Auto sector making investments for capacity enhancement

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Auto assemblers shifting investments to Punjab from Sindh

LAHORE – Local auto industry is consistently making all-out efforts to curb premiums and has invested approximately $140 million in capacity enhancement. In an open hearing arranged by Competition Commission of Pakistan (CCP), CEO Indus Motor Company, Ali Asghar Jamali represented the auto industry of Pakistan along with representatives from Atlas Honda and Pak Suzuki.

He gave a briefing to the participants on the steps that the industry and IMC, in particular, has taken to facilitate customers, especially with regard to delivery time and menace of premium which is hurting the auto manufacturers and consumers alike. He said that the industry takes this open hearing by CCP as an opportunity to share its efforts in reducing premiums and curbing black marketing of new vehicles. All OEMs operating in Pakistan work under Technical Assistance Agreements (TAA) with their global counterparts and strictly adhere to all of their global standards with respect to production and quality.

Highlighting the efforts made for progressive localisation, he said that industry has achieved more than 60 percent localization on their flagship products and the players continue to study the techno-economic feasibility of further parts. However raw materials for all localized parts continue to be imported as Pakistan doesn’t manufacture either auto grade steel sheets or resin which are the two primary raw materials for all auto parts. After becoming signatory to Trims and GATTS agreement, the government had to do away with industry specific deletion programme and instead it introduced tariff-based system. Non localized CKD is imported at 30 percent and localized CKD imported at 46 percent. Irrespective of the fact that there is no mandatory localization regime anymore, all OEMs continue to pursue localization based purely on cost merit.

Addressing the recent price hike, he explained that the rupee devalued by almost 10 percent whereas manufacturers increased their prices by 3 percent to 4 percent only. Furthermore, RD on raw material led to increased steel prices and increasing utility cost due to prevalent load shedding is adding to the cost pressures.

He said that almost all OEMs have either increased their capacity or are in the process of increasing it. IMC has recently invested $40 million and enhanced its capacity by 20 percent to meet the growing demands and to shorten delivery period. Suzuki has invested $63 million in the last 2 years and plans to invest $460 million further. Atlas Honda plans to invest $35 million.

Additionally, he said that IMC has gone so far as to cancel thousands of suspected investor’s orders where multiple vehicles were booked on the same CNIC in the last 2 to 3 years. IMC is continuously making efforts to identify investors and to curb the practice of charging premium on cars. Moreover, he said company has made the process transparent as vehicle availability on IMC website is the easiest way for customers to track their orders. He also mentioned that on late deliveries IMC makes a payment of Kibor + 2 percent to its customers. In rupee terms this has amounted to Rs 0.5 billion to date paid by IMC and Rs 1.5 billion to date paid by the industry as a whole.

However, he regretted that government response for the IMC proposals against premiums is still awaited. No action has been taken on wholesale/retail mechanism and the suggestion regarding transfer tax is still unheard.

Ali Jamali said that the staggering import volume is a threat to the future of the domestic industry and is a gross misuse of used car import policy by commercial importers under baggage scheme. He said that auto policy brought stability and certainty to the industry, which is conducive for investments in this sector. It is very unfortunate that in just 2 years multiple changes have been done in ADP. From imposing RD on raw material to recent retraction on import of used cars policy, all had negative impact on industry and ultimately customers.

Monitoring Desk

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