The Landscape of the Auto Industry in Pakistan

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1972, socialism deeply influenced PPP Government to wrap up the entire industry under nationalization. The entire auto industry was reshaped and renamed. Japan acquired 40% shares of Pak Suzuki Motor Co. In 1972, Pakistan Automobile Corporation (PACO) was formed; after Sindh Engineering was renamed Wazir Ali Engineering, Ali Autos was renamed as Awami Autos, Republic Motors was renamed Haroon Industries, Gandhara Motors was renamed National Motors, Hye Sons was renamed Mack Trucks, Kandawala Industries renamed by Naya Daur Motors, Jaffer Industries changed as Trailer Development Corporation, Rana Tractor renamed by Millat Tractor.

SPEL started producing plastic parts in 1978. In 1980 Awami motors assembled the famous Suzuki Pick-Ups and Sindh Engineering Mazda Trucks. Production of Agri auto parts also started in Pakistan in the year 1981 by the Agriauto Industries. Auto Industry accepted the huge positive change by the production of Suzuki cars in 1982. Vendor Development & Technical Cell (VDTC) was formed in 1983; Al-Ghazi Tractor introduced Fiat Tractors in the same year. The 1st Generation Suzuki Potohar was introduced in 1985 and got very popular in government circles. In 1986 Pakistan Association of Auto Parts and Accessories Manufactures (PAAPAM) came into existence which organized the vender sector in Pakistan and impacted mightily this sector. In 1986, another new company was formed, i.e, Hinopak Motors limited by the joint venture of PACO, AL-Futtaim, Hino Motors & TTC. In 1987 Gandhara Nissan started the production of Nissan Diesel Trucks.

The 1993 is another landmark of the Auto Industry when Indus Motor started the production of the Toyota Corolla and introduced the market to new horizons, followed by Honda Atlas manufactured Honda Civic. The auto and parts industry attained another milestone when PAAPAM organized the first Pakistan Auto Show in the Marriot Islamabad in 1995, setting the automotive industry in Pakistan on the fast track. During the Musharraf rule, banks got very extroverted and filled the roads with glazing brands. At the start of the Millennium, dual fuel options were introduced to run both on petrol and CNG to enhance the affordability for a commoner. Although that proved to be a later intuitive and swam stupidity. However, it generated a thrill for the time being and left a long-term negative effect. Many small assemblers and importers of motorcycles surfaced to present replicas of the ever-popular Honda 70 from 2001-2007. To safeguard their business interests, the Pakistan Automobile Manufacturers Association (PAMA) came into existence in 2007. During this period, Afzal Motors got a license from Daewoo and assembled locally. From 2007 to 2009, the auto sector experienced a bearish trend due to high-interest rates and Yen’s appreciation against the PKR. But this recession proved to be short living, and the industry bounced back mightily; auto sales rebounded. The auto industry filled the market demand with the app. US$88 million during this decade.

The Auto Policy 2016-21 fascinated new producers in the market traditionally dominated by Honda, Toyota, and Suzuki. The fully documented auto industry stood as the second-largest indirect taxpayer, followed by the petroleum industry in Pakistan. During this period, Toyota started the local assembly of its sedan Corolla. United Motors made the first local car. Ghandhara Nissan began producing Isuzu d-max in Pakistan. Pakistan Rose by 171% between just 2014 and 2018. That accounted for app. 3% of Pakistan’s GDP and employs a workforce of over 4 million people as of 2018; Pakistan is the 35th largest producer of automobiles. Its contribution to the national exchequer is nearly 50 billion (US$220 million). Pakistan’s auto market is among the smallest but fastest-growing in this continent. Two hundred sixty-nine thousand seven hundred ninety-two cars were sold in the year 2018 but declined to 186,716 in 2019 due to Covid19. Currently, the auto market is mostly dominated by Honda, Toyota, Kia, Changan, and Suzuki. New Auto Policy (2021 to 2026) which offered tax incentives to new automakers to establish manufacturing plants in the country. In response, Renault, Nissan, Proton Holdings, Kia, SsangYong, Volkswagen, FAW, and Hyundai have expressed interest in entering the Pakistani market. MG JW Automobile Pakistan has signed a memorandum of understanding (MoU) with Morris Garages (MG) Motor UK Limited, owned by SAIC Motor, to bring electric vehicles to Pakistan. NLC signed an agreement with Mercedes Benz for the manufacturing of Mercedes Actros trucks in Pakistan. On July 8, 2022, Jolta Electric launched the production of electric motorcycles.

