Of the engineering sector, the automobile industry is quite rightly termed as the mother of all industries. It incorporates almost every facet of engineering be it electrical, technical or mechanical.For the past couple of years there has been a turning point in the Pakistani automobile sector on the whole. Where in 1999 - 2000 it suffered negative growth of a drastic 24 per cent owing to tax demand, in the years to follow it has developed to an extent that in 2004-2005 consumer demand has surpassed the available production capacities.

At present Pakistan’s automobile industry is mostly dominated by foreign assemblers. It dates back to 1953 when the US General Motors set up its first plant. But things really took off in the 1980s and 1990s when the Korean & Japanese giants moved in.

Pak Suzuki was the first, and is still the market leader. Apart from Pak Suzuki industry constitutes of several other joint venture companies, some domestic firms and leading automobile manufacturers from Japan and South Korea namely Toyota, Nissan, Mazda, Honda, Yamaha and Kia.

According to the Economic Survey of Pakistan the automobile group has contributed to the overall growth by an impressive 30.1 per cent. However, ample amount of potential still lies unutilised as there exists a huge supply demand gap in the local consumer market. As stated by a Yamaha official local assemblers this year have over achieved their respective targets. They are rather enjoying the perks by not enhancing there capacity or production levels leading prices of cars to rise due to shortage of supply. However automobile industries have doubled and some like Suzuki have tripled its production levels but the question at hand is how long will this demand persist. So far there has been an inflow of remittances and ample amount of leasing thereof demand persisted. For assemblers to further increase production future demand needs to be speculated. With implementation of a tight monetary policy the potential impact on decreased liquidity in the market on demand of automobiles is what vehicle assemblers are uncertain of.

Governmental policies are favourable for vehicle assemblers. There are restrictions on the import of reconditioned cars. Although from the consumer point of view the policy might not be quite favourable but from the long-term prospective the consumers would surely be the beneficiary. This is because the industrial infrastructure would be built up so as to meet the prevalent automobile demand.

As stated by an official in Gandhara Nissan at present the automobile production level is 150,000 per annum in all and for 2010 the production levels estimated are no less than 500,000 per annum. In about four to five years technology would be fully incorporated in the infrastructure of Pakistan and this would lead to availability of locally assembled vehicles at lower reasonable prices. However, government should assure that assemblers do invest in and maintain a balance between demand and supply and do not exploit the consumers.

The auto-parts manufacturing industry in Pakistan has over the years gone through a process of transition so as to meet the needs of upcoming local assemblers as well as to compete in the international market. Although a few of the engine and body parts are locally manufactured yet there are many that have to be imported for original engine manufacturing as well as for replacement of auto-parts.

Although there lies sufficient potential in the vending industry yet local manufacturers are not able to fulfill the prevalent market demand. The reason behind considerably less investment in manufacturing of presently imported auto components are manifold. Firstly, initial investment required is significantly large as it involves large amount of capital investment. Secondly, the technology required is quite costly and skilled labour is required for it’s operation. However, the major hindrance for investors is the high breakeven point required for producing a given type of autopart. As one of the vendor claimed that even the largest auto assembler Suzuki does not have an assembly plant large enough to support the vending industry. Suzuki produces about 70,000 vehicles in all per annum and to meet the breakeven point vendors have to manufacture at least 1,00,000 parts for one type of vehicle. Hence it’s not feasible to manufacture these types of auto-parts thereof they are imported.

As far as the quality and pricing of locally manufactured auto-parts is concerned, the quality standards do meet the minimum international standards. According to a local vendor if our quality is say 20 per cent less as compared to international market our price is 200 per cent less. However, Government of Pakistan basically controls the overall automobile prices and if government had not signed pacts for giving protection to assemblers like Toyota and Honda, prices would fall down by at-least 15 to 20 per cent.

Although government has formulated favourable policies of giving a licensed vehicle assembler a time span of five years to get at least 60 per cent of the vehicle components from localised manufacturers yet the policy has been exploited.

Companies like Pak Suzuki signed in contracts saying it would locally acquire 60 per cent of vehicle components manufactured by Suzuki Japan. In Japan only 20 per cent components were made locally and Pak Suzuki now considers using only 60 per cent of these 20 per cent as its obligation to get locally manufactured.

