FINAL REPORT

LETTER OF TRANSMITTAL

June 03, 2008

Mr. Zeeshan Ali

Teacher, Analysis of Pakistani Industry

Bahria University Karachi. Sir:

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

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FINAL REPORT

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.

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.

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FINAL 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%).

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.

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FINAL REPORT

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 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

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Reasons for Rapid Growth (end 2002):1. Increase in Car Financing.2. Economic Growth.3. AIDP Announced.

FINAL REPORT

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

Source: PAMA

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Taxi Scheme

More than 30 policy changes

1989-1990

1990-1991

1991-1992

1992-1993

1993-1994

1994-1995

1995-1996

1996-1997

1997-1998

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-20070

50

100

150

200

250

300

PC + LCV Automobile Market

Units in Thousand

Units

in T

hous

and

FINAL REPORT

The automobile industry in Pakistan can be broadly categorized into following segments:

Cars and Light Commercial Vehicles (LCVs). Two and Three Wheelers. Tractors. Trucks and Buses. Vendor Industry.

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 2007-2008Total Investment Rs. 100 BillionTotal 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.

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FINAL REPORT

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

Capacity unit/annumPak Suzuki Motor Co. Ltd, KarachiPublic Limited Company with 72.82% shares and management held by Suzuki Motor Corporation, Japan.

150,000

Indus Motor Co. Ltd, KarachiJoint venture between Habib Group, Pakistan,Toyota Tsusho Corporation, Japan (Toyota and Cuore

50,000

Honda Atlas Cars (Pak) Ltd, LahoreJoint venture between Atlas Group Pakistan andHonda Motor Co. Japan.

20,000

Ghandhara Nissan LtdTechnical cooperation agreement with Nissan Motors, Japan.

6,000

Dewan Farooq Motors LtdTechnical cooperation agreement with HyundaiCorporation, South Korea.

25,000

251,000Source: 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.

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FINAL REPORT

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 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.

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FINAL REPORT

PRODUCTION

Production of Cars:CAR 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

1300-1600cc (2000cc Diesel) Upto-Mar'08Honda (Civic) 4,610 5,998 12,359 12,274 5,610 4,347Honda (City) 3,786 7,417 11,771 17,606 10,461 6,206Suzuki (Baleno) 2,608 4,153 5,965 2,939 0 0Suzuki (Liana) ~ ~ ~ 5,370 5,964 2,306Toyota (Corolla) 12,861 20,525 23,007 31,094 35,036 24,396Nissan (Sunny) 51 26 0 0 0 0Kia (Classic NGV) 459 188 465 0 0 0Kia (Spectra) 384 73 1 0 0 01000ccSuzuki (Khyber/ Cultus) 8,097 10,810 15,591 21,342 29,880 19,852Suzuki (Alto) 4,775 7,196 11,411 17,513 21,546 14,407Hyundai (Santro Plus) 3,114 7,902 6,101 8,604 2,225 1,527800cDaihatsu (Cuore) 4,580 6,468 8,525 7,883 12,786 8,933Suzuki (Mehran) 16,748 27,705 31,207 35,433 36,988 26,933Suzuki (Bolan) 4,359 5,201 7,319 10,429 15,520 13,051TOTAL CARS: 66,432 103,662 133,722 170,487 176,016 121,958

Source: PAMA

Production of Trucks:TRUCK 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Upto-Mar'08

Hino 792 1,020 1,196 1,499 2,244 1,831Nissan 627 898 1,306 1,652 829 593Dong Feng 510 104 23 4 3 0Master ~ ~ 551 466 380 341Isuzu N.A. N.A. 128 897 954 552TOTAL TRUCKS: 1,929 2,022 3,204 4,518 4,410 3,317

Source: PAMA

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FINAL REPORT

Production of Buses:BUS 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Upto-Mar'08

Hino 756 1,195 1,392 668 744 635Nissan 60 96 120 48 31 48Dong Feng 480 89 110 40 8 10Master ~ ~ 21 6 5 5Isuzu N.A. N.A. 119 63 205 140TOTAL BUSES: 1,296 1,380 1,762 825 993 838

Source: PAMA

Production of Jeeps and LCVs:Jeep & LCV, 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

(4X4) Upto-Mar'08Suzuki Jeep (Potohar) 374 807 1,120 1,290 1,891 0Sigma (Defender) ~ ~ 444 1,182 1,407 1,149Total Jeeps 374 807 1,564 2,472 3,298 1,149

Source: PAMA

Production of Pickups:PICK-UP / LCV 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Upto-Mar'08

Suzuki (Ravi) 1,701 2,085 3,310 5,418 10,117 8,512Toyota (Hilux) 3,045 2,229 3,394 2,575 0 1,596Dong Feng ~ 304 21 24 4 80Hyundai (Shehzore) 3,069 4,270 8,022 9,368 8,381 5,015Master ~ ~ 1,547 1,767 1,170 449TOTAL PICK-UPs: 7,815 8,888 16,294 19,152 19,672 15,652

Source: PAMA

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FINAL REPORT

Production of Farm Tractors:FARM TRACTOR 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Upto-Mar'08

Fiat (New Holland) 12,114 16,637 20,840 24,574 27,018 18,195Millat (Massey Ferguson) 14,126 19,133 22,360 24,313 27,080 19,031TOTAL FARM TRACTORS: 26,240 35,770 43,200 48,887 54,098 37,226

Source: PAMA

Production of Motorcycles:MOTORCYCLE 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Upto-Mar'08

