Activities of the auto sector in Pakistan are very profitable as the industry contributes to the tax base and provides employment to about 192,000 people, directly and indirectly, with a total investment of over $1.5 billion. The sector is contributing 16 per cent to the manufacturing sector, which is expected to reach 25 per cent by 2015. Currently, there are around 82 vehicle assemblers in the industry producing passenger cars, light commercial vehicles, trucks, buses, tractors and 2/3 wheelers.
Automobile prices have experienced an augment from 38.18 to 78.10 per cent during the last three years, since 2008. Prices of cars have increased by 18, 16 and 13 times in recent years. Lately, however, a nominal decrease was witnessed.
The government has allowed the import of used vehicles which was welcomed by All Pakistan Motor Dealers Association (APMDA), saying that the move will benefit consumers. However, the action was opposed by Pakistan Automobile Manufacturers Association (PAMA) as they expect it to hurt the domestic industry. All Pakistan Motor Dealers Association Chairman H. M. Shahzad gives his comment on the current situation and the effect of this decision on the automobile industry in Pakistan. Shahzad indicated that the association had been demanding the permission for import of used cars since a long time as domestic car assemblers are inclined to raising prices every now and then and continue to fleece the common man.
Ever increasing car prices: Situation with local assemblers resembles that of a cartel. Prices rise in line with their wishes and they also restrict supply to prevent a drastic decrease. This puts buyers in a helpless situation and compels them to buy cars at high prices, on the sellers’ conditions. Supporting his demand for the import of used cars, he quoted figures of production and said that the assemblers had not increased production for a decade. However, since 2002-03 car production started increasing, rose to 63K, 100K, 128K, 163K, 179K and 166K up till 2007-08. After that, car production followed a declining trend and was 85K in 2008-09 and expected to remain the same in 2009-10 and 2010-11.
Discussing the prices of cars, he observed that assemblers had been raising prices by six times every year since, signaling an upward revision of prices every two months. In 2011 alone, prices have gone up twice. Further delving into the issue, Shahzad said that Suzuki Mehran 800cc was priced at Rs327,000 and is now being sold at a price of Rs470,500. An increase of Rs143,000 has occurred in a period of 27 months. This model is mostly purchased by the middle-income group, however owing to upward pricing trends; it is going beyond their reach. The price of Honda Accord 2400cc was Rs3599,000 in 2008 and has risen to Rs5966,000 in 2011. This exorbitant increase was not justified by any angle, Shahzad said. He complained that the government is neither keeping a check on the rise in prices nor on the deletion programme. About 30 years have passed but the industry has not achieved its promised levels of deletions.
Moreover, the APMDA Chairman said that vehicles are still being booked on a 100 percent advance payment basis and the sales tax, income tax and excise duty are also received in advance. Instead of immediately depositing the amount in the government exchequer, the auto assemblers are using it to earn personal interest in it for about three to six months. As a result of the delay in car delivery, the black marketer charges a hefty premium in the name of “on money” from buyers. Import of used vehicles at commercial level: He recalled that in 2005-06, the import of used vehicles was permitted and was allowed after a long gap of 12 years. However, this permission was restricted to an import of used vehicles, which were three years old and this does not ease the situation. For more than a decade, local assemblers enjoyed monopolistic benefits due to a ban on import of used vehicles.
In light of the above situation, the APMDA Chairman said that a demand to allow the import of used vehicles at commercial level for up till 10 years had been put forward. The existing schemes for the imports of used vehicles such as Transfer of Residence scheme, Gift scheme and Baggage scheme should be continued, he added. This would be in line with the Government’s policy of documenting the economy. It would not only boost businesses linked to imports of used vehicles but also help the government collect more revenue by an expansion of the tax net. The existing schemes for imports of used vehicles are for facilitation of overseas Pakistanis. He recommended that the age restriction in Transfer of Residence scheme should be removed. Shahzad said the government should impose a fixed rate of duty on the import of such used vehicles. A simplification of the importing process for used vehicles of all types and the fixation of duty for all used vehicles would be in correspondence with good governance policies being pursued by the present government, he added. He further suggested that only certified members of APMDA should be allowed to import used vehicles on a commercial basis, for the sake of transparency in the matter.
Forging the way forward
