AUTOMOBILE SECTOR
1. Introduction:Pakistan is one of the leading countries in the
world having a large number of vehicles. Thus Auto sector in
Pakistan is improving each day and its contributing to the GDP of
the country to an effective extent. The basic idea in this report
is to make new vehicles from the spare parts of used vehicles due
to the increasing prices of current vehicles and also the
automobile industry of Pakistan is compared with that of India in
the end.
2. Automobiles Industry in Pakistan:Pakistan is an emerging
market for automobiles and automotive parts offers immense
businessand investmentopportunities. The total contribution of Auto
industry to GDP in 2007 is 2.8% which is likely to increase up to
5.6% in the next 5 years. Total gross sales of automobiles in
Pakistan were Rs.214 billion in 2006-07 or $2.67 billion. The
industry paid Rs.63 billion cumulative taxes in 2007-08 that the
government has levied on automobiles.There are 500 auto-parts
manufacturers in the country that supply parts to original
equipment manufacturers (PAMA members). Auto sector presently,
contributes 16% to the manufacturing sector which also is expected
to increase 25% in the next 7 years, as compared to 6.7 percent
during 2001-02.Vehicles manufacturers directly employ over 192,000
people with a total investment of over $ 1.5 billion. Currently,
there are around 82 vehicles assemblers in the industry producing
passengers cars, light commercial vehicles, trucks, buses, tractors
and 2/3 wheelers. The auto policy is geared up to make an
investment of $ 4.09 billion in the next five years thus, making a
target of half a million cars per annum achievable.
3. Contribution to the GDP:Today the automotive industry
annually contributes over Rs 30 billion toPakistan's GDP and is
also paying approximately Rs 8 billion per year inthe form of taxes
and thereby playing a pivotal role in the developmentof Pakistan's
economy. Presently the auto industry has the capacity toproduce
120,000 cars annually on a double shift basis. Carmanufacturers in
Pakistan over the last decade have contributedconsiderably towards
employment generation. Car manufacturers inPakistan and vendors
employ around 150,000 to 200,000, peopledirectly and indirectly.
The Original Equipment Manufacturers (OEMs)have also been
instrumental for transfer of technology, value additionand manpower
development. As a consequence of car manufacturing inPakistan, a
vibrant auto vendor industry has emerged that is now notonly
supplying parts to local OEMs like Toyota, Honda, Suzuki,
Nissan,etc, but also exporting internationally.Auto-part exports
are approximately $20 million per annum. Due to thedeletion policy,
cars manufactured by OEMs now consist 50% to over70% local
components depending on the model. Over the year
vehiclesmanufacturing has been among the few industries that has
continued toattract local and foreign investment even when the
investment climate inthe country has not been very favorable. The
development of the localcar-manufacturing sector is a key element
in the industrializationprocess. It must be remembered that the
import of used cars as opposedto Complete Knock Down (CKD) parts
would cause a major drain onPakistan's foreign exchange and work
towards retarding the overallgrowth of the engineering sector in
Pakistan.The auto manufacturers in Pakistan are playing a
significant role in theexports of the country. From July 2001-March
2002 auto parts exportshave been to the tune of $27 million.. The
deletion process is ongoingand every year a certain set number of
locally manufactured car parts areincorporated. According to the
deletion program car makers have toprogressively increase quantum
of locally made car parts till themaximum level is attained.
Currently in small cars the deletion level isalmost 75% and in
larger cars it is close to 60%. A change in the shapehas impact on
the deletion program. A change in shape means aninvestment of
anywhere from Rs 4-5 billion, which economically is nota viable
proposition keeping in view low demand trend.Pakistan is an
emerging market for automobiles and automotive parts,offers immense
business and investment opportunities. The totalcontribution of
Auto industry to GDP in 2007 is 2.8% which is likely toincrease up
to 5.6% in the next 5 years. Total gross sales of automobilesin
Pakistan were Rs.214 billion or $2.67 billion in 2006-2007.