Despite oddities, Pakistan has almost attained 95% localization for tractors and motorcycles, 50 % for cars, and 20-25% for trucks and buses. Some seasoned repeated car models have even more than 50% localization. Unfortunately, the economy of scale demands one million productions of cars for more localization, whereas we are resolving around 200k per annum.

The critical phase for the auto and part sector started in July 2022 when the Government restricted the import of CKDs and parts abruptly under the looming shadows of default. As usual, the government did not bother to take stakeholders on board, leaving this industry in the lurch. After that Government introduced an import quota regime on the basis of 50% import performance which met the industry’s satisficing needs. In the second move, the State Bank of Pakistan (SBP) hung the drum around the neck of commercial banks to bring the entire sector of the economy to a grinding halt. Tractors, cars, and Chinese motorcycle producers are the top affectees of this ongoing crisis.

Food security is perfectly co-related with the tractor industry which is also tumbling. I feel at this point the Original Equipment Manufacturers (OEMs) would have repented for not transferring the technology to maximize the indigenization which could have kept them unaffecting during the rainy days. Only national purchasing power can scale up the auto market to more than a million automobiles in Pakistan which can only be attained through export and localization. We need to evolve this mindset as early as possible. Now production has been grounded and many OEMs either have closed or are in a propelling situation of closure. The markup rate was another bomb that had a great brunt on the whole industry.

The way forward lies with exports and localization, which can be categorized into the short-term and long-term. As a trade-off action, the government should restore the quota regime immediately. At least machinery, equipment for measurement, metrology, calibration equipment, designing equipment, CAD, CAM, and CAE software, Molds, dies and fixtures, 3-D Printing, etc., should be duty-free.

The rationalization of duties on the import of parts and raw materials needs immediate review. Government should have a dialogue with OEMs to bring technology to Pakistan and export products to a certain incremental portion of the production. We stand nowhere on the global index of efficiency. The cluster-based training initiative can reduce the gap. Safety testing equipment and laboratories do not exist in Pakistan and how export can be possible without them? This issue could also be addressed through clustering and government support.

Exports of auto parts have never been encouraging if we compare ourselves with the other countries in the region. It’s bad news and the silver lining at the same time on the account that a lot of export potential is still virgin. Only auto parts have about 200 billion’s potential for exports, regarding automobiles export. Millat Tractors Ltd (MTL) had started good export inroads but the economic uncertainties thwart its effort. We will have to see the issues hampering our exports like irrational duties, technology transfer by our OEMs, low markup, rebates, and capacity building to meet the modern challenges. Localization and enhancement of export baskets are open secrets to synergies in this sector. If your direction is right, you have a future, no matter at what speed you are crawling.

Despite all oddities, the future of auto and related industries look glazing in Pakistan, although under speed and experiencing speed breakers. The auto sector, which is currently contributing just 3% to GDP, has much more potential to single-handedly shift the economic paradigm if supported. The current auto policy from 2021-26 has a lot to allure foreign investors. Pakistan has 8-10 cars per 1000 people. This is the lowest ratio among emerging economies. An approximated fluxing of millions of youths in mainstream economic activities will cause drastic market demands. The local market of 230 million has great depth. The current car production in Pakistan is just 227000 plus 45000 other vehicles per annum against the 70 million population Thailand produces 1.2 million and a total of four wheels 2 million.

By Ghulam Murtaza (GM) is a freelance writer connected to the automobile and parts industry.

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