Local auto parts industry suffering due to import of used cars

The local production of cars has registered a massive reduction by 22,000-25,000 units owing to import of 50,000 used cars in a year, besides hurting the domestic auto parts vending industry to the tune of Rs 27 billion.
The domestic auto parts manufacturers are feeling the brunt of this trend as the demand for locally produced vehicles has slowed down, which is evident from the fact that size of local market has shrunk to currently 30 percent from its peak level of 2007 when some 200,000 vehicles were produced, according to Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM).
The domestic industry has tremendously developed during the last few years mainly by investing huge capital but also with the help of agreements with world renowned equipment makers for technology transfer, which include hundreds of components such as bumpers, radiators, mufflers, batteries, tyres, wheels, air-conditioners, wiring harnesses, instrument panels, steering wheels, sun-visors, seats, carpets, interior panels, sheet metal and plastic parts. All of this is being locally produced by more than 400 vending companies that entail almost 2.2 million skilled workers directly and indirectly.
The association’s Chairman Syed Nabeel Hashmi said precious foreign exchange was being wasted on import of spare parts for these used vehicles, which would also cause a loss to the exchequer to the tune of $50 million per year.
The Federal Board of Revenue (FBR) has not revised the duty structure on import of used cars for the last six years, as the taxes paid at import stage are fixed in US dollar which were determined in 2006. The influx of used cars in the country has been taking a heavy toll on local auto assemblers who purchase 60 percent of the auto parts from domestic manufacturers, he added. Hundreds of components such as wheel rims, tyres, batteries, radiators, mufflers, wire harness, instrument panels, steering wheels, air conditioners, sun visors, other sheet metal parts and plastic parts, which are produced by local vendors, are now being imported for these used cars, at the cost precious foreign exchange, he added.
Hashmi said with the high mark-up rate, depreciation in exchange rate and energy crisis, the government must intervene to ensure that local engineering units do not shut down and continue to provide jobs to the skilled and semi skilled labour force.
During the last 12 months, almost 50,000 used vehicles have been imported, amounting to 30 percent of the total market demand for automobiles in the country, causing a loss of over Rs 14 billion revenue in terms of relaxations allowed pertaining to depreciation allowance, he said.
It was strange that most of the imported cars of 1000cc (or higher) such as Vitz, Corolla, Belta, Premio, Axio, Mira, Probox, Land Cruiser and Pajero are being sold in the price range of Rs 1.1 million to Rs 3.5 million, he said.
He said, the PAAPAM has also urged Japanese firms to raise local content share in auto parts to cut cost, as the association termed 2012 a special year for Pakistan-Japan relations. The automobile sector in Pakistan, he said, was completely dominated by Japanese companies and Japan’s share in car and truck market was almost 100 percent and it had almost 50 percent share in the motorcycle market, besides having a major share of the market in other vehicles. However, the share of local content needs to be increased, as “we still import almost 50 percent of the automotive parts”. There is an opportunity for Japanese investors to fill the remaining half, as it will cut manufacturing costs in Pakistan and enhance profitability of Japanese investors, he pointed out.