Auto industry to miss out on production target

Owing to political change, law and order situation, slow economic growth, inconsistent policies, lower auto financing, inflation, and high input costs, auto industry of the country is not going to achieve the production targets set by the government under the auto development programme by 2016. The four wheeler production target under Auto Industry Development Programme (AIDP) of 2001-16 set by the government is highly ambitious; vying to produce 660,000 cars in the year 2016, while actual production would not be more than 312,000 vehicles in the said year.
According to the data of Pakistan Association of Automotive Parts and Manufacturers Association (PAAPAM) auto industry is in continuous decline for many years and it could not achieve even last year’s government target of production of 0.4 million vehicles in the year 2011-11, and the actual production stood at 178,000 vehicles.
The actual production is half of the government’s target under AIDP. One of the things believed to be conducive for this trend is inconsistent government policies and used car imports. In the last reported year 2010 till June 2011, production of cars stood at 133,972; busses 490; jeep and Light Commercial Vehicles 883; pick-up and LCVs 19,142; tractors 70,770; and motorcycle 83,8550.
The best years for the auto industry were the years 2005, 2006, and 2007 when the industry experienced its apogee by dint of stable government, economic growth, availability of auto financing, consistent auto policy, and infrastructure development. In those years the annual production of passenger cars reached up to 190,000 units. Ground realities suggest a tremendous potential in this sector of the country as the current motorisation ratio is 12 cars per 1000 persons. This is quite low in comparison with Turkey whose motorisation ratio is 67 cars per 1000 persons. The industry projects that if in 2030 Pakistan is at the same level as Turkey is in 2010, the total vehicle population would be 12 million. Hence the vehicles Pakistan needs to produce in 20 years from 2011 to 2030 would be 495,000 vehicles per year.
At this production level the industry’s contribution in terms of employment would be 0.5 million persons; in terms of investment Rs225billion, and in terms of taxes Rs190 billion. It is to be noted that currently auto industry of Pakistan has total investment of Rs92 billion, with the employment of over 0.2 million people; last year it contributed Rs64 billion to the national exchequer. But this industry has many issues that are hampering its growth, and one of the key issues is the import of used cars policy. In regional perspective, Pakistan has two per cent per month depreciation allowance on two year old vehicles that can go up to 60 per cent, while India has 108 per cent duty on two year old vehicle. In Thailand it ranges from 125 per cent to 145 per cent.
The required conditions of used cars import in Pakistan is that it can be five years old at maximum, while minimum stay abroad for import as personal baggage, gift or TR is 180, 700 and 700 days respectively. In India, maximum three year old model is allowed; registration in importers name for one year; and there is no gift scheme.
In Thailand, only foreigners living in Thailand for one year can import used cars, while registration should be in the name of the user for at least one year. And Thai residents have to own vehicles for 1.5 years with driving license. On the part of restrictions, Pakistan has no restrictions at all. While in India the restrictions include: right hand drive; speedometer in Km/h; submission of pre-shipment certificate for conformance to India Motor Vehicle Act; and obtaining of approval from Indian Testing Agency. Similarly in Thailand used cars are restricted goods (except under import permit by Ministry of Commerce), while a test of exhaust emission is also conducted at Environment Protection Office.
If we look at the price differences, most popular used cars brands witnessed sudden increase in their prices in just two years. For example, Toyota Vits and Passo were available in Rs0.7 million in the year 2008, but the price of the same brand was Rs0.9 million in the year 2011. While in the same category the price of locally produced Cultus was Rs950,000.