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ANALYSIS OF PAKISTANI INDUSTRY REPORT

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LETTER OF TRANSMITTAL

June 03, 2008

Mr. Zeeshan Ali

Teacher, Analysis of Pakistani Industry

Bahria University
Karachi.

Sir:

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We herewith present our “Term Report” authorized by you as a requirement

for this course.
In this report, we have tried to provide updated information and SWOT
analysis of Automobile Industry.

We hope we have covered all that was required for the report.

If there be any clarification demanded, we would appreciate a call from you

to our group members.

Sincerely,

Bilal Razzak

Maaz Khalid

Muhammad Zain

ACKNOWLEDGEMENT

In the name of “Allah”, the most beneficent and merciful who gave us
strength and knowledge to complete this report. This report is a part of our
course “Analysis of Pakistani Industry”. This has proved to be a great
experience. This report is a combine effort of Bilal Razzak, Maaz Khalid and
Muhammad Zain.
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We would like to express our gratitude to our subject teacher Mr. Zeeshan
Ali; who gave us this opportunity to fulfill this report. We would also
especially like to thank Mr. Engr. Muhammad Atiq-ur-Rehman Technical
Analyst in PAMA and our colleagues who participated in a focus group
session to make our work better. They gave us many helpful comments
which helped us a lot in preparing our report.

OVERVIEW
Auto market is one of the largest segments in world trade. Changing models,
improving fuel efficiency, cutting costs and enhancing user comfort without
compromising quality are the most important challenges of the auto industry in a
fast globalizing world.

The first phase of automotive assembling in Pakistan started in 1950 with Bed Ford
truck followed by Ford Prefect, Ford Cortina and Dodge Dart. The indigenized parts
in these vehicles did not exceed 20% with only exception of Bed Ford trucks with a
deletion level of 80%. By the end of 70s practically all automobile assembling in
Pakistan ceased.

The 2nd phase of Automobile assembly started in 1983 with the introduction of FX
800 CC Suzuki Car. In 1989 Pak. Suzuki changed the Model of FX 800 CC with
Mehran 800CC. Pak Suzuki thereafter in 1992 introduced Khyber 1000 CC and 1300
CC Margalla but the indigenization levels from 1983 to 1995 were not significant
(i.e. Mehran 30%, Khyber 20%, and Margalla, 15%).

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In 1993, Indus Motors Company Ltd., Karachi introduced Toyota Corolla. Honda Atlas
cars (Pak) Ltd Lahore in 1994 introduced Honda Civic having 1300CC engine
capacity. Indus Motors, Dewan Farooq Motors and Pak Suzuki introduced smaller
Cars i.e. Cuore, Cultus and Santro of engine capacities 850 cc, 1000 cc respectively
in 2000.

This was known as era of competitiveness. Up to 1995, the deletion cell of MOI&P
was formulating and monitoring the deletion programs. The industry specific
deletion programs were formulated to specify local content requirements for cars,
motorcycles, Buses and Trucks Tractors etc.

The deletion policy finalized in 1996 has the following features:

• Industry Specific Deletion program.

• No roll back from achieved Deletion Levels.
• Even handled Tariff Protection at all levels of processing.

The deletion levels were finalized by the sub-committees for cars, LCVs, Motorcycles
and tractors etc., constituted by indigenization committee of EDB on the basis of
technology levels prevalent in the engineering industry of Pakistan. The Industry
specific deletion program (ISDP) books were published and distributed amongst the
stakeholders, which resulted in a significant improvement in indigenization.

Major Policies after year 2005:

1. Tariff Based Systems (TBS)
2. Auto Industry Development Program (AIDP).

July 1st 2006, the deletion programs for the Automotive Sector have been replaced
by the Tariff Based System (TBS).
The deletion programs have gradually been phased out under the WTO regime to
become TRIMs compliant. The TBS is the outcome of a long drawn consultative
dialogue between all stakeholders including OEMs and Vendors, belonging to
different sub-sectors of the Automobile Industry.

The TBS has been developed with the following overriding objectives:

• Preservation & promotion of technologies that have been developed in the

country

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• Protection to the present job structure in the auto sector.

