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AUTOMOBILES INDUSTRY OF

PAKISTAN---------------------
THE DRIVER OF
ECONOMY…

BY

ARIF ALI KHAN


PAKISTAN INSTITUTE OF DEVELOPMENT
ECONOMICS
ISLAMABAD

Introduction. investments. The


Government of Pakistan is
The automobile sector is one of the key segment in the world’s also bringing initiatives for
economy. The automobile export comprises of more than US$ 600 appreciating local
billion, which normally constitute to 10% of the world export. franchisees to invest in the
More and more advancements, cost reductions and increasing sector. The demand of the
efficiencies are the most important challenges of the automobile cars and buses are increasing
industry in the modern globalized world. But the need that are which are run by the
demanding is to develop fuel efficient, acceptable costs and Compressed natural Gas
attractive outlook and designed automobiles. The joint ventures (CNG), while the
and technology tie-ups had increased the business manifold. Government of Pakistan are
motivated to implement the
Pakistan Automobiles Industry
National Environmental
Pakistan automobiles population had reached upto 4 million. The Standards related to the air
demand of vehicles in Pakistan had reached to 300,000 from which noise and water pollution. So
two-third of its whole are met by the local manufacturers and the one of the cause of increasing
remaining one third is unmet. The monetary value of vehicles in demand of vehicles in the
terms of dollar is 1 billion, out of which the import comprises to the region is CNG Segment.
level of 200 million. After Argentina and brazil,
Pakistan had become the
Pakistan is a very good market for motor vehicle and its parts and highest consumer of CNG.
accessories specially imported used cars, buses and trucks.
Recently this sector had experienced very dynamic changes because
the previous local government had allowed used cars and other
vehicles and exempted them in CKD (Completely Knocked
Down) condition from custom duty. The automobile sector had
developed more than half during the last fiscal years and its main
causes are the improving living standards and the development of
banking sector in the country.

In Pakistan the core 32 manufacturers and assembled vehicle Globalization:


industry are supported by four hundreds automotive parts and Globalization (or globalisatio
accessories manufacturers. Only five of these companies n) is a process through which
manufacture or assemble heavy duty vehicles. The drastic and very regional economies, societies,
and cultures have become
dynamic changes, growth and improvement in the automobile
sector are mainly caused by the growing banking, credit and
integrated through a globe-spanning network of communication and
trade.

The above diagram and table


draws the scenarios of the
motor vehicles in Pakistan.
The percent of market shares
the numbers of units
produced and sold are also
determined here.

SWOT ANALYSIS

Strengths

Growing Demand of Cars

Normally in Pakistan 9 motor


vehicles are shared by 1,000
persons which is one of the
lowest in the developing
economies of the world. So
as the the growth and
Joint ventures: A joint venture (JV, sometimes 'J-V') is investments rate are
a legal entity formed between two or more parties to undertake an increasing day by day and
economic activity together. due to demographic changes,
the growing living standards
and increasing per capita
Market shares of cars income are leading towards
increasing demands for cars.
Cars Units Market
Sold Share Resale of Local Assembled
(No’s) (%) cars
Suzuki 110,465 61
Toyota 48,538 26 As the Pakistani belongs
Honda 18,361 10 from lower income class so
Hyundai 3,470 03 the resale of the vehicles
Total 180,834 100 arises the main issues to
them. So the imported cars
Source: PAMA Cars were sold at lower prices than
their original one while there
is very dynamic and growing
Suzuki
market for the locally
Toyoya
Honda
Hyundai
Nissan
assembled cars because of the easily availability of the their so they tried to improve their
accessories and spare parts. quality and productivity in
order to compete with them.

Mechanics

The mechanics, parts and


accessories of the local
assembled cars are easily
available in the market thus
Completely Knocked Down: Complete Knock Down (CKD), is a they have a competitive
complete kit needed to assemble a motor vehicle. The term is also advantage over their foreign
used within the electronics industry. competitors. The parts of
imported cars are very
expensive so the consumers
are very reluctant to divert to
them.

Weaknesses

Input costs

Due to higher inflation rates


and increasing prices it is
becoming harder to produce
at lower costs. Increasing
prices of electricity, fuel and
materials are the main
hurdles in a way to produce
vehicles at larger numbers.