Theindustry paid Rs.63 billion cumulative taxes in 2007-2008 that
thegovernment has levied on automobiles. There are 500
auto-partsmanufacturers in the country that supply parts to
original equipmentmanufacturers (PAMA members). Auto sector
presently, contributes16% to the manufacturing sector which also is
expected to increase 25%in the next 7 years, as compared to 6.7
percent during 2001-02.Vehiclesmanufacturers directly employ over
192,000 people with a totalinvestment of over $ 1.5 billion.
Currently, there are around 82 vehiclesassemblers in the industry
producing passengers cars, light commercialvehicles, trucks, buses,
tractors and 2/3 wheelers. The auto policy isgeared up to make an
investment of $ 4.09 billion in the next five years
Contribution of Indian auto sector to its GDP:The Indian
automobile sector is more secure than the Pakistanis and its strong
economic condition of the Indian economy,it contribution in Indian
GDP is more than that of Pakistan.According to the statistical
division of india,the automobile sector contributes about 10% to
Indian GDP.It is almost double the number,what the Pakistani
automobile sector contributes to its GDP.
4. Production (P) and Sales (S) of Vehicles of Paksitan
automobile sector:
5. VISION 2013: The Future of Pakistan Auto Industry
Product2007-8VISION 2013
Cars (nos.)164,710500,000
2 wheelers1.06 million1.7 million
Investment (Billion)98225
Contribution to GDP (%)2.85.6
Contribution to manufacturing sector (%)1625
Direct Employment192,000500,000
Gross sales turn over (Billion)214600
6. Automobile Industry and the Allied industries:The automobile
industry has also strengthened many associatedindustries and allied
industries. It has not only provided jobs to alarge number of
people but has also contributed significantly to thenational
exchequer. The most prominent allied industries are asfollows.1-CNG
(compressed natural gas stations)2-workshops3-tyre
shops4-Automobile parts shops
7. Decline and sales revenue:Unfortunately, the recent downward
trend in auto sales (cars + LCVs) continued as auto sales stood at
27,034 units for July-September 2008, showing a decline of 44
percent year-on-year, the data released by Pakistan Automobiles
Manufacturers Association (PAMA) shows. (Link)Automobile grew from
2001-2007, the industry and the government of Pakistan fixed a
target of over half million units production by the year 2011-12
that now seems out of reach. The industry slightly fell short to
achieve the targeted productions in 2006-07 when 1,95,688 cars were
manufactured against a target of 2,26,620 units. However, there was
some growth in production that year. In 2007-08 the production
declined to 1,87,634 units against a projected target of 2,66,543
units. In the current fiscal year they said the production is
expected to decline to 1,50,107 units that are half the projected
target of 3,13,486 units.Despite an additional levy of 5 per cent
excise duty, the revenues from automobile sector would decline by
over 25 per cent this year due to declining demand. The industry
paid Rs.63 billion cumulative taxes that the government has levied
on automobiles. This year, despite additional duty the sector would
hardly contribute Rs50 billion in the national exchequer.
8. Automobile Manufacturers and Vendors concerns:Automobile
manufacturers and auto-parts vendors have warned the government
that despite an additional levy of 5 per cent excise duty, the
revenues from automobile sector would decline by over 25 per cent
this year due to declining demand.The Pakistan Association of Auto
Parts and Accessories Manufacturers (PAAPAM) and Pakistan
Automobile Manufacturers Association (PAMA) in a joint presentation
have suggested various steps that should be taken by the government
to arrest the slowdown in sales. The two associations appealed to
the government to withdraw the 5 per cent excise duty on cars and
impose a ban on import of used parts instead of allowing their
import after imposing 30 per cent redemption duty.They asked the
government to place stringent checks on auto-parts imported
commercially or as semi knock out kits. They proposed the
introduction of non-tariff measures to curb the import of parts
that are being manufactured in Pakistan. They pointed out that the
50 per cent duty has failed to stop the import of these parts as
the import prices are easily manipulated by the importers.