• Promote job creation
• Protect the existing & planned investment by the OEMs & Vendors
• Promote new investment
• Expand the consumer base to create economies of scale

The basic framework of Tariff Based System is as under:

1. Imports in CKD condition would be allowed only to assemblers having

adequate assembly facilities and registered as such by the concerned Federal
Government Agency.
2. Parts/ components indigenized by June 2004 have been placed at higher rate
of Customs Duty.
3. Parts not indigenized would be allowed at CKD rate of Custom Duty.

Introduction of Statutory Regulatory Order (SRO):

1. SRO 656 (I) / 2006 dated June 22, 2006 (For OEMs)
2. SRO 693 (I) / 2006 dated July 1, 2006 (For OEMs)
3. SRO 655(I) / 2006 dated June 22, 2006 (For Vendors)

For the purpose to handle the switching from ISDP to TBS and to ensure stable
policies the consultations on the development of AIDP kicked off from the 8th March,
2006 Workshop at Islamabad by clearly defining the objectives at a time when the
industry was switching over from the deletion programs to a competitive tariff
based system. There was realization that the transition phase may affect the rapid
growth and sustainable development of auto industry. A comprehensive
development program with pre-announced tariffs to provide predictable and stable
environment was therefore much needed and the finalization and approval of AIDP
by the government was held on 13th November, 2007

Policy Wise Growth of Auto Sector (PC + LCV):

More than 30 policy

changes

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Taxi
Scheme

Source: PAMA

Reasons
Reasons for
for Rapid
Rapid Growth
Growth (end
(end 2002):
2002):
Increase
Increase in
in Car
Car Financing.
Financing.
Economic
Economic Growth.
Growth.
The automobile industry in Pakistan AIDP
can Announced.
AIDPbe broadly categorized
Announced.
into following segments:
• Cars and Light Commercial Vehicles (LCVs).
• Two and Three Wheelers.
• Tractors.
• Trucks and Buses.
• Vendor Industry.

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The industry operates under franchise and technical cooperation agreements with
Japanese, European and Korean manufacturers.

Current Investment, Contribution to GDP and Revenue to GOP:

Description 2007-2008
Total Investment Rs. 100 Billion
Total Contribution to GDP 3.5%
Total Revenue to GOP 10%
Source: PAMA

• In 2007-2008 total investment in auto sector is about Rs. 100 Billion.

• In 2007-2008 total contribution of large scale manufacturing is 15% out of
which auto sector contributes 3.5% to GDP.
• In 2007-2008 the contribution of revenue to Government of Pakistan by auto
sector in the form of taxes is recorded 10% which is approximately Rs. 65
billion.

Installed Capacity of Cars and Light Commercial Vehicles (LCVs):

Capacity unit/annum
Pak Suzuki Motor Co. Ltd, Karachi
Public Limited Company with 72.82% shares and
management held by Suzuki Motor Corporation,
150,000
Japan.
Indus Motor Co. Ltd, Karachi
Joint venture between Habib Group, Pakistan,
Toyota Tsusho Corporation, Japan (Toyota and
50,000
Cuore

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Honda Atlas Cars (Pak) Ltd, Lahore

Joint venture between Atlas Group Pakistan and 20,000
Honda Motor Co. Japan.
Ghandhara Nissan Ltd
Technical cooperation agreement with Nissan 6,000
Motors, Japan.
Dewan Farooq Motors Ltd
Technical cooperation agreement with Hyundai 25,000
Corporation, South Korea.
251,000
Source: PAMA (Updated to FY. 2007-2008)

The automobile industry of Pakistan has travelled a long road to get to where it is
now. The ups and downs, the shifts and turns have buffeted it many a times, but it
displayed a resilience that had enabled it to counter adversities that it had come to
face with and showed massive growth till 2006 but after that government
introduced liberalized import policies TBS in replacement of ISDP which led Auto
industry to stagnant growth.

PRESENT SITUATION OF CAR INDUSTRY:

Locally produced cars have taken an unexpected drastic downturn to the extent of
frustrating all future growth prospects and projections. According to the current
figures, in due comparison with the figures of last year for September to December
period, the sales of cars has gone down by 15 percent. As a result the production
has also gone down culminating with its impact on supply schedule; both import
and local. This downturn has come at a crucial time as most of the manufacturing
had just increased their investment in the expansion projects and vending industry
had made equally huge investment to complement the capacity expansion exercise.
The local vendors have now to face the curtailed orders, which may most hit the
smaller ones with closures. All this obviously has also adversely impacted the

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government revenues in substantial terms. The government has suffered a revenue

loss of Rs. One billion (9%) when September to December data is compared with
last year.

