 10,810 7,196 7,902 6,468 27,705 5,201 103,662 2004-05 12,359 11,771 5,965 ~ 23,007 0 465 1 15,591 11,411 6,101 8,525 31,207 7,319 133,722 2005-06 12,274 17,606 2,939 5,370 31,094 0 0 0 21,342 17,513 8,604 7,883 35,433 10,429 170,487 2006-07 2007-08 Upto-Mar'08 5,610 4,347 10,461 6,206 0 0 5,964 2,306 35,036 24,396 0 0 0 0 0 0 29,880 21,546 2,225 12,786 36,988 15,520 176,016 19,852 14,407 1,527 8,933 26,933 13,051 121,958

Production of Trucks:
TRUCK Hino Nissan Dong Feng Master Isuzu TOTAL TRUCKS: Source: PAMA 2002-03 792 627 510 ~ N.A. 1,929 2003-04 1,020 898 104 ~ N.A. 2,022 2004-05 1,196 1,306 23 551 128 3,204 2005-06 1,499 1,652 4 466 897 4,518 2006-07 2,244 829 3 380 954 4,410 2007-08 1,831 593 0 341 552 3,317 Upto-Mar'08

Production of Buses:
BUS Hino Nissan Dong Feng Master Isuzu TOTAL BUSES: Source: PAMA 2002-03 756 60 480 ~ N.A. 1,296 2003-04 1,195 96 89 ~ N.A. 1,380 2004-05 1,392 120 110 21 119 1,762 2005-06 668 48 40 6 63 825 2006-07 2007-08 Upto-Mar'08 744 31 8 5 205 993 635 48 10 5 140 838

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Production of Jeeps and LCVs:
Jeep & LCV, (4X4) Suzuki Jeep (Potohar) Sigma (Defender) Total Jeeps Source: PAMA 2002-03 374 ~ 374 2003-04 807 ~ 807 2004-05 1,120 444 1,564 2005-06 1,290 1,182 2,472 2006-07 2007-08 Upto-Mar'08 1,891 0 1,407 1,149 3,298 1,149

Production of Pickups:
PICK-UP / LCV Suzuki (Ravi) Toyota (Hilux) Dong Feng Hyundai (Shehzore) Master TOTAL PICK-UPs: Source: PAMA 2002-03 1,701 3,045 ~ 3,069 ~ 7,815 2003-04 2,085 2,229 304 4,270 ~ 8,888 2004-05 3,310 3,394 21 8,022 1,547 16,294 2005-06 5,418 2,575 24 9,368 1,767 19,152 2006-07 10,117 0 4 8,381 1,170 19,672 2007-08 8,512 1,596 80 5,015 449 15,652 Upto-Mar'08

Production of Farm Tractors:
FARM TRACTOR Fiat (New Holland) Millat (Massey Ferguson) TOTAL FARM TRACTORS: Source: PAMA 2002-03 12,114 14,126 26,240 2003-04 16,637 19,133 35,770 2004-05 20,840 22,360 43,200 2005-06 24,574 24,313 48,887 2006-07 27,018 27,080 54,098 2007-08 18,195 19,031 37,226 Upto-Mar'08

Production of Motorcycles:
MOTORCYCLE Honda Yamaha Suzuki Sohrab Sohrab (Triwheeler) Qingqi(2 & 3 wheeler) Hero Ravi Sazgar (Triwheeler) TOTAL MOTORCYCLES: Source: PAMA 2002-03 115,924 27,427 13,610 6,801 1,343 10,064 ~ ~ ~ 175,169 2003-04 190,679 50,407 27,863 12,396 3,031 19,007 ~ ~ ~ 303,383 2004-05 287,271 71,560 26,234 12,065 3,258 15,801 ~ ~ ~ 416,189 2005-06 360,561 74,423 16,954 14,804 2,166 17,198 34,018 ~ ~ 520,124 2006-07 331,621 56,282 27,309 7,514 2,817 15,926 25,798 ~ ~ 467,267 2007-08 329,816 48,633 23,712 4,578 1,498 22,135 18,646 17,763 7,268 474,049 Upto-Mar'08