Assemblers like Pak Suzuki & Toyota installed their assembly plants quite a few years ago, at that time the vending industry was gradually building up it’s infrastructure to fulfill the assemblers requirements. However, at present there are over 750 various sized vendors operating in the local market and to further develop this sector government should increase the requirement of assemblers’ usage of local vehicle components to over 60%.

To say that Pakistan’s auto sector is fairly less advanced as compared to that of India and China would not be totally right. As stated by an official of Gandhara Nissan, some of our products are of better quality and at some aspects they are better off. For instance, the agriculture tractor, ninety per cent of whose parts are manufactured in Pakistan, is of far better quality than Indian agricultural tractor. India and China do have an upper hand as they have larger markets hence they enjoy the benefit of economies of scale which Pakistani assemblers and vendors don’t. Pakistani consumers on the other hand have high purchasing power parity, which the local assemblers have yet to benefit from.

Pakistan’s automobile sector is surely better off than many other Asian neighbors including Sri Lanka, Nepal, Bhutan and Bangladesh. It’s high time that local manufacturers and assemblers should penetrate into the world market. Signing free trade agreements with these countries is surely beneficial for the local automobile industry. However, franchises cannot export so policies should be formulated and strategies designed to enhance infrastructural development and promote innovation by local investors by offering duty free capital investment as well as ample amount of financial assistance. To become a part of world supply chain a culture of progression should be promulgated and investment should be done at both technological level as well as labour level.

University level education in Pakistan is not up to the mark. There is no specific engineering branch for automobile engineering or production engineering. At present the industry requires innovative thinking professionals and entrepreneurs. Good professionals aren’t available owing to the brain drain, and those present are very few in number to meet the market demand.

Automobile development is a fusion of more than seven hundred technologies and thereof it’s an extensive and multifaceted process. Where nations like Germany have been consistently trying since 1800 or so they are reaping the benefits at this point in time. India too has locally manufactured vehicle under the brand name of Maruti. Indian government fully supports locally made cars and this is portrayed by the usage of locally manufactured cars by their own governmental officials. As for Pakistan several prototypes have been built lately but government has not been very supportive.

Pakistan lacks research and development facilities therefore local manufacturers can only copy and not tailor-make when developing an automobile. Unlike the west Pakistan’s a third world country where fuel is as expensive as Rs52 per liter hence development of an underpowered, fuel efficient car is required. This would not only require lesser fuel intake but will also be comparatively cheaper.

To sum it up automobile industry can ascertain sustained growth as there is a growing demand from local consumers coupled with a growing economy and consumption as well as a potential to export in foreign markets. If developed its benefits would easily percolate to the lowest strata as it’s worlds largest employment generating sector. The future of this ‘Industry of Industries’ can be quite promising for the overall economy provided that there is political stability, a balance between production levels of vendors and assemblers, continuity of governmental assistance in financing investment and innovation and rationalisation of taxation.

[Source:jang.com.pk]

Among the active players of the large scale manufacturing sector, probably the automobile comes on the top of the list in view of multi-dimensional impact on socio-economic as well as trade relations with the countries taking extra interest in the backdrop of a huge untapped market as only 8 persons out of 1000 have a car in Pakistan.

A fast emerging middle income group on the back of growing noticeable economic growth in the region huge investment in auto sector is a natural come especially Pakistan is the country which offers highest rate of return in this region.

Generally speaking, the minimum rate of return on investment in Pakistan is 15 percent while it shoots up geometrically in many cases. As against that the average rate of return or profit earnings in neighbouring India, China, Singapore, Thailand etc hardly oscillates between 3-5 percent, whether it is automobile, pharmaceutical or for that matter investment in the stock exchange business.

As a result of this attractive rate of return, loopholes in the system, ever growing demand, the investors in the automobile sector have brought in huge investment by almost doubling the volume of production.

All major automobile units in Pakistan either are running on double shifts or planning to go into double shifts to meet the growing demand. This phenomenal growth in demand is amazing especially in the face of increased financial charges by the leasing or bank financing. It may be mentioned that over 70 percent of the cars enrooted either through leasing or bank financing in Pakistan.

In this backdrop the automobile sector seems quite perturbed in the face of facilitation extended to overseas Pakistanis in import of cars through gift and baggage schemes, the automobile industry has repeatedly requested the government to prepare a long term policy for the sector, which must be unalterable and should be based on a long term policy with a long term strategic approach rather than a short term policy. The car manufacturers fear that the import of used cars is disturbing their plans of further investment in the automobile industry, if the government continues to change policy every year. All capacity building and expansion plans might have to be shelved if measures are not taken to protect the local makers.

