Pakistan Auto Industry – What Is Going On…?
During the pandemic lockdowns, we heard of news stories such as this. Malaysia reduced sales tax on imported cars by 50% and eliminated sales tax completely on locally assembled or manufactured cars to boost car sales. That year, especially for the month of June, Proton registered a sales boom despite the lockdowns. What were the big auto companies doing in Pakistan during the same period? They were busy increasing prices despite zero sales that had literally closed down all of their assembly plants.
Recently we have heard of Indonesia reinstating a tax exemption on cars of up to 1500cc engine capacity & with more than 50% local content, in order to boost car sales in the market. And what is happening in Pakistan at the same time? Pakistan is having to slow down its auto industry because it is “doing too well”. Am I getting this right?!
Just think of how odd and humorous this situation is. The auto industry was doing so well in Pakistan that they had to take steps to slow it down, for example with these changes in SBP financing rules. This reveals the level of mismanagement of the auto industry that I have been trying to highlight. When an industry in a country is doing very well, and the government itself takes measures to slow it down, that is a clear indication that the rules put in place to manage that industry were flawed to begin with.
I have mentioned it in my previous articles; however, it bears repeating. Our auto industry players are all importers, even the old cartel of the original three who allegedly dictate the rules to the government. Both previous and current auto policies have only enabled more importers/ assemblers to set up shop here. In the case of most of the new companies coming into Pakistan, they have been allowed to bring in their vehicles as CBU imports until their assembly plants are up and running. The rest of the companies including our dear old three, bring in their vehicles as CKD imports. Whether the product is completely built or partly disassembled in “box packed” form that will be assembled fully locally, they are essentially the same– both being imports
Unfortunately for everyone, but kudos to their marketing teams, these companies got everyone to call them local manufacturers. They even have their own exclusive “club” called PAMA (Pakistan Automotive Manufacturers Association). For me, this raises some genuine concerns. The local companies call themselves ‘manufacturers’, but the question is, are they really manufacturers? Do they make or procure all or most of their parts locally?
If PAMA is a “manufacturers association”, are any of the local companies, that are part of it, truly manufacturers? These companies needed to enable local parts manufacturers to make localized parts for them. In the last 30 odd years that the original three have been here, have they enabled any of the local parts vendors to fully make all parts for them in Pakistan?
Has the government ever forced the local companies on this issue? Has the government ever fully helped these local parts vendors by giving them the incentives and the boosts they need to become international parts exporters? The sad answer to all of the above questions is a resounding NO!
The one area that the government needed to concentrate on, and still very much does, are the local parts manufacturers. Yet, even in the latest policy, which the current government claims to have set up through “very capable experts”, it has completely ignored this very important part of our auto industry. These are the local companies that will truly enable Pakistan’s auto parts exports if handled correctly. Because of bolstering such local companies and supporting them fully in their endeavors, countries like Thailand, Malaysia and Indonesia have stories like the ones I have mentioned above. Such parts vendors assist the auto companies in those countries in making CKD kits that they sell to countries like Pakistan for vehicle assembly. Along with that, they make bulk parts for export as well. This boosts the auto industry in those countries and increases their exports.
But, in the case of Pakistan, unfortunately, the local assemblers deemed what these vendors already had was enough and nothing further was needed even though the vendors themselves were/are screaming for help. The government listened to the local assemblers instead. That in my humble opinion is a case of blatant ignorance. They ignored the companies which are the only true local auto industry manufacturers in the country and listened to the companies that are assemblers only. Why can’t the government make the distinction between assembler and manufacturer?
Maybe, like I mentioned in one of my previous articles, it was all for a few dollars more. The assemblers made lofty promises to make investments in the country. That meant huge cash injections in the country in the short term. That was enough to get the policy makers to make the wrong choices. How very sad.