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SALES
Sales of Cars:
CAR 1300-1600cc (2000cc Diesel) Honda (Civic) Honda (City) Suzuki (Baleno) Suzuki (Liana) Toyota (Corolla) Nissan (Sunny) Kia (Classic NGV) Kia (Spectra) 1000cc Suzuki (Khyber/ Cultus) Suzuki (Alto) Hyundai (Santro Plus) 800cc Daihatsu (Cuore) Suzuki (Mehran) Suzuki (Bolan) TOTAL CARS: Source: PAMA 4,579 16,582 4,360 66,315 6,339 27,432 5,228 101,848 8,592 31,165 7,241 134,550 7,883 35,982 10,451 165,965 12,776 37,007 15,566 180,834 8,671 26,675 12,984 120,246 7,927 4,701 3,135 10,795 7,148 6,922 15,611 11,431 7,009 21,390 16,823 7,031 29,837 21,988 3,470 19,342 13,685 1,745 4,637 3,749 2,588 ~ 12,867 69 687 434 6,097 7,271 4,062 ~ 20,321 25 81 127 12,352 11,714 5,879 ~ 23,002 1 546 7 11,998 16,136 3,173 4,571 30,527 0 0 0 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Upto-Mar'08 6,513 4,146 11,848 0 6,067 35,762 0 0 0 6,355 0 2,420 24,223 0 0 0

Sales of Trucks:
TRUCK Hino Nissan Dong Feng Master Isuzu TOTAL TRUCKS: Source: PAMA 2002-03 758 614 511 ~ ~ 1,883 2003-04 948 845 75 ~ ~ 1,868 2004-05 1,262 1,326 27 565 165 3,345 2005-06 1,449 1,478 16 464 866 4,273 2006-07 2007-08 Upto-Mar'08 2,035 1,919 871 828 2 0 378 303 938 610 4,224 3,660

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Sales of Buses:
BUS Hino Nissan Dong Feng Master Isuzu TOTAL BUSES: Source: PAMA 2002-03 795 36 501 ~ ~ 1,332 2003-04 1,187 107 69 ~ ~ 1,363 2004-05 1,293 93 131 23 65 1,605 2005-06 649 79 47 10 142 927 2006-07 770 47 16 6 139 978 2007-08 Upto-Mar'08 682 28 18 4 120 852

Sales of Jeeps and LCVs:
Jeep & LCV, (4X4) Suzuki Jeep (Potohar) Sigma (Defender) Total Jeeps Source: PAMA 2002-03 465 ~ 465 2003-04 807 ~ 807 2004-05 1,107 407 1514 2005-06 1,298 1,222 2520 2006-07 1,863 1,534 3397 2007-08 Upto-Mar'08 35 903 938

Sales of Pickups:
PICK-UP / LCV Suzuki (Ravi) Toyota (Hilux) Dong Feng Hyundai (Shehzore) Master TOTAL PICK-UPs: Source: PAMA 2002-03 1,710 2,861 ~ 2,987 ~ 7,558 2003-04 2,087 2,399 209 4,203 ~ 8,898 2004-05 3,286 3,389 86 8,012 1,528 16,301 2005-06 5,416 2,551 33 9,234 1,717 18,951 2006-07 10,098 52 14 8,574 1,243 19,981 2007-08 Upto-Mar'08 8,536 1,510 70 4,794 493 15,403

Sales of Farm Tractors:
FARM TRACTOR Fiat (New Holland) Millat (Massey Ferguson) TOTAL FARM TRACTORS: Source: PAMA 2002-03 12,617 14,215 26,832 2003-04 16,888 19,012 35,900 2004-05 21,163 22,415 43,578 2005-06 24,649 24,153 48,802 2006-07 26,927 27,125 54,052 2007-08 Upto-Mar'08 18,342 18,754 37,096

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Sales of Motorcycles:
MOTORCYCLE Honda Yamaha Suzuki Sohrab Sohrab (Triwheeler) Qingqi(2 & 3 wheeler) Hero Ravi Sazgar (Triwheeler) TOTAL MOTORCYCLES: Source: PAMA 2002-03 117,201 27,886 13,788 2,403 585 10,010 ~ ~ ~ 171,873 2003-04 190,424 50,435 27,435 12,494 3,013 17,855 ~ ~ ~ 301,656 2004-05 287,172 71,498 26,002 12,127 3,186 17,081 ~ ~ ~ 417,066 2005-06 360,110 74,293 17,183 13,943 2,218 15,757 33,136 ~ ~ 516,640 2006-07 2007-08 Upto-Mar'08 332,068 330,122 56,243 47,697 27,424 23,184 7,835 4,835 2,839 1,510 15,035 23,359 25,909 18,833 ~ 17,483 ~ 7,268 467,353 474,291

Market Shares for FY-Year 2006-2007
Market Shares of Cars:
CARS Suzuki Toyota Honda Hyundai Nissan Kia Total Units Sold (nos.) 110,465 48,538 18,361 3,470 0 0 180,834 Market Share (%) 61 26 10 3 0 0 100