Honda 115,924 190,679 287,271 360,561 331,621 329,816Yamaha 27,427 50,407 71,560 74,423 56,282 48,633Suzuki 13,610 27,863 26,234 16,954 27,309 23,712Sohrab 6,801 12,396 12,065 14,804 7,514 4,578Sohrab (Triwheeler) 1,343 3,031 3,258 2,166 2,817 1,498Qingqi(2 & 3 wheeler) 10,064 19,007 15,801 17,198 15,926 22,135Hero ~ ~ ~ 34,018 25,798 18,646Ravi ~ ~ ~ ~ ~ 17,763Sazgar (Triwheeler) ~ ~ ~ ~ ~ 7,268TOTAL MOTORCYCLES: 175,169 303,383 416,189 520,124 467,267 474,049

Source: PAMA

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FINAL REPORT

SALES

Sales of Cars:CAR 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

1300-1600cc (2000cc Diesel) Upto-Mar'08Honda (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

TOTAL CARS: 66,315 101,848 134,550 165,965 180,834 120,246Source: PAMA

Sales of Trucks:TRUCK 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Upto-Mar'08Hino 758 948 1,262 1,449 2,035 1,919Nissan 614 845 1,326 1,478 871 828Dong Feng 511 75 27 16 2 0Master ~ ~ 565 464 378 303Isuzu ~ ~ 165 866 938 610TOTAL TRUCKS: 1,883 1,868 3,345 4,273 4,224 3,660

Source: PAMA

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FINAL REPORT

Sales of Buses:BUS 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Upto-Mar'08Hino 795 1,187 1,293 649 770 682Nissan 36 107 93 79 47 28Dong Feng 501 69 131 47 16 18Master ~ ~ 23 10 6 4Isuzu ~ ~ 65 142 139 120TOTAL BUSES: 1,332 1,363 1,605 927 978 852

Source: PAMA

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

Source: PAMA

Sales of Pickups:PICK-UP / LCV 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Upto-Mar'08Suzuki (Ravi) 1,710 2,087 3,286 5,416 10,098 8,536Toyota (Hilux) 2,861 2,399 3,389 2,551 52 1,510Dong Feng ~ 209 86 33 14 70Hyundai (Shehzore) 2,987 4,203 8,012 9,234 8,574 4,794Master ~ ~ 1,528 1,717 1,243 493TOTAL PICK-UPs: 7,558 8,898 16,301 18,951 19,981 15,403

Source: PAMA

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FINAL REPORT

Sales of Farm Tractors:FARM TRACTOR 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Upto-Mar'08Fiat (New Holland) 12,617 16,888 21,163 24,649 26,927 18,342Millat (Massey Ferguson) 14,215 19,012 22,415 24,153 27,125 18,754TOTAL FARM TRACTORS: 26,832 35,900 43,578 48,802 54,052 37,096

Source: PAMA

Sales of Motorcycles:MOTORCYCLE 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Upto-Mar'08Honda 117,201 190,424 287,172 360,110 332,068 330,122Yamaha 27,886 50,435 71,498 74,293 56,243 47,697Suzuki 13,788 27,435 26,002 17,183 27,424 23,184Sohrab 2,403 12,494 12,127 13,943 7,835 4,835Sohrab (Triwheeler) 585 3,013 3,186 2,218 2,839 1,510Qingqi(2 & 3 wheeler) 10,010 17,855 17,081 15,757 15,035 23,359Hero ~ ~ ~ 33,136 25,909 18,833Ravi ~ ~ ~ ~ ~ 17,483Sazgar (Triwheeler) ~ ~ ~ ~ ~ 7,268TOTAL MOTORCYCLES: 171,873 301,656 417,066 516,640 467,353 474,291

Source: PAMA

Market Shares for FY-Year 2006-2007

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FINAL REPORT

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

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

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CarsSuzukiToyoyaHondaHyundaiNissanKIA

Trucks

HinoIsuzuNissanMasterDong Fang

FINAL REPORT

Market Shares of Buses:

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BUSES Units Sold (nos.) Market Share (%)Hino 770 78Isuzu 139 14Nissan 47 5Dong Fang 16 2Master 6 1Total 978 100

FINAL REPORT

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

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Buses

HinoIsuzuNissanDong FangMaster

LCVs

SuzukiHyundaiNissanToyataDong Fang

FINAL REPORT

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

Product Characteristics

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MotorcyclesHondaYamahaSuzukiHeroQingQiSohrab

FINAL REPORT

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 ProductIndus Motor Company Toyota, Japan and Daihatsu, Japan Toyota and Daihatsu Cuore cars

Atlas Honda Ltd. Honda, Japan Honda Cars, Honda MotorcyclesPak Suzuki Suzuki, Japan Suzuki cars

Suzuki Motorcycle Pakistan Ltd. Suzuki, Japan Suzuki MotorcyclesGhandara Nissan Nissan, Japan Cars and Truck

Dewan Farooq Motors Ltd. Kia and Hyundai, Korea Cars and LCVsRaja Motor Co. Fiat, Italy Cars

Source: PAMA

SWOT ANALYSIS

Strengths:

Increasing Demand for Cars:

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FINAL REPORT

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 kitThe 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.

Weakness:

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FINAL REPORT

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 machineryIn 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 steelThrough 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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FINAL REPORT

Opportunities:

Import German technology and skillsEDB 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 FuelAs 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.

Threats:

WTO—Parts indigenization

Smuggling of auto partsThe 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

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FINAL REPORT

Competition from import carsAuto 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 pricesAccording 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.

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