In the budget 2007-08, government announced a withholding @ 5 percent on

purchase of cars which was reduced to 2.5 percent and imposed from 1st
September 2007. The intension was obviously to enhance government revenue. The
current situation however, has proved a reversal in collection of the revenue.

Last year, the ECC approved the five years policy (AIDP) for auto sector prior to
announcement of budget. Levy of such tax is a deviation from the spirit of
preannounced policy thus causing anxiety to thee auto manufactures.

The uplift in the car market is also suffering due to stringent regulations announced
by State Bank of Pakistan recently for car financing. Moreover, the cost of financing
has also increased interest rates from nearly 8 to 15 percent.

With low custom duty rates for CBUs and unprecedented import of used cars, the
local industry is putting utmost effort to survive and looking at the government not
to deviate from the pre-announced policy and ensure strict compliance of rules on
import of used from cars and stop further release of smuggled vehicles.

PRODUCTION

Production of Cars:
CAR 2002- 2003- 2004- 2005- 2006- 2007-
03 04 05 06 07 08
1300-1600cc (2000cc Upto-Mar'08
Diesel)
Honda (Civic) 4,610 5,998 12,359 12,274 5,610 4,347
Honda (City) 3,786 7,417 11,771 17,606 10,461 6,206
Suzuki (Baleno) 2,608 4,153 5,965 2,939 0 0
Suzuki (Liana) ~ ~ ~ 5,370 5,964 2,306
Toyota (Corolla) 12,861 20,525 23,007 31,094 35,036 24,396
Nissan (Sunny) 51 26 0 0 0 0
Kia (Classic NGV) 459 188 465 0 0 0
Kia (Spectra) 384 73 1 0 0 0

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1000cc
Suzuki (Khyber/ Cultus) 8,097 10,810 15,591 21,342 29,880 19,852
Suzuki (Alto) 4,775 7,196 11,411 17,513 21,546 14,407
Hyundai (Santro Plus) 3,114 7,902 6,101 8,604 2,225 1,527
800c
Daihatsu (Cuore) 4,580 6,468 8,525 7,883 12,786 8,933
Suzuki (Mehran) 16,748 27,705 31,207 35,433 36,988 26,933
Suzuki (Bolan) 4,359 5,201 7,319 10,429 15,520 13,051
TOTAL CARS: 66,432 103,66 133,72 170,48 176,01 121,95
2 2 7 6 8
Source: PAMA

Production of Trucks:
TRUCK 2002- 2003- 2004- 2005- 2006- 2007-
03 04 05 06 07 08
Upto-Mar'08
Hino 792 1,020 1,196 1,499 2,244 1,831
Nissan 627 898 1,306 1,652 829 593
Dong Feng 510 104 23 4 3 0
Master ~ ~ 551 466 380 341
Isuzu N.A. N.A. 128 897 954 552
TOTAL TRUCKS: 1,929 2,022 3,204 4,518 4,410 3,317
Source: PAMA

Production of Buses:
BUS 2002- 2003- 2004- 2005- 2006- 2007-
03 04 05 06 07 08
Upto-Mar'08
Hino 756 1,195 1,392 668 744 635
Nissan 60 96 120 48 31 48
Dong Feng 480 89 110 40 8 10
Master ~ ~ 21 6 5 5
Isuzu N.A. N.A. 119 63 205 140
TOTAL BUSES: 1,296 1,380 1,762 825 993 838
Source: PAMA

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Production of Jeeps and LCVs:

Jeep & LCV, 2002- 2003- 2004- 2005- 2006- 2007-
03 04 05 06 07 08
(4X4) Upto-Mar'08
Suzuki Jeep (Potohar) 374 807 1,120 1,290 1,891 0
Sigma (Defender) ~ ~ 444 1,182 1,407 1,149
Total Jeeps 374 807 1,564 2,472 3,298 1,149
Source: PAMA

