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Pakistan Automobile Industry

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									                                          ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT



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                         LETTER OF TRANSMITTAL


June 03, 2008

Mr. Zeeshan Ali

Teacher, Analysis of Pakistani Industry

Bahria University
Karachi.

Sir:

We herewith present our “Term Report” authorized by you as a requirement for this course.
                                                        BAHRIA UNIVERSITY KARACHI    1
                                             ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT

In this report, we have tried to provide updated information and SWOT analysis of Automobile
Industry.

We hope we have covered all that was required for the report.

If there be any clarification demanded, we would appreciate a call from you to our group
members.

Sincerely,

Bilal Razzak

Maaz Khalid

Muhammad Zain




                            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 “Analysis of Pakistani Industry”. This
has proved to be a great experience. This report is a combine effort of Bilal Razzak, Maaz Khalid
and Muhammad Zain.


                                                            BAHRIA UNIVERSITY KARACHI      2
                                               ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT

We would like to express our gratitude to our subject teacher Mr. Zeeshan Ali; who gave us this
opportunity to fulfill this report. We would also especially like to thank Mr. Engr. Muhammad
Atiq-ur-Rehman Technical Analyst in PAMA and our colleagues who participated in a focus
group session to make our work better. They gave us many helpful comments which helped us
a lot in preparing our report.




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

                                                              BAHRIA UNIVERSITY KARACHI       3
                                                 ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT

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.




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


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            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




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




                                             PC + LCV Automobile Market
                    300

                                                    More than 30 policy changes
                    250

                                      Taxi Scheme
                    200
Units in Thousand




                    150

                                                                                                          Units in Thousand
                    100


                     50                                                       BAHRIA UNIVERSITY KARACHI      5


                      0
                                              ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT




Source: PAMA




The automobile industry in Pakistan can be broadly categorized into following
segments:
                                                              Reasons for Rapid Growth (end
      Cars and Light Commercial Vehicles (LCVs).             2002):
      Two and Three Wheelers.
                                                                 1. Increase in Car Financing.
      Tractors.
                                                                 2. Economic Growth.
      Trucks and Buses.
      Vendor Industry.                                          3. AIDP Announced.

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


Current Investment, Contribution to GDP and Revenue to GOP:


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                                             ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT

Description                                                                 2007-2008
Total Investment                                                            Rs. 100 Billion
Total Contribution to GDP                                                   3.5%
Total Revenue to GOP                                                        10%
Source: PAMA

      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.




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
                                                                       150,000
Corporation, Japan.
Indus Motor Co. Ltd, Karachi
Joint venture between Habib Group, Pakistan,
Toyota Tsusho Corporation, Japan (Toyota and
                                                                        50,000
Cuore
Honda Atlas Cars (Pak) Ltd, Lahore
Joint venture between Atlas Group Pakistan
and
                                                                        20,000
Honda Motor Co. Japan.
Ghandhara Nissan Ltd
Technical cooperation agreement with Nissan
                                                                        6,000

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                                                ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT

Motors, Japan.
Dewan Farooq Motors Ltd
Technical cooperation agreement with Hyundai                               25,000
Corporation, South Korea.
                                                                           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.




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


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                                                 ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT

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 pre-announced
policy and ensure strict compliance of rules on import of used from cars and stop further release of
smuggled vehicles.




                                           PRODUCTION



Production of Cars:
    CAR                              2002-03    2003-04    2004-05     2005-06    2006-07    2007-08
    1300-1600cc (2000cc Diesel)                                                         Upto-Mar'08
    Honda (Civic)                    4,610       5,998      12,359     12,274      5,610     4,347
    Honda (City)                     3,786       7,417      11,771     17,606      10,461    6,206
    Suzuki (Baleno)                  2,608       4,153      5,965      2,939          0        0
    Suzuki (Liana)                      ~           ~          ~       5,370       5,964     2,306
    Toyota (Corolla)                 12,861      20,525     23,007     31,094      35,036   24,396
    Nissan (Sunny)                     51          26          0          0           0        0
    Kia (Classic NGV)                 459         188        465          0           0        0
    Kia (Spectra)                     384          73          1          0           0        0
    1000cc
    Suzuki (Khyber/ Cultus)           8,097      10,810     15,591     21,342      29,880     19,852
    Suzuki (Alto)                     4,775      7,196      11,411     17,513      21,546     14,407
    Hyundai (Santro Plus)             3,114      7,902      6,101      8,604       2,225      1,527
    800c
    Daihatsu (Cuore)                  4,580      6,468       8,525      7,883      12,786      8,933
                                                                 BAHRIA UNIVERSITY KARACHI        9
                                      ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT

   Suzuki (Mehran)          16,748    27,705    31,207    35,433    36,988     26,933
   Suzuki (Bolan)           4,359      5,201     7,319    10,429    15,520     13,051
   TOTAL CARS:              66,432    103,662   133,722   170,487   176,016    121,958
      Source: PAMA




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




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




Production of Jeeps and LCVs:
   Jeep & LCV,             2002-03    2003-04   2004-05   2005-06   2006-07    2007-08
   (4X4)                                                                  Upto-Mar'08
   Suzuki Jeep (Potohar)        374     807      1,120     1,290     1,891      0

                                                    BAHRIA UNIVERSITY KARACHI      10
                                        ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT

   Sigma (Defender)              ~         ~        444      1,182     1,407     1,149
   Total Jeeps                  374       807      1,564     2,472     3,298     1,149
      Source: PAMA




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




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




                                                       BAHRIA UNIVERSITY KARACHI    11
                                          ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT

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




                                          SALES

Sales of Cars:
  CAR                           2002-03   2003-04   2004-05   2005-06   2006-07     2007-08
  1300-1600cc (2000cc Diesel)                                                    Upto-Mar'08
  Honda (Civic)                  4,637     6,097    12,352     11,998    6,513       4,146
  Honda (City)                   3,749     7,271    11,714     16,136   11,848       6,355
  Suzuki (Baleno)                2,588     4,062     5,879     3,173      0            0
  Suzuki (Liana)                  ~         ~         ~        4,571     6,067       2,420
  Toyota (Corolla)              12,867    20,321    23,002     30,527   35,762      24,223
  Nissan (Sunny)                  69        25        1          0        0            0
  Kia (Classic NGV)              687        81       546         0        0            0
  Kia (Spectra)                  434       127        7          0        0            0
  1000cc
  Suzuki (Khyber/ Cultus)        7,927    10,795    15,611     21,390   29,837      19,342
  Suzuki (Alto)                  4,701     7,148    11,431     16,823   21,988      13,685
  Hyundai (Santro Plus)          3,135     6,922     7,009     7,031     3,470       1,745


                                                          BAHRIA UNIVERSITY KARACHI    12
                                     ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT

  800cc
  Daihatsu (Cuore)          4,579     6,339     8,592     7,883    12,776       8,671
  Suzuki (Mehran)          16,582    27,432    31,165    35,982    37,007      26,675
  Suzuki (Bolan)            4,360     5,228     7,241    10,451    15,566      12,984
  TOTAL CARS:              66,315    101,848   134,550   165,965   180,834     120,246
        Source: PAMA

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




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




Sales of Jeeps and LCVs:
  Jeep & LCV,              2002-03   2003-04   2004-05   2005-06   2006-07     2007-08
  (4X4)                                                                     Upto-Mar'08
  Suzuki Jeep (Potohar)     465       807       1,107     1,298     1,863         35

                                                   BAHRIA UNIVERSITY KARACHI      13
                                       ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT

  Sigma (Defender)             ~         ~        407       1,222     1,534        903
  Total Jeeps                 465       807       1514      2520      3397         938
      Source: PAMA




Sales of Pickups:
  PICK-UP / LCV              2002-03   2003-04   2004-05   2005-06   2006-07     2007-08

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




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




                                                     BAHRIA UNIVERSITY KARACHI      14
                                        ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT

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




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


                                            Cars
                                                              Suzuki
                                                              Toyoya
                                                              Honda
                                                              Hyundai
                                                              Nissan
                                                          KIA
                                                        BAHRIA UNIVERSITY KARACHI       15
                                   ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT




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


                                     Trucks
                                                Hino
                                                Isuzu
                                                Nissan
                                                Master
                                                Dong Fang




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



                                      Buses
                                                Hino
                                                Isuzu
                                                Nissan
                                                Dong Fang
                                                Master


                                               BAHRIA UNIVERSITY KARACHI   16
                                        ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT




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


                                            LCVs
                                                     Suzuki
                                                     Hyundai
                                                     Nissan
                                                     Toyata
                                                     Dong Fang




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


                                     Motorcycles
                                               BAHRIA UNIVERSITY KARACHI     17

                                                      Honda
                                                      Yamaha
                                               ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT




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.
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                           Joint Ventures for Automotive Vehicles

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




                                         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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                                                 ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT


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:



                                                                 BAHRIA UNIVERSITY KARACHI        20
                                               ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT

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

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



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                                                   ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT

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.

Decreasing tariff structure:

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                                                ANALYSIS OF PAKISTANI INDUSTRY FINAL REPORT

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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