Auto industry plunges into deep crisis

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  • ‘An increase in advance customs duty on all raw materials and imposition of up to 7.5pc FED proving deadly for the auto sector’
  • ‘Industry needs stable, secure and long-term policies so that it can implement its investment plans’

ISLAMABAD: The auto industry of Pakistan has fallen into a deep crisis, as car sales witnessed a decline of around 50pc in July 2019, with expectations of a further decline in figures by the end of August.

The government has recently taken several steps that have not only contradicted with the essence of the Auto Development Policy 2016-21 (ADP) but have also adversely impacted the process of industrialisation in the country.

As per the sources, if the prevalent declining trend continues, the industry’s target of producing 550,000 units in line with the Auto Policy 2016-21 would be missed by some distance.

Sources said the government must take prudent measures to facilitate the auto sector, or else it could witness a revenue loss of around Rs225 billion per annum besides a job cut for 1.8 million people.

This would not only reduce the industry’s growth but would also hurt the industrial expansion that took place during the past few years, they added.

Sources said the industry needs stable, secure and long-term policies so that it could implement its investment plans, adding that the government must also ensure a business-friendly environment for the business community so that the industry could grow the way it should.

According to the data released by Pakistan Automotive Manufacturers Association (PAMA), the sales of Honda cars declined 66pc in July 2019 as compared the same month last year. Honda sold 4,981 units in July 2018, which came down to 1,694 units in July 2019.

Similarly, the sales of Toyota vehicles witnessed a fall of 56pc, as the company managed to sell only 2,413 units in July 2019 as compared to 5,468 cars in July 2018.

The sales of Suzuki registered a decline of 23pc in Pakistan.

According to sources, the prevalent crisis has made the auto manufacturers revisit their development and expansion plans as the market confidence has been shaken badly.

“An increase in the advance customs duty on all raw materials and an imposition of 2.5pc to 7.5pc federal excise duty announced in the current budget proved deadly for the industry,” an industry insider said. “Besides, huge devaluation of Pakistani currency against the US dollar in recent times has severely affected all future plans of the industry.”

He informed that the local auto industry had invested approximately Rs140 billion during the past few years while around $1.3 billion would be invested further by the new entrants.

It is pertinent to mention that Honda kept its plant closed for 12 days in July while Indus Motor Company reduced its production work to five days a week.

“This situation is very disturbing for the new entrants, as the outcome of their investments would remain lower than expected,” said the source. “The situation is also not profitable for the government as it would face tax collection shortage of around Rs3 billion per month.”

He termed inconsistent policies, massive devaluation of rupee, new taxes and duties, and high energy and interest rates as reasons behind the exorbitant increase in the input cost.

“There is more stability required and the government should not support pro-import policies. In the long run, the government should keep tight control on the exchange rate and it should strictly follow the auto industry development programme 2016-21.”

14 COMMENTS

  1. When you increase prices of your cars by more than the exchange rate increase, what else will happen? The looters sitting in the big 3 (Honda, Toyota and Suzuki) increased prices by more than 30-40% on the excuse that exchange rate is increasing.

    Exchange rate increased by 28% from July 2018 to now (from Rs 125 to 160). On the other hand, Honda Civic Oriel prices increased from 26.5 lacs to 38 lacs. It’s a luxury good and demand is highly sensitive to prices. Yet rather than keeping prices rational and bearing some burden of cost increase, these thugs increased prices more than the increase in cost. What else were going to happen? These looters and tax evaders will now cry that the production is shutting down when deep down inside they just want to save paying taxes and won’t reduce the prices so that they continue to charge high margins from customers.

  2. Mr. Asim it’s very easy to say “Shut down Toyota, Suzuki, Honda” but can you please suggest if suppose this happen then what happen to their employees.

    • They should invest money in manufacturing cars in Pakistan. Not assembling.
      And tbh, I think govt should put exorbitant custom duties on import of material of cars. But should lower taxes inside country. So that they don’t have a reason to increase prices.
      They are here for decades. And if they aren’t willing to manufacture even now, then f**k them.
      Tough times call for tough decisions.

  3. Govt policies are very bad, and policy makers are not watching looters like Suzuki, toyota and Honda company they are increasing the prices on 5 to 6 time in a year and trade ministry is also silent, people’s are facing problems that’s y country economy is going bad day by day, no one is responsible like Govt and automakers every one is looting people.

  4. The actual problem is not only these 3 looters (Suzuki, Honda, Toyota). They are putting huge impact on prices after fulling the pockets of regulatory bodies to keep silent. People should welcome new entrants in order to put them presure back for a healthy competion.

  5. Since we don’t have any home grown car player hence these japanese companies have become looters. We need to put focus on education and development. need to stop supporting religious extremism and terrorism. We are already in APG blacklisting now. Learn from Turky and Malaysia.