Moreover, import under SRO 63 attracting 50 per cent duty should
not be allowed under FBRs CARE system. They have also appealed for
special incentives for the auto sector including lower mark-up on
loans and a waiver of 35 per cent L/C margin.The two associations
pointed out that investment in the automobile sector has frozen at
Rs98 billion and is expected to remain at the same level by
2011-12.
9. Key players in Automobile industry:
a) Honda Atlas Cars Pakistan Ltd:Honda Atlas Cars Pakistan
Limited is a joint venture between Honda Motor Company Limited
Japan, and the AtlasGroup of Companies, Pakistan. The company was
incorporated on November 1992 and joint venture agreement was
signed on August 1993. The ground breaking ceremony was held on
April 17, 1993 and within a record time of 11 months, construction
and erection of machinery was completed. The first car rolled off
the assembly line on May 26, 1994. Official inauguration was done
by President of Pakistan, SardarFarooq Ahmad Khan Leghari. Mr
Kawamoto, President of Honda Motor Company Limited Japan was also
present to grace the occasion. The company is listed on Karachi,
Lahore and Islamabad Stock Exchanges. In July 1994, car bookings
started at six dealerships in Karachi, Lahore, and Islamabad. Since
then the Dealerships Network has expanded and now the company has
sixteen 3S (Sales, Service and Spare Parts) and thirty 2S (Service
and Spare Parts) Pitstops network in all major cities of Pakistan.
Since the commencement of production in 1994, the company has
produced and sold more than 150,000 cars till Oct, 2008. All
dealerships are constructed in accordance with the standards
defined by Honda World over.
b) Indus Motor CompanyIndus Motor Company (IMC) is a joint
venture between the House of Habib, Toyota Motor Corporation Japan
(TMC),Daihatsu Motor Company Ltdvehicles in Pakistan through its
dealership network. The company was incorporated in Pakistan as a
public limited company in December 1989 and started commercial
production in May 1993. The shares of company are quoted on the
stock exchanges of Pakistan. Toyota Motor Corporation and Toyota
Tsusho Corporation have 25 % stake in the company equity. IMCs
production facilities are located at Port Bin Qasim Industrial Zone
near Karachi in an area measuring over 105 acres. Indus Motor
companys plant is the only manufacturing site in the world where
both Toyota and Daihatsu brands are being manufactured. IMCs
Product line includes 6 variants of the newly introduced Toyota
Corolla, Toyota Hilux Single Cabin 42 and 4 versions of Daihatsu
Cuore.Toyota Tsusho Corporation Japan (TTC) for assembling,
progressive manufacturing and marketing of Toyota vehicles in
Pakistan since July 01, 1990. IMC is engaged in sole
distributorship of Toyota.c) Pak Suzuki Motor Company:Pak Suzuki
Motor Company Ltd (PSMCL), established as a joint venture between
Suzuki Motor Corporation of Japan (SMC) and Pakistan Automobile
Corporation (PACO) Govt. of Pakistan in 1983. Started commercial
operations with production (S.O.P.) of Suzuki FX in 1984.In 1992,
started production of MARGALLA at new Plant.In 1997, started
production of 1300cc BALENO replacing Margalla.In 2001, launched
the CNG version of MEHRAN, RAVI and BOLAN. By 2005 capacity
expansion up to 80,000 vehicles per year were completed. In 2006,
capacity expansion up to 120,000 vehicles per year was completed
and production of 1300cc/1600cc car LIANA and BALENO commenced. In
2007, the thirdphases of capacity expansion up to 150,000 vehicles
per year were completed. Amalgamation of Suzuki Motorcycle Pakistan
Ltd into Pak Suzuki Motor Company Ltd took place and new land of
120 acres was acquired for further expansion adjacent to current
plant. In 2008, the company started exporting Suzuki LIANA to
Bangladesh. Pak Suzuki acquired a land of 25.22 acres at Lahore for
setting up PDI centre, Spare Parts Ware-house, Regional Office and
other related facilities.