Production of Pickups:
PICK-UP / LCV 2002- 2003- 2004- 2005- 2006- 2007-
03 04 05 06 07 08
Upto-Mar'08
Suzuki (Ravi) 1,701 2,085 3,310 5,418 10,117 8,512
Toyota (Hilux) 3,045 2,229 3,394 2,575 0 1,596
Dong Feng ~ 304 21 24 4 80
Hyundai (Shehzore) 3,069 4,270 8,022 9,368 8,381 5,015
Master ~ ~ 1,547 1,767 1,170 449
TOTAL PICK-UPs: 7,815 8,888 16,294 19,152 19,672 15,652
Source: PAMA

Production of Farm Tractors:

FARM TRACTOR 2002- 2003- 2004- 2005- 2006- 2007-
03 04 05 06 07 08
Upto-Mar'08
Fiat (New Holland) 12,114 16,637 20,840 24,574 27,018 18,19
5
Millat (Massey 14,126 19,133 22,360 24,313 27,080 19,03
Ferguson) 1

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TOTAL FARM 26,240 35,770 43,200 48,887 54,098 37,22

TRACTORS: 6
Source: PAMA

Production of Motorcycles:
MOTORCYCLE 2002- 2003- 2004- 2005- 2006- 2007-
03 04 05 06 07 08
Upto-Mar'08
Honda 115,92 190,67 287,27 360,56 331,62 329,8
4 9 1 1 1 16
Yamaha 27,427 50,407 71,560 74,423 56,282 48,63
3
Suzuki 13,610 27,863 26,234 16,954 27,309 23,71
2
Sohrab 6,801 12,396 12,065 14,804 7,514 4,578
Sohrab (Triwheeler) 1,343 3,031 3,258 2,166 2,817 1,498
Qingqi(2 & 3 wheeler) 10,064 19,007 15,801 17,198 15,926 22,13
5
Hero ~ ~ ~ 34,018 25,798 18,64
6
Ravi ~ ~ ~ ~ ~ 17,76
3
Sazgar (Triwheeler) ~ ~ ~ ~ ~ 7,268
TOTAL MOTORCYCLES: 175,16 303,38 416,18 520,12 467,26 474,0
9 3 9 4 7 49
Source: PAMA

SALES

Sales of Cars:
2002- 2003- 2004- 2005- 2006- 2007-
CAR
03 04 05 06 07 08
1300-1600cc (2000cc Upto-Mar'08

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Diesel)
Honda (Civic) 4,637 6,097 12,352 11,998 6,513 4,146
Honda (City) 3,749 7,271 11,714 16,136 11,848 6,355
Suzuki (Baleno) 2,588 4,062 5,879 3,173 0 0
Suzuki (Liana) ~ ~ ~ 4,571 6,067 2,420
Toyota (Corolla) 12,867 20,321 23,002 30,527 35,762 24,223
Nissan (Sunny) 69 25 1 0 0 0
Kia (Classic NGV) 687 81 546 0 0 0
Kia (Spectra) 434 127 7 0 0 0
1000cc
Suzuki (Khyber/ Cultus) 7,927 10,795 15,611 21,390 29,837 19,342
Suzuki (Alto) 4,701 7,148 11,431 16,823 21,988 13,685
Hyundai (Santro Plus) 3,135 6,922 7,009 7,031 3,470 1,745
800cc
Daihatsu (Cuore) 4,579 6,339 8,592 7,883 12,776 8,671
Suzuki (Mehran) 16,582 27,432 31,165 35,982 37,007 26,675
Suzuki (Bolan) 4,360 5,228 7,241 10,451 15,566 12,984
101,84 134,55 165,96 180,83 120,24
TOTAL CARS: 66,315
8 0 5 4 6
Source: PAMA

Sales of Trucks:
2002- 2003- 2004- 2005- 2006- 2007-
TRUCK
03 04 05 06 07 08
Upto-Mar'08
Hino 758 948 1,262 1,449 2,035 1,919
Nissan 614 845 1,326 1,478 871 828
Dong Feng 511 75 27 16 2 0
Master ~ ~ 565 464 378 303
Isuzu ~ ~ 165 866 938 610
TOTAL TRUCKS: 1,883 1,868 3,345 4,273 4,224 3,660
Source: PAMA