    • We should change our mindset of all the time calling investors, industrialists as looters and thugs.
      This is what we did in 60s: calling industrialists as thieves and looters and as “mazdoron ka khoon penay waly”. Locked them in toilets and set fire to their cars. What happened?
      Pakistan whose economical growth rate was comparable to japan. Industries shut down. Labor unions dictated their terms. A road to downhill started. Investments left for more greener pastures.
      Remember an investor is and will be a profiteer. Private sector will seek profit and a maximum profit.
      Only One factor rule the economy and the prices i.e. Competition.
      Competition keeps the prices low and quality high.
      The Govt policy should be also one : a stable, predictable policy for industrialists and investors.
      And lastly kow stable energy rates .

  6. The word “looter” is quite inappropriate. I agree that these company had a certain monopoly in the Country and I have read on Toyota Intl’s website in 2010, Toyota Pakistan was the most profitable Toyota branch in the world. So they have used this monopoly to disadvantage of Pakistani people. But it may not be true for all at all levels. E.g. Suzuki has produced millions of cars in Pakistan and in cars like Mehran, only a little percentage of product is imported, say the engine, carburetor, gear box etc. All the rest was our own production. In Toyota and especially Honda, 50-60% of the product is imported, only a few body parts are made in Pakistan and the rest is their profit. These manufacturers are here for too long now. It is now time that they start producing complete units and exporting such units to neighbouring countries such as Afghanistan, Iran, Russia, Nepal etc. But their greed have surpassed the passion behind business.

    Thats not the entire loss to economy. All the money we pay for a Honda could be divided into few portions, i.e. taxes (40-50%), expenditure (much goes abroad in imports), salaries (much goes abroad as foreign executives are unnecessarily highly paid), research and development (negligible), corporate social responsiblilty spending (negligible), profits/dividends (all goes abroad). So much of the money we pay for a 1800 cc car is converted to USD and sent abroad.

    Suggestions. First thing is policy should be investor friendly, agreed. But it should also be purchaser friendly. It is a fact that we are a third world country and do not have money for basic needs. We do not need Ra. 4 million cars where the balance of payment is made up from loans. Let’s break the trap and start manufacturing or importing smaller cars. Fact is that the sum of profit repatriated from one Honda Civic after conversion to US Dollars is more than the cost of importing a brilliant second hand car. So if we are repatriating say US Dollars 10,000 for a Honda, why not import a second hand car by repatriating only USD 6000-7000.

    Once we have gained financial strength, Pak can consider importing luxury items a
    Or manufacturing more luxury cars (made 60-70% from imoorted materials)

    Secondly, Government should, as a matter of policy, monitor R&D expense and utilise such research for innovations specific to Pakistan and utilise such indigenous research for competing with international market. Innovative products could be trademarked internationally and will benefit Pakistan.

    Thirdly, the policy should ensure that at least some percentage of items manufactured in Pakistan should be exported to other countries where they are not being manufactured yet. There is no harm in manufacturing Honda’s or even a Suzuki Mehran and exporting it to Afghanistan or Chechniya, Nepal, Srilanka, or other countries where we can have easy market access. Govt needs to facilitate export and give manufacturers benefits in their local trade, if they find some export market for Pakistan.

    Those related directly to car industry may chip in their suggestions instead of only exhaling anger 🙂

  7. No sympathy for these blood and sweat sucking car manufacturers. There is no barkat in their business because all they have done is manufactured crap quality cars, charging exorbitant prices and then manipulating the market through supply and demand shifts and ultimately utilising tools like ON to make more money from consumers. This industry needs to take a serious look at itself and as long as they keep cheating consumers, they will have no barkat.

  8. PAMA AN affiliate of JAMA giving Japan a monopoly on the auto industry. Europe is leader in automobiles technology, standards etc. Todays situation has come because of the cars were only assembled for a very privileged class supported by the DFI for subsidise leasing, and tax relief.
    The Govt., need a class that could pay duty for imports, and Federal taxes are imposed, and recovered.
    Today the reality is Global Climate Change. The WHO recommends stop cars, use buses, and built bicycle track in Karachi. Yes if at all you want to use an ambulance, car, wagon, bus or any auto they should essentially be Hybrid, or EV. Today kits are easily available to convert a petrol to Hybrid by DIY kit. with an electric technician. Todays concept car body on fiber glass, EV, no engine, radiator, silencer, muffler, petrol, CNG nothing at all. The car will run on batteries to be charged at home. The dinosaur does not realise that depreciation provision for ‘OBSOLESCENCE’ of auto by technological revolution and Climate Change.
    Today people transport will be EV Bus and Bicycle track which will let our major population on the road side.

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