Cars
Suzuki Toyoya Honda Hyundai

Nissan
KIA

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Market Shares of Trucks:
TRUCKS Hino Isuzu Nissan Master Dong Fang Total Units Sold (nos.) 2,035 938 871 378 2 4,224 Market Share (%) 48 22 21 9 0 100

Trucks
Hino Isuzu Nissan Master Dong Fang

Market Shares of Buses:
BUSES Hino Isuzu Nissan Dong Fang Master Total Units Sold (nos.) 770 139 47 16 6 978 Market Share (%) 78 14 5 2 1 100

Buses
Hino Isuzu Nissan Dong Fang Master

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Market Shares of LCVs and Pickups:
PICKUPS/LCVs Suzuki Hyundai Master Toyota Dong Fang Total Units Sold (nos.) 10,098 8,574 1,243 52 14 19,981 Market Share (%) 51 42 6 1 0 100

LCVs
Suzuki Hyundai Nissan Toyata Dong Fang

Market Shares of Motorcycles:
MOTORCYCLES Honda Yamaha Suzuki Hero Qingqi Sohrab Total Units Sold (nos.) 332,068 56,243 27,424 25,909 15,035 10,674 467,353 Market Share (%) 71 12 6 6 3 2 100

Motorcycles
Honda Yamaha Suzuki Hero

QingQi
Sohrab

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Product Characteristics
As the production of automotive vehicles is based on foreign joint ventures of Japanese, Korean and European Origin, therefore, the product quality is of international standards. The quality standards being followed are mainly:    Japan Industrial Standards (JIS). Society of Automotive Engineers, USA, (SAE). International Standards Organization (ISO).

The major automobile companies in Pakistan have been set up as joint venture with foreign multinational companies.

Joint Ventures for Automotive Vehicles
Company Indus Motor Company Atlas Honda Ltd. Pak Suzuki Suzuki Motorcycle Pakistan Ltd. Ghandara Nissan Dewan Farooq Motors Ltd. Raja Motor Co. Source: PAMA Joint Venture Toyota, Japan and Daihatsu, Japan Honda, Japan Suzuki, Japan Suzuki, Japan Nissan, Japan Kia and Hyundai, Korea Fiat, Italy Product Toyota and Daihatsu Cuore cars Honda Cars, Honda Motorcycles Suzuki cars Suzuki Motorcycles Cars and Truck Cars and LCVs Cars

SWOT ANALYSIS
Strengths:
Increasing Demand for Cars: In Pakistan context there are 9 cars in 1,000 persons which is one of the lowest in the emerging economies which itself speaks of high potential of growth in the auto sector and more so in the car production. Rising per capita income with changing demographic distribution and an anticipated influx of 30 to 40 million young people in the economically active workforce in the next few years provides a stimulus to the industry to expand and grow. Resale of Local Assembled Cars: Resale of locally assembled cars is better due to availability of spare parts and after sales services and warranty Used imported cars have been selling below their cost at the showrooms for the last six months but consumers are not inclined to buy because of their low re-sale value and problems in parts availability.

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Quality of local cars: Initially when the import of cars was liberalized the quality of local assembled cars was unsatisfactory so the people of high income level group started buying imported cars and the sales of the local assembled cars started decreasing so the local assemblers started enhancing the quality of their vehicles so we can say that the quality of local cars is becoming the strength of the auto industry. OEM: The local OEM of Pakistan is well equipped with enough advance technology and skilled labor to produce parts according to the desired quality of any foreign company. CNG kit The advantage of buying local assembled cars is that they comes with factory fitted CNG kits at the times when the prices of fuel rising at higher pace internationally. Mechanics: For local assembled cars mechanics are readily available in market and much cheaper so the buyer has not to worry about any problem that can occur in the car in long term whereas the availability for imported cars is a bigger issue for the owners and if somehow they are able to find one then the mechanics charges much higher than actually it should be charged.

Weakness:
WTO—Deletion program: THE World Trade Organization (WTO) has rejected Pakistan’s request for the extension of the deletion program which enabled it to lay down the condition of the local content requirement (LCR). Under LCR, the automobile and other engineering industry was required to use locally manufactured parts and accessories in terms of government’s deletion policy. The condition of the LCR was an aberration to the Clause 5.2 of the WTO Agreement on Trade Related Investment Measures (TRIMs), Article III–-National Treatment under the GATT, 1994. WTO’s decision for not extending its deletion program / LCR condition has varied impact on Pakistan’s vendor industry, automobile assemblers, car users and the government. Input Cost: In Pakistan as the inflation is increasing so as the input costs and for manufacturers it is becoming harder to produce at lower cost. Increasing cost of energy and its unreliable and inconsistent supply adds up the cost of manufacturing and wastage of resources. It is estimated that by the year 2012, auto industry consumption of electricity will cross 500 – 600 MW from around 250 - 300 MW, as of now. Protection level: Before the TBS was introduced the auto industry was well protected by the government but now as the import of CKD and CBU is liberalized the protection level to industry by government is decreased. Lack of skilled manpower for modern machinery In Pakistan conventional machines are not able to meet the precision manufacturing and the available labor is not familiar with modern technology it caused by lack of coordination and linkages with Government/Semi Government Supporting Bodies and Technical Training Institutes BZU SUB CAMPUS DERA GHAZI KHAN 17