Sales of Buses:
2002- 2003- 2004- 2005- 2006- 2007-
BUS
03 04 05 06 07 08
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Upto-Mar'08
Hino 795 1,187 1,293 649 770 682
Nissan 36 107 93 79 47 28
Dong Feng 501 69 131 47 16 18
Master ~ ~ 23 10 6 4
Isuzu ~ ~ 65 142 139 120
TOTAL BUSES: 1,332 1,363 1,605 927 978 852
Source: PAMA

Sales of Jeeps and LCVs:

2002- 2003- 2004- 2005- 2006- 2007-
Jeep & LCV,
03 04 05 06 07 08
(4X4) Upto-Mar'08
Suzuki Jeep (Potohar) 465 807 1,107 1,298 1,863 35
Sigma (Defender) ~ ~ 407 1,222 1,534 903
Total Jeeps 465 807 1514 2520 3397 938
Source: PAMA

Sales of Pickups:
2002- 2003- 2004- 2005- 2006- 2007-
PICK-UP / LCV
03 04 05 06 07 08
Upto-Mar'08
Suzuki (Ravi) 1,710 2,087 3,286 5,416 10,098 8,536
Toyota (Hilux) 2,861 2,399 3,389 2,551 52 1,510
Dong Feng ~ 209 86 33 14 70
Hyundai (Shehzore) 2,987 4,203 8,012 9,234 8,574 4,794
Master ~ ~ 1,528 1,717 1,243 493
TOTAL PICK-UPs: 7,558 8,898 16,301 18,951 19,981 15,403
Source: PAMA

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Sales of Farm Tractors:

2002- 2003- 2004- 2005- 2006- 2007-
FARM TRACTOR
03 04 05 06 07 08
Upto-Mar'08
Fiat (New Holland) 12,617 16,888 21,163 24,649 26,927 18,342
Millat (Massey Ferguson) 14,215 19,012 22,415 24,153 27,125 18,754
TOTAL FARM TRACTORS: 26,832 35,900 43,578 48,802 54,052 37,096
Source: PAMA

Sales of Motorcycles:
2002- 2003- 2004- 2005- 2006- 2007-
MOTORCYCLE
03 04 05 06 07 08
Upto-Mar'08
117,20 190,42 287,17 360,11 332,06 330,12
Honda
1 4 2 0 8 2
Yamaha 27,886 50,435 71,498 74,293 56,243 47,697
Suzuki 13,788 27,435 26,002 17,183 27,424 23,184
Sohrab 2,403 12,494 12,127 13,943 7,835 4,835
Sohrab (Triwheeler) 585 3,013 3,186 2,218 2,839 1,510
Qingqi(2 & 3 wheeler) 10,010 17,855 17,081 15,757 15,035 23,359
Hero ~ ~ ~ 33,136 25,909 18,833
Ravi ~ ~ ~ ~ ~ 17,483
Sazgar (Triwheeler) ~ ~ ~ ~ ~ 7,268
171,87 301,65 417,06 516,64 467,35 474,29
TOTAL MOTORCYCLES:
3 6 6 0 3 1
Source: PAMA

Market Shares for FY-Year 2006-2007

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Market Shares of Cars:

CARS Units Sold (nos.) Market Share (%)
Suzuki 110,465 61
Toyota 48,538 26
Honda 18,361 10
Hyundai 3,470 3
Nissan 0 0
Kia 0 0
Total 180,834 100

Market Shares of Trucks:

TRUCKS Units Sold (nos.) Market Share (%)
Hino 2,035 48
Isuzu 938 22
Nissan 871 21
Master 378 9
Dong Fang 2 0
Total 4,224 100

Market Shares of Buses:

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BUSES Units Sold (nos.) Market Share (%)

Hino 770 78
Isuzu 139 14
Nissan 47 5
Dong Fang 16 2
Master 6 1
Total 978 100

Market Shares of LCVs and Pickups:

PICKUPS/LCVs Units Sold (nos.) Market Share (%)
Suzuki 10,098 51
Hyundai 8,574 42
Master 1,243 6
Toyota 52 1
Dong Fang 14 0
Total 19,981 100

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Market Shares of Motorcycles:

MOTORCYCLES Units Sold (nos.) Market Share (%)
Honda 332,068 71
Yamaha 56,243 12
Suzuki 27,424 6
Hero 25,909 6
Qingqi 15,035 3
Sohrab 10,674 2
Total 467,353 100

Product Characteristics

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As the production of automotive vehicles is based on foreign joint ventures of

Japanese, Korean and European Origin, therefore, the product quality is of
international standards.