What might benefit the local assemblers is a policy by the government which doesn’t allow import of cars and other vehicles under the budget and the trade policy along with support from the government who should ensure that they will not raise or curtail taxes and duties levied on the automobile industry.

For example the auto-parts manufacturing industry in Pakistan has over the years gone through a transition process to meet not only the demands of the upcoming local assemblers but also to compete in the international market. Although a few of the engine and body parts are locally manufactured, there are many that have to be imported for original engine manufacturing as well as for replacement of auto-parts.

Although there is sufficient potential in the vending industry, local manufacturers are not able to fulfill the current demand. As far as the quality and pricing of locally manufactured auto-parts is concerned, the quality standards do meet the minimum international standards.

While Pakistan’s auto sector is fairly less advanced as compared to that of India and China, both these countries do have an upper hand as they have larger markets and therefore benefit from economies of scale which Pakistani assemblers and vendors don’t. Pakistani consumers have high purchasing power, which the local assemblers have yet to benefit from.

However, Pakistan’s auto sector is surely better off than many other Asian neighbors but its high time that local manufacturers and assemblers enter the global market. What Pakistan lacks is research and development facilities. In Pakistan, fuel is Rs57 per liter hence development of an underpowered, fuel efficient car is required. This would not only require lesser fuel intake but will also be comparatively cheaper.

The conclusion is that the automobile industry can establish continuous growth as there is a growing demand coupled with a growing economy and consumption as well as a potential to export in foreign markets. The future of auto industry is as promising for Pakistan as it has been for Japan, provided there is a balance between production levels of vendors and assemblers and continued governmental assistance. Help is needed to make Pakistan a global supplier of auto components and embodying incentives to facilitate R&D. Import tariffs should be fixed to help promote manufacturing of cars and auto parts locally, while the government should encourage investment for capacity expansion in order to meet the rising demand.

On the market front, it is funny to note that despite fast growing interest rates, an overall sales figures of the entire automobile industry shows a robust growth estimated at 22 per cent to 757,235 units compared to 618,384 units previously.

It is also interesting to see that despite heavy influx of imported cars driven by slashed import duties in the last budget, it failed to make a dent into local car sales which posted impressive growth at 22 per cent to 155,514 units as against 127,309 units during FY05 primarily on the back of availability of auto finance from various financial institutions. Light Commercial Vehicles (LCVs), trucks, farm tractors and motorcycle sales also increased by 27 per cent, 28 per cent, 12 per cent and 24 per cent respectively.

Among the listed automobile assemblers, Pak Suzuki, Indus Motor, Honda Atlas and Dewan Farooque Motors’ respectively hold 54 per cent, 22 per cent, 15 per cent and 9 per cent market share in the passenger cars and light commercial vehicle segments. Overall, Toyota Corolla remained the market leader in the 1300cc and higher segment while Suzuki Cultus and Suzuki Mehran emerged as triumphant in the 1000cc and 800cc cars segment. We suggest a positive stance on Indus Motor and Pak Suzuki.

Pak Suzuki’s sales during FY06 portrayed 31 per cent upsurge Sales figures of Pak Suzuki Motor’s during FY06 posted sanguine growth at 31 per cent to 99,104 units compared to 75,720 units during FY05. On MoM basis, sales figures increased by 3.9 per cent to 11,247 units during June compared to 10,824 units in May 2006. Pak Suzuki is the market leader in the 1000cc and lower segment of cars with sales of Suzuki Mehran, Suzuki Alto and Suzuki Cultus at 35,982 units, 16,823 units and 21,390 units respectively. The company has replaced Suzuki Baleno with Suzuki Liana during the period and the product is getting acceptance in the market. Sales figures of Suzuki Liana remained on the ascending trend with 1,535 units during June compared to 1,187 units in May.