Level of Protection

The vehicle industry were


well-protected by the
Compressed Natural Gas (CNG): Compressed government till the
Natural Gas (CNG) is a fossil fuel substitute for other means of fuel introductions of TBS. As the
such as petrol, diesel etc. CNG is more safer and environment introduction of CKD and
friendly than other forms of fuel. CBU and liberalization of
these two resulted in the
Quality Standards of Local Cars reduction of protection level
by the government.
When the government allowed the imports of the foreign cars so
they had captured a very high market share from the economy so its Lack of Skilled Manpower
main cause was its high level of standards as compared to the local
assembled cars. The local manufacturers had faced a huge cut-offs Pakistan’s labor and
manpower are normally
unaware of the technical educations and skills that are needed by
the modern automotive industry. Lack of co-ordination also exists EDB:
among the Government/Semi-government institutes and labor The Engineering
Development Board (EDB) is
force.
the apex government body
Lack of Availability of Raw materials under Ministry of Industries
& Production entrusted to
The increasing prices of raw material such as iron and steel in the strengthen engineering base
in Pakistan.
global market and scarcity in Pakistan had made it harder for the
local producers to produce with lower costs.

Opportunities

Import Technology and


Skills

The EDB is trying its level


best to provide opportunities
to the local manufacturers to
import the foreign technology
and most-likely the German
technology to get benefitted.
Franchising: The word franchise had been derived from Anglo-
They are trying to improve
French word, franc means free. Franchise means to use others firms
the quality, productivity and
successful business model.
avail the value-added
services of the sector.

Market for foreign


Investment

Pakistan is a very favorable


place for the foreign
investment. The foreign
automobile manufacturers are
also expressing their interest
to invest there. So the need is
to attract players from
Germany and other
developed countries to excel
in this field.

Baggase Fuel

The fuel prices are increasing


with a very rapid pace around
the world so Pakistan should
also focus on the Ethanol as a substitute as the Brazil are using it in
a very huge amounts. Ethanol is the final product of molasses and
Pakistan is one of the country that produces molasses in a very
huge quantity but the engines of the local cars are not in a position
to support ethanol so the technology needs to be improved.

Spare Parts Market

The gross annual sales turn over composes of US$ 210 billion
while the import of spare parts are up to $35 million globally. The
parts and accessories are easily available so its hold a giant market
to excel a t large. Smuggling:
Smuggling is the clandestine
Threats transportation of goods or
persons past a point where
Smuggling of Spare Parts
prohibited, such as out of a
The imposition of taxes and increasing inflation had made very building, into a prison, or
expensive the finished goods so the final result is the smuggling of across an
the auto parts. The import of auto parts are also continuing at very international border, in
large. violation of
applicable laws or other
Fuel Prices regulations.
The higher authorities are increasing the prices without any prior
notices and are planning to be increased.
Imported cars

The local assembled cars are


facing competition with the
imported cars which are
already liberalized, while the
government is also planning
to cut down the custom and
excise duties.

Turnover: Turnover is sometimes a synonym


Recommendations
for revenue (or in certain contexts, sales), especially in European
and South African usage. • Better governance
and improvement in
the administration
and corporate
structure of the
economy.
• Establishment of continuity, consistency and connectivity
policy paradigm.

• Rationalization of tariff structure on the automobile sector.

• Joint ventures and technology tie ups should be initiated to


upgrade the vendor industry in Pakistan.

• Establishment of technical training centre to facilitate the


skilled labor force. Self-sufficiency:
Self-sufficiency refers to the
Conclusion state of not requiring any
outside aid, support, or
The modern day automobile industry plays a very useful and interaction, for survival; it is
necessary roles in the economy of Pakistan. The government is therefore a type of personal
focusing on the self reliance instead of self sufficiency. The top or collective autonomy.
concentrations and considerations of Pakistan’s economy is import-
substitution and export orientations. Value addition is the foremost
priority of Pakistan’s policies. The government should work and
focus in order to achieve the win-win situation. Free economy is
operating in Pakistan so the government is not intervening that
much so the private investors and manufacturers are acting as the
economy’s drivers. So the need is that to focus on the up gradation
of technology and capacity buildings in design-development to
improve their own value chain system.

Questions

1. How the continuous growth in inflation will affect the


automobiles industry of Pakistan in the long run?

2. Are the local manufacturers and cars assembled companies


are capable to compete with the foreign and imported
vehicles?

3. What are the competitive advantage of local producers over


the foreign companies?

4. Which strategy should be adopted by the government to


facilitate skilled labor?