Auto sector expected to grow


Indus Motor Company (IMC) Chief Executive Officer Pervez Ghias, in an interview with Profit, said it is expected that the automobile industry will grow by 8 per cent in the financial year 2012. One of the main reasons behind the expectation is that Pakistan’s consumer base is now well-aware of the fact that reconditioned cars are difficult to manage in the country by dint of poor quality fuel, especially diesel, which results in persistent engine problems.
The demand-supply gap
Talking about demand issues, he said that it’s not fair to say that demand is not met. Moreover, in reality, we have to look for the capacity of the market. Our capacity is 50 thousand cars a month and we work in 2 shifts but sometimes the demand is larger that that which creates issues. He informed that the demand for Corolla is very high in Pakistan and the country stands at the fourth position after US, China, and Japan in the use of Corolla cars. People do not need new cars sometimes and demand stagnates, for example more Corollas than Mehrans were sold last year. Moreover, this is not always sustainable.
Pending demand
He informed that the company is not booking any cars in advance currently as the government announced a reduction in GST from 17 to 16 per cent, effective from July 1, which hindered people from buying cars in June. This is similar to the phenomenon when people refrain from purchasing cars in December, in order to get new models in January, he said. He further informed that the annual production of IMC is 40 thousand Corolla cars, 8 to 10 thousand Cuore cars, and 2 thousand units of their new double cabin van, which has been responded well to, in Punjab.
Import liberalisation and policy impact
With regards to the issue, he said that there without doubt it has affected our industry as around 5 thousand cars have been imported after the relaxation, in just a period of 6 months, and the total annual import stood at 10 thousand cars by June 2011, he added. He said it has fundamental issues, and the government needs to decide what they want from the country. They have to take a fundamental policy decision. Our joint venture (Toyota-Honda) intends to import cars and sell them here, so if the government wants cars in the country they should eliminate the duty, but, again, Pakistan can’t afford this both economically and socially, he said, adding that no country in the world could afford such a step. Ghias further said that the motorisation index shows that Pakistan has a very low per capita car ratio of just 13 cars per thousand people; though other regional countries like China and India also have more or less the same ratio, yet their growth in this regard is quite rapid. However, if we look at our countries like Iran and Sri Lanka, they have a ratio of 19 cars per thousand persons, he added. We have got to have other models of cars in the country, for example in 2005-06, the industry saw its peak with the country having 2,54,000 cars. Current figures have declined to 1,62,000.
Transfer tax and the premium menace
He noted that the auto sector has asked the government to consider imposing a transfer tax, adding that premiums are hurting the industry. He informed that IMC fines their dealers if they are found to be involved in taking premiums, which go up to Rs0.5 million and has many times suspended them for three months. However, it was difficult to curb the premium menace completely because customers in Pakistan are willing to pay it. “Consequently, one possible solution is to levy a transfer tax because any other strategy would not work by dint of the dynamics of Pakistan’s automobile market,” he said. One of the chief issues is that a dealer has his own customers. This puts the dealer in a position to easily hold around 20 thousand cars for a plausible amount of time to disturb the supply dynamics of the market. This is why we always request our customers to await the delivery of their cars from our side and not pay any premium to the dealer, he added. He noted that IMC tries its best to not book orders for more than one car against one National Identity Card, but people usually tend to order many cars using the CNICs of their relatives, resulting in supply and demand issues.
To a question, he said that a plausible decrease in the trend of car leasing has been witnessed due to non-availability of finance and increasing interest rates, and now banks have also changed their focus and have started looking for a small high segment of the automobile industry.
Government support to industry
He said the government should not focus on boosting the automobile sector; instead it should devise better and viable policies, which in turn will result in an automatic automobile boom because it is the framework that provides opportunities for effective growth. He further informed that the automobile industry is very unique in its structure as thousands of parts are arranged on time, based on the choice of the customers and this shapes the very outlook of the whole automobile system in which every thing has to be balanced out.
New models underway
While discussing new models from IMC, he said a few new ones have been planned with minor changes in existing models of cars. This is being done due to the disastrous earthquake Japan went through, which resulted in the disturbance of supply of parts. We are launching some new products and this time around, we have planned to introduce cars with factory fitted CNG kits, he informed.
Chinese investment in automobiles
To a question, he responded that he had heard about a Chinese company which has been given a concession by the government to establish a plant for the manufacturing of light vehicles, with an allowed import of parts for a period of three years. However, he expressed his opinion that the Chinese are not focusing on the Pakistaniautomobile market, as they are first catering to their domestic market demand and then to that of Europe. He further added that nowadays the production of hi-tech is on the rise.