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Automobile industry getting ready for more boom

Published on 4th Apr, Edition 14, 2016

 

In Pakistan automobile market trend is enhancing and the next target for the country’s auto sector (2016 to 2021) was to attain the production benchmark of 0.5 million units per annum, which presently is half of it.

Experts revealed that the potential investment of $46 billion by CPEC (China-Pakistan Economic Corridor) is a big opportunity for the automobile sector. The optimistic impact analysis of CPEC explains growth in infrastructure development, stimulation of economic development, improvement in consumer purchasing power, and development in demand for automobiles, even the country has the 6th largest population on the planet and 50 percent of the total population is below 30 years in age.

It is also said that there are 90 million young potential consumers. The country is among the 40 auto producing states while 4 of top 10 worldwide carmakers have organized plants in the country, adding that the automobile sector is major contributor to the Government of Pakistan economy in terms of taxes, as 34 percent of a auto’s price is paid as taxes. It has also created employment for 3 million skilled manpower.

Industry experts also explained other advantages of the automobile sector include overseas investment in manufacturing sector, GDP progress by LSM (large scale manufacturing), documentation of economy, and skills and technology dispersion. Over Rs92 billion investments has been made through the auto and vendor industry, while PAAPAM members supply domestic parts value Rs30 billion only to Toyota in the country. The number of APMs (auto parts manufacturers) is 2,000 in Pakistan and quantum of domestic parts usage is up to 70 percent of total parts, which are verified through Japanese standards.

It is to be mentioned that the phase 1 was from 1991 to 2015 in which total market size (counting imports) was 70,000, and in the phase 2 (2001-2007) the size went up to 250,000 units. Furthermore in the phase 3 (2008 to 2013) the market size shrunk a bit with the market size of over 200,000 units, and in the phase 4 (2014 to 2015), the market size once again went up to post over 280,000 units.

The biggest dent to the sector is influx of imported utilized vehicles, it said that the country is among the few auto producer states globally but unluckily the only one that permits import of utilized vehicles.

Despite being the cause of discouragement for fresh market players and investment in automobile sector, import of used cars has resulted in the loss of 143,000 skilled careers in the country. During 2015 only, used vehicle imports reached at 45,013 cars, making the loss of Rs67 billion to the nationwide exchequer. A fresh career in APMs plants is produced or lost with a revenue change of approximately Rs150,000, hence the import of used vehicles has resulted in the loss of 143,000 skilled careers in the county.

 

Open circumvention of gift, baggage and transfer of residence schemes in the import of used vehicles resulted in the lost sales revenue of Rs21.4 billion for local APM during 2015.

Pakistan’s used automobile strategy is the single biggest cause behind lack of confidence in OEMs and APMs to make long-term investments, let alone the possibility of fresh investment in the automobile sector.

This is the cause worldwide automobile OEMs are now moving their investments to African and Iran continents. On the other hand, there is an ongoing rise in the number and use of imported passenger automobiles in the country. The total number of used vehicles imported to Pakistan in FY2014 was registered to be almost 22,000, which increased in the subsequent year FY2015 by 10,000 more items.
According to facts given through Customs Appraisement South, the import of motor cars in terms of value grew by 19.4 percent in FY2014-15. Automobiles value Rs53.93 billion were imported to Pakistan in the first 10-month, drawing in customs duty of Rs21.126 billion. At the time imported automobiles make up almost 15 percent of total car sales in the country.

Records suggest that present fiscal year has recorded a record high in the import of cars so far with an important surge of 35 percent, value over $218 million as against to the corresponding period in the last year. Over the previous few eras, enhanced macroeconomic situations of Pakistan have had an optimistic impact on the growth of automotive sector.

Higher per capita income and declined policy rates have resulted in a boom in automobile sales, obviously lower fuel rates also have an optimistic impact on automobile rates. While there is a widespread of Japanese compact 660cc vehicles in the country, imported luxury vehicles have also gained unprecedented popularity presently; this segment contributes over 60 percent of consumer car imports but cannot be categorized as luxury automobiles.

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