auto industry of pakistan

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AUTOMOBILE SECTOR

1. Introduction:Pakistan is one of the leading countries in the world having a large number of vehicles. Thus Auto sector in Pakistan is improving each day and its contributing to the GDP of the country to an effective extent. The basic idea in this report is to make new vehicles from the spare parts of used vehicles due to the increasing prices of current vehicles and also the automobile industry of Pakistan is compared with that of India in the end.

2. Automobiles Industry in Pakistan:Pakistan is an emerging market for automobiles and automotive parts offers immense businessand investmentopportunities. The total contribution of Auto industry to GDP in 2007 is 2.8% which is likely to increase up to 5.6% in the next 5 years. Total gross sales of automobiles in Pakistan were Rs.214 billion in 2006-07 or $2.67 billion. The industry paid Rs.63 billion cumulative taxes in 2007-08 that the government has levied on automobiles.There are 500 auto-parts manufacturers in the country that supply parts to original equipment manufacturers (PAMA members). Auto sector presently, contributes 16% to the manufacturing sector which also is expected to increase 25% in the next 7 years, as compared to 6.7 percent during 2001-02.Vehicles manufacturers directly employ over 192,000 people with a total investment of over $ 1.5 billion. Currently, there are around 82 vehicles assemblers in the industry producing passengers cars, light commercial vehicles, trucks, buses, tractors and 2/3 wheelers. The auto policy is geared up to make an investment of $ 4.09 billion in the next five years thus, making a target of half a million cars per annum achievable.

3. Contribution to the GDP:Today the automotive industry annually contributes over Rs 30 billion toPakistan's GDP and is also paying approximately Rs 8 billion per year inthe form of taxes and thereby playing a pivotal role in the developmentof Pakistan's economy. Presently the auto industry has the capacity toproduce 120,000 cars annually on a double shift basis. Carmanufacturers in Pakistan over the last decade have contributedconsiderably towards employment generation. Car manufacturers inPakistan and vendors employ around 150,000 to 200,000, peopledirectly and indirectly. The Original Equipment Manufacturers (OEMs)have also been instrumental for transfer of technology, value additionand manpower development. As a consequence of car manufacturing inPakistan, a vibrant auto vendor industry has emerged that is now notonly supplying parts to local OEMs like Toyota, Honda, Suzuki, Nissan,etc, but also exporting internationally.Auto-part exports are approximately $20 million per annum. Due to thedeletion policy, cars manufactured by OEMs now consist 50% to over70% local components depending on the model. Over the year vehiclesmanufacturing has been among the few industries that has continued toattract local and foreign investment even when the investment climate inthe country has not been very favorable. The development of the localcar-manufacturing sector is a key element in the industrializationprocess. It must be remembered that the import of used cars as opposedto Complete Knock Down (CKD) parts would cause a major drain onPakistan's foreign exchange and work towards retarding the overallgrowth of the engineering sector in Pakistan.The auto manufacturers in Pakistan are playing a significant role in theexports of the country. From July 2001-March 2002 auto parts exportshave been to the tune of $27 million.. The deletion process is ongoingand every year a certain set number of locally manufactured car parts areincorporated. According to the deletion program car makers have toprogressively increase quantum of locally made car parts till themaximum level is attained. Currently in small cars the deletion level isalmost 75% and in larger cars it is close to 60%. A change in the shapehas impact on the deletion program. A change in shape means aninvestment of anywhere from Rs 4-5 billion, which economically is nota viable proposition keeping in view low demand trend.Pakistan is an emerging market for automobiles and automotive parts,offers immense business and investment opportunities. The totalcontribution of Auto industry to GDP in 2007 is 2.8% which is likely toincrease up to 5.6% in the next 5 years. Total gross sales of automobilesin Pakistan were Rs.214 billion or $2.67 billion in 2006-2007. Theindustry paid Rs.63 billion cumulative taxes in 2007-2008 that thegovernment has levied on automobiles. There are 500 auto-partsmanufacturers in the country that supply parts to original equipmentmanufacturers (PAMA members). Auto sector presently, contributes16% to the manufacturing sector which also is expected to increase 25%in the next 7 years, as compared to 6.7 percent during 2001-02.Vehiclesmanufacturers directly employ over 192,000 people with a totalinvestment of over $ 1.5 billion. Currently, there are around 82 vehiclesassemblers in the industry producing passengers cars, light commercialvehicles, trucks, buses, tractors and 2/3 wheelers. The auto policy isgeared up to make an investment of $ 4.09 billion in the next five years

Contribution of Indian auto sector to its GDP:The Indian automobile sector is more secure than the Pakistanis and its strong economic condition of the Indian economy,it contribution in Indian GDP is more than that of Pakistan.According to the statistical division of india,the automobile sector contributes about 10% to Indian GDP.It is almost double the number,what the Pakistani automobile sector contributes to its GDP.