Indus Motor’s sales during FY06 stood at 40,961 units, portraying 17 per cent upsurge compared to 34,983 units last year. The company’s Toyota Corolla sales depicted 33 per cent increment to 30,527 units with market share at 46 per cent in the 1300cc and higher engine cars. Toyota Corolla is considered to be the most successful car in Pakistan. On the other hand, Daihatsu Cuore and Toyota Hilux sales figures depicted 8 per cent and 25 per cent declines to 7,883 units and 2551 units. Decline in Cuore’s sales is primarily attributable to the acceptance of imported Toyota Vitz, which is available in the same price range. During the month of June 2006, the company has sold respective 2,935 units, 46 units and 1,107 units of Toyota Corolla, Hilux and Daihatsu Cuore.

During FY06, Honda Atlas Cars’ sales soared by 17 per cent to 28,134 units as against 24,066 units previously. Currently, Honda Atlas assembles only two vehicles namely Honda Civic and Honda City to tap the upper-end segment of car market. On MoM basis, Honda City sales stood at 1,229 units in June, almost double compared to 626 units during the preceding month. Demand of Honda Civic declined by 61 per cent to 341 units MoM.

Automobile sales figures of Dewan Farooque Motors’ has remained stable on the back of increased demand of Hyundai Shahzore, which is considered to be the most competitive vehicle in the LCV segment. During FY06, Hyundai Shahzore’s sales stood at 9,234 units, 15 per cent higher compared to 8,012 units previously. On the other hand, Hyundai Santro’s sales remained almost intact at 7,031 units during FY06 as against 7,009 units last year due to intense competition from small imported cars.

KARACHI—Japan External Trade Organization(JETRO) has arranged a visit of Chief Executives of all the leading automobile industrial units in Pakistan to Japan with a view to provide them an opportunity how that giant of auto industry works and how Pakistan auto industry can benefit from their experience, especially in terms of transfer of technology. The delegation is current in Japan and will remain for a week. In fact, the visit arranged by JETRO speaks significantly about capability of Pakistan to become a partner in auto industry.

Actually, arranging the visit of Pakistan auto companies by an automobile giant amounts to recognition of Pak auto industry to the status which has started attracting the Asian tigers to look towards Pakistan respectably as a partner to this industry which is the mother of engineering sector.

Actually, the auto industry in Pakistan is leading the rally of economic growth especially in the large scale sector which is a good sign for the economy in the days to come. Taking a view of the overall performance of the auto sector one comes across some interesting figures of growth.

The industry sales figures showed robust growth. Among the listed automobile assemblers, Pak Suzuki, Indus Motor, Honda Atlas and Dewan Farooque Motors’ respectively hold 54%, 22%, 15% and 9% market share in the passenger cars and light commercial vehicle segments.

Taking a look at the performance of Honda cars Honda Atlas Cars it reveals some astounding figures of sales revenue which surged by 55% to Rs25,639million as against Rs16,587million during FY05. This includes revenue from trading business, which increased almost 3 times to Rs1, 119million compared to Rs258million last year. This exceptional hike in trading revenues is mainly due to the introduction of new Honda Accord in August 2005 following the government’s liberalized vehicle import policy. Gross profit for the year stood at Rs1, 168million, 312% higher as against Rs283million in FY05 with 280bps increment in gross margin of the company. Earnings of the company for the period ended June 2006 are expected to soar by 8% to Rs212m compared to Rs196m during the corresponding period last year. This translates into an EPS at Rs2.96 as against Rs2.74 previously. Improved gross margin and higher other operating income is to provide support to the bottom-line of the company despite lower CKD sales.at 46% in the 1300cc and higher engine cars.

I got to know about boldly decorated Pakistani trucks (via Jalopnik). It’s so interesting because we have similar flashy trucks in our country. And I feel funny that though the trucks of both countries reflect each of their national character, “too much” seems to mean “totally good” for a certain people in the whole world.

Japanese decorated trucks, which had been called “DEKO-TORA”, became a fad in 1970’s and even a movie series was made. Recently, they are hardly seen but still alive with their new name “art truck”.

One of the Pakistani busses. (I’m not saying “a Pakistani person kisses”) Its vivid colors and detailed handiwork catch our eyes. You can see that even its windows are not the exception of their canvas to be painted. I’m not sure that these decorations have any religious meanings, but I feel they have an Islamic atmosphere.

Japanese decorations are more metallic and squarish. (It reminds me of some old sci-fi movie props like this). Their most notable feature is that the many of their parts are lighted up when they cruise at night. So the truckers can satisfy their desire to show off even in the darkness.