The quality standards being followed are mainly:

• Japan Industrial Standards (JIS).

• Society of Automotive Engineers, USA, (SAE).
• International Standards Organization (ISO).

The major automobile companies in Pakistan have been set up as joint venture with
foreign multinational companies.

Joint Ventures for Automotive Vehicles

Company Joint Venture Product

Toyota, Japan and Daihatsu, Toyota and Daihatsu
Indus Motor Company
Japan Cuore cars
Honda Cars, Honda
Atlas Honda Ltd. Honda, Japan
Motorcycles
Pak Suzuki Suzuki, Japan Suzuki cars
Suzuki Motorcycle
Suzuki, Japan Suzuki Motorcycles
Pakistan Ltd.
Ghandara Nissan Nissan, Japan Cars and Truck
Dewan Farooq Motors Ltd. Kia and Hyundai, Korea Cars and LCVs
Raja Motor Co. Fiat, Italy Cars
Source: PAMA

SWOT ANALYSIS

Strengths:

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Increasing Demand for Cars:

In Pakistan context there are 9 cars in 1,000 persons which is one of the lowest in
the emerging economies which itself speaks of high potential of growth in the auto
sector and more so in the car production.
Rising per capita income with changing demographic distribution and an anticipated
influx of 30 to 40 million young people in the economically active workforce in the
next few years provides a stimulus to the industry to expand and grow.

Resale of Local Assembled Cars:

Resale of locally assembled cars is better due to availability of spare parts and after
sales services and warranty
Used imported cars have been selling below their cost at the showrooms for the last
six months but consumers are not inclined to buy because of their low re-sale value
and problems in parts availability.

Quality of local cars:

Initially when the import of cars was liberalized the quality of local assembled cars
was unsatisfactory so the people of high income level group started buying
imported cars and the sales of the local assembled cars started decreasing so the
local assemblers started enhancing the quality of their vehicles so we can say that
the quality of local cars is becoming the strength of the auto industry.

OEM:
The local OEM of Pakistan is well equipped with enough advance technology and
skilled labor to produce parts according to the desired quality of any foreign
company.

CNG kit
The advantage of buying local assembled cars is that they comes with factory fitted
CNG kits at the times when the prices of fuel rising at higher pace internationally.

Mechanics:
For local assembled cars mechanics are readily available in market and much
cheaper so the buyer has not to worry about any problem that can occur in the car
in long term whereas the availability for imported cars is a bigger issue for the
owners and if somehow they are able to find one then the mechanics charges much
higher than actually it should be charged.

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Weakness:

WTO—Deletion program:
THE World Trade Organization (WTO) has rejected Pakistan’s request for the
extension of the deletion program which enabled it to lay down the condition of the
local content requirement (LCR). Under LCR, the automobile and other engineering
industry was required to use locally manufactured parts and accessories in terms of
government’s deletion policy. The condition of the LCR was an aberration to the
Clause 5.2 of the WTO Agreement on Trade Related Investment Measures (TRIMs),
Article III–-National Treatment under the GATT, 1994.
WTO’s decision for not extending its deletion program / LCR condition has varied
impact on Pakistan’s vendor industry, automobile assemblers, car users and the
government.

Input Cost:
In Pakistan as the inflation is increasing so as the input costs and for manufacturers
it is becoming harder to produce at lower cost. Increasing cost of energy and its
unreliable and inconsistent supply adds up the cost of manufacturing and wastage
of resources. It is estimated that by the year 2012, auto industry consumption of
electricity will cross 500 – 600 MW from around 250 - 300 MW, as of now.

Protection level:
Before the TBS was introduced the auto industry was well protected by the
government but now as the import of CKD and CBU is liberalized the protection
level to industry by government is decreased.

Lack of skilled manpower for modern machinery

In Pakistan conventional machines are not able to meet the precision manufacturing
and the available labor is not familiar with modern technology it caused by lack of
coordination and linkages with Government/Semi Government Supporting Bodies
and Technical Training Institutes

Scarcity of raw material especially steel

Through previous years the world prices are rising and causing costly inputs and
Pakistan has left with scarce Steel and Iron left, so manufacturers are facing
difficulties in producing cars with low prices.