4. Production (P) and Sales (S) of Vehicles of Paksitan automobile sector:

5. VISION 2013: The Future of Pakistan Auto Industry

Product2007-8VISION 2013

Cars (nos.)164,710500,000

2 wheelers1.06 million1.7 million

Investment (Billion)98225

Contribution to GDP (%)2.85.6

Contribution to manufacturing sector (%)1625

Direct Employment192,000500,000

Gross sales turn over (Billion)214600

6. Automobile Industry and the Allied industries:The automobile industry has also strengthened many associatedindustries and allied industries. It has not only provided jobs to alarge number of people but has also contributed significantly to thenational exchequer. The most prominent allied industries are asfollows.1-CNG (compressed natural gas stations)2-workshops3-tyre shops4-Automobile parts shops

7. Decline and sales revenue:Unfortunately, the recent downward trend in auto sales (cars + LCVs) continued as auto sales stood at 27,034 units for July-September 2008, showing a decline of 44 percent year-on-year, the data released by Pakistan Automobiles Manufacturers Association (PAMA) shows. (Link)Automobile grew from 2001-2007, the industry and the government of Pakistan fixed a target of over half million units production by the year 2011-12 that now seems out of reach. The industry slightly fell short to achieve the targeted productions in 2006-07 when 1,95,688 cars were manufactured against a target of 2,26,620 units. However, there was some growth in production that year. In 2007-08 the production declined to 1,87,634 units against a projected target of 2,66,543 units. In the current fiscal year they said the production is expected to decline to 1,50,107 units that are half the projected target of 3,13,486 units.Despite an additional levy of 5 per cent excise duty, the revenues from automobile sector would decline by over 25 per cent this year due to declining demand. The industry paid Rs.63 billion cumulative taxes that the government has levied on automobiles. This year, despite additional duty the sector would hardly contribute Rs50 billion in the national exchequer.

8. Automobile Manufacturers and Vendors concerns:Automobile manufacturers and auto-parts vendors have warned the government that despite an additional levy of 5 per cent excise duty, the revenues from automobile sector would decline by over 25 per cent this year due to declining demand.The Pakistan Association of Auto Parts and Accessories Manufacturers (PAAPAM) and Pakistan Automobile Manufacturers Association (PAMA) in a joint presentation have suggested various steps that should be taken by the government to arrest the slowdown in sales. The two associations appealed to the government to withdraw the 5 per cent excise duty on cars and impose a ban on import of used parts instead of allowing their import after imposing 30 per cent redemption duty.They asked the government to place stringent checks on auto-parts imported commercially or as semi knock out kits. They proposed the introduction of non-tariff measures to curb the import of parts that are being manufactured in Pakistan. They pointed out that the 50 per cent duty has failed to stop the import of these parts as the import prices are easily manipulated by the importers. Moreover, import under SRO 63 attracting 50 per cent duty should not be allowed under FBRs CARE system. They have also appealed for special incentives for the auto sector including lower mark-up on loans and a waiver of 35 per cent L/C margin.The two associations pointed out that investment in the automobile sector has frozen at Rs98 billion and is expected to remain at the same level by 2011-12.

9. Key players in Automobile industry:

a) Honda Atlas Cars Pakistan Ltd:Honda Atlas Cars Pakistan Limited is a joint venture between Honda Motor Company Limited Japan, and the AtlasGroup of Companies, Pakistan. The company was incorporated on November 1992 and joint venture agreement was signed on August 1993. The ground breaking ceremony was held on April 17, 1993 and within a record time of 11 months, construction and erection of machinery was completed. The first car rolled off the assembly line on May 26, 1994. Official inauguratio