d) Nexus AutomotiveChevrolets were sold in Pakistan well into
the 1970s, after which the automotive regime was changed and
Chevroletgradually withdrew to its home market in the United
States. In 2004, after an absence of three decades, Chevrolet was
re-introduced in Pakistan. Once again, a global brand with a
product line-up suited to developing markets such as Pakistan,
Chevrolet has made a successful return to the country. Working with
Nexus Automotive, General Motors partner in Pakistan , Chevrolet
can once again be seen on roads all over the country. Today, Nexus
Automotive assembles the 1000cc Chevrolet Joy at Port Qasim
(Sindh), and imports a broader line-up of cars, including Aveo,
Optra, and Colorado (coming soon) from the General Motors global
network.e) Al-Ghazi Tractors:Al-Ghazi Tractors Limited (AGTL) was
incorporated in 1983. In 1991 the project was offered for
privatization, and acquired by Al-Futtaim Group of Dubai who took
over the management control of AGTL in December 1991. Ever since
AGTL is a case study of rollicking corporate success. 50.02% shares
of the company are held by Al-Futtaim Industries Co. LLC and 43.17%
shares are held by CNH Global NV, with whom Al-Ghazi Tractors
Limited has signed an Industrial Collaboration Agreement for
manufacture of New Holland brand tractors. The Agreement is valid
till April 2016. With expansions carried out in 2005, the plant is
now capable of producing 30,000+ tractors per year in a single
shift the most enduring competitive edge being the quality of our
tractors, which are robustand sturdy and carry a local content as
high as 92%. AGTL was the first automobile company in Pakistan to
earn the ISO-9002 Certificate.f) Dewan Motors:DewanFarooque Motors
Limited has one of the most advanced automobile assembly plants of
South Asia. Located at Dewan City, Sujawal, Thatta, with a total
project cost of Rs. 1.8 billion, the plant is built on an area of
42,000 square meters. Selection of the site reflects the commitment
of Dewan Group towards building of a prosperous Pakistan and its
contribution to national wealth. The project has provided direct
employment to over 700 personnel. The plant is the first automobile
manufacturing unit in Pakistan to be independently invested by 100%
Pakistani investors. The annual capacity of the plant is 10,000
units on a single shift basis. The groundbreaking ceremony for the
plant was held in June 1999, and the first Kia Classic rolled-out
in a record time of six months. Today the modern state-of-the-art
plant is rolling-out cars every day. This is the first and only
automobile assembly plant in Pakistan with state of art robotic
equipment. DewanFarooque Motors Limited has technical collaboration
and license agreements with the following Korean companies:Hyundai
Motor Company December 25th 1998Kia Motors Corporation July 27th
1999g) Ghandhara Industries:The Ghandhara Industries Limited is a
public limited company quoted on the Stock Exchanges and registered
under the Companies Act, 1913 (now companies Ordinance, 1984). It
was established in Karachi by General Motors Overseas Distribution
Corporation U.S.A. in 1963 Lt. Gen. M. Habibullah Khan Khattak
acquired these facilities from General Motors and renamed it
Ghandhara Industries Limited. The Government of Pakistan
nationalized Ghandhara Industries Limited in 1972 and renamed it
National Motors Limited. In 1992 M/s. Bibojee Services (Pvt) ltd.
acquired it under Privatization Policy of the Government, and
adopted its original name Ghandhara Industries Limited w.e.f.