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Opportunities:
Import German technology and skills
EDB wanted to build a Pakistan-German automotive supply network, providing
opportunities to Pakistani automotive vendor enterprises to benefit from the
German know-how and technology to improve quality, productivity, developing and
marketing of value-added products.

Foreign Investment and setup production facilities

China National Heavy Duty Truck Corporation (CNHDTC), one of the largest heavy
duty truck manufacturers in China, has shown interest for investment in the
automobile sector of Pakistan. The study is required to attract players from
Germany as well as from other countries to develop business with the Pakistani
counterparts.

Baggase Fuel
As the fuel prices are rising in world Pakistan should switch to Ethanol Fuel as Brazil
is using. Ethanol Fuel is produced by Molasses. Pakistan is one of the country which
produces good quantity of molasses but the engines of the local cars do not support
ethanol so Pakistan should acquire the Technology to produce ethanol compatible
cars. In Brazil they use 90% Ethanol and 10% petroleum whereas Pakistani cars with
default engines can afford only 3% Ethanol.

Global spare part market

The annual gross sales turnover of the auto industry, at present, stands at Rs210
billion while export of auto parts are estimated at $35 million. As such, the increase
in production turnover is projected to increase by 185 per cent while the exports of
auto parts would make quantum jump.

BAHRIA UNIVERSITY KARACHI 22

 FINAL
ANALYSIS OF PAKISTANI INDUSTRY REPORT

Threats:
WTO—Parts indigenization

Smuggling of auto parts

The auto industry is generally faced by multiplicity of taxes; the presumptive tax
regime has led to increase in prices of imported inputs and the finished goods.
Component manufacturers are struggling to compete with under-invoicing, miss
declaration and smuggling. Import of used parts is still continuing at a large scale.
Smuggling, under-invoicing and dumping of auto parts

Competition from import cars

Auto industry is facing a threat from the import of cars which is already liberalized
further it is said that government will cut about 15% of duties till 2011.

Fuel prices
According to the authorities the fuel prices which currently are Rs 68.8 and are
going to increase by more Rs. 6 by the end of 3-Jun-08.

Decreasing tariff structure:

For localized parts of CKD cars, the tariff would reduce from 50 per cent to 45 per
cent in 2008-09 and further to 35 per cent in the next two years. The tariff for CKD
non-localized parts would be reduced from 35 per cent to 32.5 per cent in 2007-08
and would keep on decline by 2.5 per cent every year to 25 per cent in 2010-11.

The rate for CBU cars up to 1500cc, the tariff would be reduced from 50 per cent to
zero next year (2007-08) and to be kept at that level thereafter. For CBU cars
between 1500-1800cc, the current rate of 65 per cent would be reduced at the rate
of five per cent annually to 50 per cent by 2010-11. For CBU cars exceeding 1800cc,
the applicable rate of 75 per cent would be reduced at the rate of five per cent per
annum to 50 per cent in 2010-11.

For LCVs, the tariff on CKD kits would be reduced from 20 per cent to 15 per cent at
the rate of one per cent every year. However, the tariff for CBU LCVs, the rate would
be reduced from 60 per cent to 50 per cent in a phased manner by 2010-11.

For two-wheelers, the tariff on CKD kits would be reduced from existing 30 per cent
to 20 per cent in phased manner to 2010-1. Similarly, the tariff on CBU two
wheelers would reduce to 60 per cent by 2010-11 from existing rate of 90 per cent.

For localised CKD parts of tractors and heavy commercial vehicles, the existing tariff
of 35 per cent has been proposed to be reduced to 25 per cent in 2010-11.

For prime movers (up to 280 HP) the tariff for CKD would be reduced from 10 per
cent to five per cent next year and then kept at that level onwards. Similarly, the
tariff for CBUs would be reduced to 25 per cent next year and then kept at that level
for the next five years. The tariff for prime movers (above 280HP) and would remain
unchanged, while it would be reduced for trucks from 10 to five per cent and from
30 to 25 per cent next year.

BAHRIA UNIVERSITY KARACHI 23