Auto Industry Policy needs drastic changes


There is an amazing disclosure that the Engineering Development Board (EDB) has written a letter to the Association of Pakistan Motorcycle Assemblers, Pakistan Automotive Manufacturers Association, and the Pakistan Association of Automotive Parts and Accessories Manufacturers to provide company-wise employment position in the sector.

It has also sought company-wise exports of auto sector (completely built-up units and spares) and sector’s contribution to the national kitty through the taxes and duties in the last seven years. The EDB said it is compiling data on employment position in the automotive sector of Pakistan. The purpose is to ascertain and update employment position in the auto sector and utilize the same in policy-making, the EDB added. The Govt. requires company-wise employment position covering permanent, contractual and daily-wagers on priority basis, the letter said.

The Chairman, Association of Pakistan Motorcycle Assemblers, Muhammad Sabir Shaikh, expressed surprise over the above move, saying that government through EDB should have conducted this exercise long ago and repeated the same at regular intervals. If EDB was not having such basic data about the automotive industry then what it was doing since last two decades? It was just minting the money through various levies and penalties under the illegal SROs?

The car and bike assemblers always claim to have paid taxes and duties judiciously, but surprisingly the government needs data from taxpayers instead of tax collectors. Car and bike-assemblers also claim to have provided huge employment directly and indirectly after achieving up to 70 percent localization component in cars and light commercial vehicles (LCVs), 90pc in case of bikes and tractors and 45pc in heavy vehicles.

Sabir Shaikh said the government should undertake various studies as to why local assemblers lag behind in introducing new models of bikes and cars at par with other countries.

“The auto world has changed a lot but leading Pakistani assemblers stand at the same old position and were rolling out two to three decade-old model bikes and cars,” he added. Pakistani assemblers and auto parts vendors have, so far, not made a mark in exports.

According to Pakistan Bureau of Statistics (PBS), Pakistan’s auto and accessories exports plunged by 18pc to $19.5m in 2014-15 from $24m in 2013-14. There is no exclusive data available at PBS website regarding export of bikes and cars to various foreign destinations.

After change in government in 2008, local rupee started losing strength against various currencies especially the US Dollar, Japanese Yen and Chinese Yuan. Moreover purchasing power of people started declining. As a result, the Chinese bike assemblers failed to push up the rates due to intense competition among themselves. Less than 10 assemblers managed to succeed in the stiff competition, on the other hand around 40 units have been struggling to survive while some had packed up their business due to frequent losses.

 Sabir said that currently the small bike making units are highly perturbed owing to tough competition and dollar appreciation against the rupee while the tax structure is same. As a result the assemblers could not raise the prices to offset high cost of production.

Due to lack of mass transport project in Karachi and other big cities consumers are dependent on two wheeler and around 50 percent buyers purchase bikes on installment basis. He hailed the Metro Bus Project introduced in Lahore and Rawalpindi Islamabad recently which would benefit hugely to the general public. He urged the government to introduce similar project or circular railway for Karachi city.

 Sabir said he was much hopeful from the current government for being heard their grievances and suggestions in the policy making but the bureaucratic set up maintained the same attitude which had been in vogue since 2006. “I guarantee if our suggestions are given due considerations in the auto sector, this will definitely end up corruption and imports through smuggling of auto parts will also stop,” he said adding that uniform policy will lure foreign and private investments and the industry will grow. What is uniform policy? Only one tax on CKD’s and Commercial Imports of Auto Sector and the other Tax on CBU’s.

“The government has to end up the monopoly of Japanese car and bike assemblers in order to flourish the local industry otherwise the situation will remain same for coming decades,” Sabir made the forecast.

For import of CBU bikes, no separate policy had been announced for the last 25 years. This is a big segment which could generate more revenues for the government. Many assemblers are importing over 100cc bikes in 100 percent CKDs and marketing their products as local made products.

“The government should announce a clear cut policy for every assembler as it would discourage smuggling and improve localization. Since last ten years big assemblers are misusing the SROs of 2006 while small assemblers have yet to get the permission,” Sabir said. He added that being in this field for the last 30 years at least the government should take some benefits from our experience to bring new changes in the system.