This Pakistani truck would make lots of small clattering sounds when it runs. And its driver may not be able to see outside clearly.

The hand-drawn paintings on the bodies are the best things which they pride themselves on. All kinds of things are painted with air brushes, for exapmle: calligraphies, UKIYOE arts, movie stars, Mt. Fuji or other scenery, dragons or tigers.

The front end of the cargo (what should I call it?) which is sticking up to the sky seems to be thought as cool. It can be seen among the Japanese art trucks, too. I guess it comes from the animal’s habit of tending to show their body bigger than their actual size. But I wish they never made their bodies wider than usual cars because it must wipe out the roadside trees and oncoming traffic.

Now how about competition on the roads 

Tata Motors’ McIndica is still on the drawing board, but Pakistan’s Habib Maritime has already announced the launch of its low-cost car, Sitara. The Sitara has no roof or doors and looks like a golf cart-jeep hybrid. But looks apart, the low cost of the car is likely to make most two-wheeler drivers graduate to a four-wheeler and might spark off a boom in Pakistan’s auto market Sitara is to include parts almost entirely designed and manufactured locally. The engine is being manufactured in Lahore. The car, which, once fitted with equipment will not exceed 400 kilograms in weight, will have a load-bearing capacity of 250 kilograms. The capacity of the fuel tank will be 10 liters and consumption will be 18 kilometers per liter. The maximum speed allowed will be 60 km/hour.

But the two countries are quite a far away from opening up their roads to each other’s cars. Currently, Pakistan does not even allow import of Indian made tyres, which end up being smuggled across or taken on a long roundabout route. 

Neat history and photos of “art cars” in Pakistan. “This extraordinary tradition has it’s routes in the days of the Raj when craftsmen made glorious horse drawn carriages for the gentry. In the 1920’s the Kohistan bus company asked the local Michaelangelo, Ustad Elahi Buksh, a master craftsmen to decorate their buses to attract passengers. Buksh employed a community of artists from the Punjab town of Chiniot, who’s ancestors had worked on many great palaces and temples dating back to the Mogal Empire. It was not long before truck owners followed suite with their own designs”. 

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Automobile Production - Future Trends

Though the present day automobiles have travelled a long distance since the first motorized vehicle appeared on the road about a hundred years ago the concept and system of automobile production has generally remained the same. After about a century, basic changes are taking place in the very concept of the automobile and its system of production. Automobile production in future will be quite different from that of the last hundred years. As such, if existing automobile business are not adapted to the requirements of the future they would …

The government of Pakistan has introduced a new law to decrease the import of used vehicles by Pakistani expatriates. The law will be called “Import of Vehicle Rules 2006.”  I am quoting from the report published in the Peninsulaquatar:

“These rules involve cumbersome procedures besides two lengthy certificates — earning and gift undertaking — conditional for availing the facility.

This is the second attempt of the Pakistan government to restrict the import of cars by expatriate Pakistani by involving a huge documentation process. Earlier, in the budget the import of used cars under the transfer of residence case was restricted to only five years.”

Under the gift scheme, an expatriate would be able to import car as a gift only for blood relatives such as son, daughter, parents, sister, brother, husband, wife but not for any person under eighteen years of age. 

“These rules involve cumbersome procedures besides two lengthy certificates — earning and gift undertaking — conditional for availing the facility.                                                    This is the second attempt of the Pakistan government to restrict the import of cars by expatriate Pakistani by involving a huge documentation process. Earlier, in the budget the import of used cars under the transfer of residence case was restricted to only five years.”                                                        Under the gift scheme, an expatriate would be able to import car as a gift only for blood relatives such as son, daughter, parents, sister, brother, husband, wife but not for any person under eighteen years of age.                                            Announced by the Central Board of Revenue through a customs notification, this rule is aimed at protecting the domestic car producers. In addition, the rule does not allow import of vehicles more than five years old.                                      Reconditioned vehicles are very popular in many countries. I came across an old news (2005) published in The Nation. It says that the domestic car producers have failed to meet the demands of Pakistani consumers. The cars produced are not of that high quality but the price has risen. According to another report published on May 2006, in The Dawn, the import of reconditioned car has increased between August 2005 and March 2006. These two reports would give the reader an idea that Pakistani people are not happy with the quality of their domestic cars. I think, now is the time, Pakistani car producers should think seriously of providing better quality cars.