PAAPAM urges for immediate finalisation of auto policy

To materialise investments in auto sector, members of Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) have proposed four measures to the government, with an urgent announcement of a 10-year auto policy for the period 2015-2025, reviewable after 5 years, leading the list.

PAAPAM stressed to set up a dignified consultative process with the representatives of car makers and parts manufacturers in the country and offer them full support to bring foreign investment to set up new capacities in auto assembly and production of localised parts.

PAAPAM also demanded that the government must agree upon a 3 year road map with the auto industry, setting time frames for capacity expansions and new model introductions by local assemblers in exchange for curtailing used car imports into the country.

The recommendations also included the constitution of a committee of 8-10 stakeholders (Government, OEMs and PAAPAM) to focus on passenger car segment issues such as growth, investments, taxes, employment, product lineup and future market volumes.

“The first auto policy expired in June 2012 and the industry has been waiting for over three years for the new policy prior to proceeding with the investments plans,” PAAPAM Vice Chairman Mehmood Alam Sherani said, stressing the importance of finalisation of auto policy without any further delay as it would give clear signal for investment by OEMs and vendors who are ready for setting up long term investments in the country.

“Upcoming auto policy is the opportune moment for the government of Pakistan to persuade the existing auto assemblers as well as the 1,600 auto parts manufacturing companies to make fresh investments and set up new plants to create additional capacity to meet the rising auto demand in the country,” he added.

He said that policies should be made keeping the national interest in view and not just for the benefit of a few traders. Pakistan auto industry employs almost 3 million people directly and indirectly, the PAAPAM vice chairman pointed out. The country, with a population of 200 million, desperately needs avenues to create employment opportunities. The auto industry can help in providing jobs to Pakistani youth, which comprise around 50% of the country’s population, Sherani said.

Discussing the impediments, former PAAPAM chairman Aamir Allawala highlighted that the period from the year 2008 to 2013 was highly testing for the auto sector in Pakistan as all the stakeholders were skeptical about long term investment in the country. The reason behind this was that assemblers and local parts manufacturers had invested billions of rupees to prepare themselves for achieving the 2012 volume target of 500,000 from 2001 to 2007 vehicles set by the government under the 5-year auto policy issued in 2007 but the government opened up import of 5-year old used cars in 2006, giving a negative signal to the industry.

He said that in 2009, the total market size crashed by almost 60%, from an annual volume of 254,000 units in 2006-7 to below 100,000 units in 2008-9. The Pak Rupee depreciated by 55% against the US Dollar, from Rs 61 in June 2007 to Rs 95 in June 2012. Inflation level and interest rates exceeded 20% and consumer financing for automobiles dried up.

Worst of all, the government demonstrated hostility towards the auto industry and encouraged rampant import of used vehicles. As a result, during this period, 4 car assembly plants (Hyundai, Nissan, Chevrolet & Adam) were forced to shut down their operations in the country. Security issue was the cherry on top, he added.

He demanded a collaborative strategy between the government, car assemblers and parts manufacturers to bring massive amount of foreign investment in Pakistan, set up new plants, launch new models at lower prices and provide value added jobs to thousands of engineers and graduates in the country.

He stressed that In addition to offering incentives to new entrants, the government needs to court the existing players in the industry and give them confidence to make long term investment in new plants. A new auto plant with capacity of 150,000 vehicles per year along with 50% localisation of parts requires an investment of around $500 million. Suzuki, Toyota, Honda and their local parts manufacturers are perfectly capable of making these investments that would lead to revival of industrial growth in the country.

It takes an average of 2-3 years to set up a new plant for automobile assembly. If expansion in domestic industry is not immediately undertaken, demand for autos will outstrip its supply, causing increase in delivery lead time and attracting investors to hoard and create premiums in the secondary market, he reasoned.

Former PAAPAM chairman Munir K. Bana said that an upfront policy would trigger growth in auto sector which would ultimately address the key challenges that are currently being faced by the government namely, ‘Stimulation of foreign & domestic investment’, ‘Increase in tax revenue through increased production of cars’ and ‘Employment generation by localisation of 50% parts in the country’.

He said that the automobile industry, being capital and labour intensive at the same time, plays a critical role in industrialisation. The automobile industry also helps to develop technologies in other areas of manufacturing such as steel, plastics, rubber, textiles, electrical and electronics.

‘We have successful examples of Japan, China, Korea, India, Brazil, Indonesia, Thailand and Malaysia ­ countries that have used this sector as a launching pad for promoting industrialisation, economic growth and employment generation,’ he added.

Former PAAPAM chairman Shariq Suhail said that Pakistan is in a unique position to have a full fledged auto industry operating in the country. The latest models of cars assembled in Pakistan (Civic, Corolla, City, Swift, WagonR) use up to 70% locally produced parts that meet up to the global quality standards defined by Suzuki, Toyota and Honda and are competitively priced compared with parts produced in other countries in the region. Also, the older models Mehran, Ravi and Bolan are low cost options that are good options for motorcycle owners who want to buy their first family car.

He added that the auto industry is fully documented and 2nd largest contributor to government tax revenues. Approximately 32 to 35 per cent of the showroom price of a car is paid to the government in the form of taxes. Hence, the government will be the biggest beneficiary of increase in car production in the country.