Even today no serious efforts have been made to replace the 70 cc motorcycle in Pakistan whereas the production of this kind of two wheelers had been closed down all over the world especially in India. He said the 70cc model is highly unfit keeping in view the body structure of a human being. This bike is mainly meant for the youngsters and young girls but in Pakistan girls do not ride the bikes. People who use bike in Pakistan are over 80 kg for them the 70cc bike is not fit as long ride causes pain in back and shoulders.

“I am sure that people have realized this issue and that is why they are shifting towards 125-150cc bikes despite their high prices,” Sabir said. He added unfortunately Pakistan does not have any variety of 125-150cc models as compared to India and China. Chances of new auto players entering the Pakistani market or the old ones expanding and modernizing their facilities appear slim until the government’s policy parameters for the industry are clearly defined.

Since 2010-11, when the last auto policy expired (2005-06 to 2010-11), the country’s third-largest taxpaying sector has been working without updated guidelines. The policy is said to be in the making. It is not clear how much time the process will take, but according to high level sources, the policy draft has already been finalized and its summary has been forwarded for clearance to the Economic Coordination Committee (ECC). As per media reports Arif Azeem, the federal industries secretary, told media that after taking the input of stakeholders, the ministry has finalized the draft and forwarded it to the government for final decision.

“At this point, it would be inappropriate to share its contents, but the policy has struck a fine balance between the interests of car users and carmakers,” he said. “We have provided a level playing field for the current car assemblers and the new companies interested in investing in the booming auto sector,” the secretary said.

The Chairman Association of Pakistan Motorcycle Assemblers, Muhammad Sabir Shaikh said that we have no information about any changes for motorcycle industry in upcoming Auto Policy, because the bureaucracy did not invite us in last few meetings of new Auto Policy including August 07, meeting in EDB.

A recent report had suggested that the government intends to liberalize the car import regime and facilitate the entry of new players to end the monopoly of the only three Japanese companies: Toyota, Honda and Suzuki. In Pakistan they are famous as big three assemblers but actually they are only three in Pakistan. An assessment report of the Competition Commission of Pakistan (CCP), released in the month of October 2014, confirmed the undesirable dominant market position of these assemblers, to the chagrin of car users in the country.

In November 2014, the CCP had reportedly sought liberalized import of used cars and suggested increasing their age limit from three to five years to induct market competition. The said study, conducted to gauge the level of competition, found that previous auto policies had shielded the dominant players at the expense of consumers.

The fractured and insufficient public transport system in a fast urbanizing country has kept the demand for private cars and motorcycles high for the past three decades. But in motorcycle industry of Pakistan we have only one 70cc, forty years old model assembled by the every assembler of the country in same features and design.

The leading carmakers, operating their plants round the clock, have failed to catch up with the pace of growth in domestic demand. In the absence of options, buyers pay higher for a vehicle that lags in quality and safety standards. Often, the cars are delivered up to four months after the payment.

The said report noted that “the Pakistani automobile industry is inward-looking and tries to protect itself through the use of regulatory instruments…. Pakistan needs to develop the automobile industry instead of protecting it, and in this regard imports will have a disciplinary impact on domestic firms”.

Keen to get a foothold in Pakistan’s auto market, a delegation from German auto giant Volkswagen was in the country a few weeks back. The company spokesman, Christoph Adomat, told media that while “Volkswagen is constantly evaluating market opportunities on a worldwide basis, there are no decisions for an investment by the Volkswagen side in Pakistan”.

The market manipulated by the leading automakers and the government need to change the tariff regime to encourage used cars and heavy bikes imports. “The industry is operating in a very challenging environment. It is wrong to counter pose the interests of the local automakers and the consumers.

The perception of dearer, low quality vehicles is a myth. People must not forget that the tax component in a vehicle’s price is as high as 35pc. This means that a 1000cc car priced at Rs1m currently can be sold for Rs 650,000 if the government foregoes taxes,” the same situation in motorcycle, the 70cc bike assembled by a small assembler costs Rs38,000/= including Tax amount of Rs10,000/=. It means the actual price of small 70cc bike is Rs 28,000/= only.

-Published on pages#30-32, August-2015 edition of MOBILE WORLD Magazine