27-11-1999. The major business activities of the company comprise
of progressive manufacture, assembly and marketing Isuzu truck and
bus chassis and fabrication of Bus and Load bodies. Ghandhara
industries Ltd have a product range of ISUZU medium-duty vehicles
(F-Series) & light-duty Vehicles (N-Seies) in Pakistan.h)
Hino-Pak Motors Ltd:Hino Motors Japan and Toyota Tsusho Corporation
in collaboration with Al-Futtaim Group of UAE and PACO Pakistan
formed Hinopak Motors Limited in 1986. In 1998, Hino Motors Ltd.,
and Toyota Tsusho Corporation obtained majority shareholding in the
company after disinvestments by the other two founding
sponsors.
i) Adam Motor Company:We would dogreat injustice if we fail to
mention, the only large scale effort made by a Pakistani to achieve
what othersfailed toimplement or even envision. Mr.Feroz
Khan,founder of theAdam Motor Company, Ltd.was an automobile
assembler based in Karachi, Pakistan. They were notable for
producing theRevo, which was Pakistans first homegrown company to
assemble a decent car. Together with stylerMehmoodHussain, Chief
Engineer N. A. Salmi and two fresh graduates from NED, Khan
designed and manufactured Pakistans first car. In fact, Khan
invested in the latest software programs to train his team using
Computer Aided Design (CAD) and Computer Aided Manufacturing (CAM).
Khan is also Chairman and CEO of Omar Jibran Engineering Industries
and has twice been Chairman of Pakistan Association of Automotive
Parts and Accessories Manufacturers.All their vehicles used Made in
China components due to lack of a modern manufacturing industry in
Pakistan. Initially Adam Motor was involved in assembling cheap
Made in China light trucks, followed by a Made in China four-wheel
drive off-road vehicle. Later they started manufacturing the Revo.
The 800CC version of the Revo costs Rs. 269,000 (about $4,500) and
the 1050 model is Rs. 369,000 (about $6,200). The Revo has also
been built in accordance with EU safety regulations. Mr. Feroz Khan
blames the politicians for the companys failure.
Market share of Indian cars companies:1-Maruti Suzuki 40%2-
Hyundai 25 %3- TaTa motors 20 %4-M&M 5 %5- General motors 4%6-
others 6 %
Market share of Pakistan cars companies:1- Suzuki 49%2- Indus
motors 38%3- Honda 13%
10. Major problems faced by the Sector:
a) Input Cost:In Pakistan as the inflation is increasing so as
the input costs and formanufacturers it is becoming harder to
produce at lower cost.Increasing cost of energy and its unreliable
and inconsistent supplyadds up the cost of manufacturing and
wastage of resources. It isestimated that by the year 2012, auto
industry consumptionof electricity will cross 500 600 MW from
around 250 - 300 MW, as of now.
b) Protection level:Be f o r e t h e TBS(tariff based system)
was i n t r o d u c e d t h e a u t o i n d u s t r ywa s we l l p
r o t e c ted b y t h e government but now as the importof CKD(cars
knocked down) is liberalized the protection level to industry
bygovernment is decreased.
c) Lack of skilled manpower for modern machinery:In Pakistan
conventional machines are not able to meet the
precisionmanufacturing and the available labor is not familiar with
moderntechnology it caused by lack of coordination and linkages
withGovernment/Semi Government Supporting Bodies and Technical
TrainingInstitutesd) Scarcity of raw material especially
steel:Through previous years the world prices are rising and
causingcostly inputs and Paki s tan has lef t with scarce Steel
andI ronleft , so manufacturer s are facing difficulties in
producingcars with low prices
11.Government Policies for development of Auto
Industry:Government of Pakistan had undertaken two major
initiatives in the form of National Trade Corridor Improvement
Program (NTCIP) and Auto Industry Development Program (AIDP) for
the development of the automotive industry in Pakistan.Engineering
Development Board (EDB) is actively implementing the AIDP 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.Automotive engineering is a driving force
of large scale manufacturing, contributing US$ 3.6 billion to the
national economy and engaging over 192,000 people in direct
employment.The Auto parts manufacturing is $ 0.96 billion per
annum. The demand for auto parts is highest in the motor cycle
industry which is 60%, then is for cars which constitutes to 22%
and the rest 18% is consumed by trucks, buses & tractors. This
demand is met by Imports which caters 22% while the remaining 78%
is supplied by the local manufacturers.Due to the increase in
demand for sophisticated machinery, the government has allowed duty
free import of raw material, sub components, components assemblies
for manufacturers & assemblers. Total import bill of machinery
stands at $2.195 billion in the current fiscal year of 2007-08
which is 12.77% higher than that of the preceding year.The
impressive growth in the machine tools and automation sector is
directly proportional to the growth of the automotive industry
which has become the fastest growing industry of Pakistan and
contributes $3.6 billion annually to the countrys GDP.The
aftermarket for spares has also witnessed immense expansion over
the same period, with imported parts playing an important role in
meeting local demand. The spare parts market is given further
impetus by a total vehicle population of approximately 5.4
millionPakistan has the second highest number of CNG-powered
vehicles in the world with more than 1.55 million cars and
passenger buses, constituting 24% of total vehicles in Pakistan
with improved fuel efficiency and conforming to the latest
environment regulations.