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Scarcity of raw material especially steel Through previous years the world prices are rising and causing costly inputs and Pakistan has left with scarce Steel and Iron left, so manufacturers are facing difficulties in producing cars with low prices.

Opportunities:
Import German technology and skills EDB wanted to build a Pakistan-German automotive supply network, providing opportunities to Pakistani automotive vendor enterprises to benefit from the German know-how and technology to improve quality, productivity, developing and marketing of value-added products. Foreign Investment and setup production facilities China National Heavy Duty Truck Corporation (CNHDTC), one of the largest heavy duty truck manufacturers in China, has shown interest for investment in the automobile sector of Pakistan. The study is required to attract players from Germany as well as from other countries to develop business with the Pakistani counterparts. Baggase Fuel As the fuel prices are rising in world Pakistan should switch to Ethanol Fuel as Brazil is using. Ethanol Fuel is produced by Molasses. Pakistan is one of the country which produces good quantity of molasses but the engines of the local cars do not support ethanol so Pakistan should acquire the Technology to produce ethanol compatible cars. In Brazil they use 90% Ethanol and 10% petroleum whereas Pakistani cars with default engines can afford only 3% Ethanol. Global spare part market The annual gross sales turnover of the auto industry, at present, stands at Rs210 billion while export of auto parts are estimated at $35 million. As such, the increase in production turnover is projected to increase by 185 per cent while the exports of auto parts would make quantum jump.

Threats:
WTO—Parts indigenization Smuggling of auto parts The auto industry is generally faced by multiplicity of taxes; the presumptive tax regime has led to increase in prices of imported inputs and the finished goods. Component manufacturers are struggling to compete with under-invoicing, miss declaration and smuggling. Import of used parts is still continuing at a large scale. Smuggling, under-invoicing and dumping of auto parts Competition from import cars Auto industry is facing a threat from the import of cars which is already liberalized further it is said that government will cut about 15% of duties till 2011. Fuel prices According to the authorities the fuel prices which currently are Rs 68.8 and are going to increase by more Rs. 6 by the end of 3-Jun-08.

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Decreasing tariff structure: For localized parts of CKD cars, the tariff would reduce from 50 per cent to 45 per cent in 2008-09 and further to 35 per cent in the next two years. The tariff for CKD non-localized parts would be reduced from 35 per cent to 32.5 per cent in 2007-08 and would keep on decline by 2.5 per cent every year to 25 per cent in 2010-11. The rate for CBU cars up to 1500cc, the tariff would be reduced from 50 per cent to zero next year (2007-08) and to be kept at that level thereafter. For CBU cars between 1500-1800cc, the current rate of 65 per cent would be reduced at the rate of five per cent annually to 50 per cent by 2010-11. For CBU cars exceeding 1800cc, the applicable rate of 75 per cent would be reduced at the rate of five per cent per annum to 50 per cent in 2010-11. For LCVs, the tariff on CKD kits would be reduced from 20 per cent to 15 per cent at the rate of one per cent every year. However, the tariff for CBU LCVs, the rate would be reduced from 60 per cent to 50 per cent in a phased manner by 2010-11. For two-wheelers, the tariff on CKD kits would be reduced from existing 30 per cent to 20 per cent in phased manner to 2010-1. Similarly, the tariff on CBU two wheelers would reduce to 60 per cent by 2010-11 from existing rate of 90 per cent. For localised CKD parts of tractors and heavy commercial vehicles, the existing tariff of 35 per cent has been proposed to be reduced to 25 per cent in 2010-11. For prime movers (up to 280 HP) the tariff for CKD would be reduced from 10 per cent to five per cent next year and then kept at that level onwards. Similarly, the tariff for CBUs would be reduced to 25 per cent next year and then kept at that level for the next five years. The tariff for prime movers (above 280HP) and would remain unchanged, while it would be reduced for trucks from 10 to five per cent and from 30 to 25 per cent next year.

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