12.Comparison of Pakistan and Indian Auto industry:A sample
analysis of Indo-Pak economic compatibility has indicated that
Pakistan's auto industry was at disadvantage as compared to India's
high tech and robust industry.
According to the analysis, big market, non-tariff barriers and
high duties on import and strong vending industry played a major
role in making India a strong player in auto sector and after
protection of decades through tariff and non tariff it is today a
gainer in auto world.
A consistent and decade-long protection made it possible India's
industry is not only meeting the local demand but also taking
sizeable share from the international auto market.
The analysis added that Pakistan's relatively new auto industry
has shown tremendous progress during the last few years and it
could do even better in the coming years, but the last year switch
over for cut in duty to introduce a liberal import approach put it
on the back foot.
Pak auto industry showed fast growth during the last few years
and contributed significantly to the national exchequer. The
official figures showed that the CBR collected huge revenue from
this sector during the last few years and its share in total annual
revenue collection was showing upward trend.
It is also providing job to hundred of thousands families,
besides keeping over 350 related industries on the move.
The analysis mentioned that India's market size and strong
economy were providing big advantage to its auto industry and
making it even more stronger with each passing day for providing
potential to dominate over other countries when ever it gets a
chance.
The analysis indicated that India is a market of 1065 million
people against 152.53 million of Pakistan and its auto industry
enjoys full backing of large scale hi-tech engineering and
indigenized technical manpower. Whereas, Pakistan's case is
different altogether, its industry is weak and newly born and
victim of quickly changing government policies.
The local industry has shown tremendous increase in the last few
years and is going for massive capacity enhancement. The
manufacturers of the popular cars have come up with investment plan
to increase their capacity to meet the buyers' requirement.
The local cars production in 2011 stood at around 250,000 units
and the manufacturers are confident to take this number to over
350,000 by December 2013.
The analysis indicated that Indian auto industry was enjoying
protection in different forms and delivering good to the industrial
growth of that country but Pakistan's case was reverse as its newly
grown industry was facing hard time for many reasons such as small
market size, inconsistent government polices and high bank's
interest rates on cars leasing.
The low banks return on car leasing was a major reason of great
demand of cars during the last one and half years. But with quick
increase in banks interest rates this factor may not play a role in
the future.
The local industry's progress is dependent on necessary
protection at least for the next few years. It becomes imperative
when a strong competitor like India goes all out to protect its
industry.
13.Conclusion:Therefore we can conclude that the automobile
sector hasrevolutionized the life of common people. The automobiles
are now thepart and parcel of our lives without which its nearly
impossible tosurvive. This sector has contributed to the national
exchequer as well asincreased the economic activities as well in
the form of providing jobs tothe people as we have discusses
earlier and also gave rise to otherallied industries. However the
automobile sector of Pakistan is lackingbehind the automobile
sector of the developed world in terms of thereliability of its
products , competitive prices , safety concerns etc.Moreover the
current energy crises has also hampered this industry aswell . Due
to this factor the government also losses its considerablechunk of
revenue which it would have otherwise collected.