Local Assemblers Block Preferential Treatment For New Automakers In The Upcoming Auto Policy

autopolicy

The improved outlook for Pakistan’s economy and security situation has allowed Pakistan to breathe a bit of fresh air regarding various companies showing interest in arriving in the Pakistani market. Datsun is confirmed here and is testing while Volkswagen is under talks. One thing is common in all the companies waiting to join the auto industry of Pakistan is that they are all waiting for the upcoming auto policy. And once that comes out, you can expect to hear a lot of concrete information about who is coming and going.

The government had planned and showed resolve towards bringing a European automaker, such as VW or Audi, to do business on a large scale, however; that plan is all in disarray as the big three’s lobby and bureaucrats have reportedly blocked the preferential incentives for new foreign players in the upcoming auto policy.

What are preferential incentives?

The big three have been operating in Pakistan for far too long, so they have established bases to procure all the parts needed to assemble a vehicle. Any new automaker arriving into Pakistan won’t have the same bases to procure parts so for the first couple of years; government provides incentives on customs duty and taxes (by waving them off) on the import of those parts for an agreed period so that the new automaker can develop a parts’ base here locally.

This is preferential treatment and without getting this, no one would come to make and sell in Pakistan. And as reported in ET, preferential incentives/treatment has been blocked for new foreign players.

The auto policy was presented to the ECC a total of two times in the past seven months, and yet they were unable to arrive at a decision. This time, when Ministry of Industries and Production presented it to the Economic Coordination, in which similar tax incentives that are going to be available to new automakers coming to the country were given to existing automakers as well, however, Minister of Water And Power, Khawaja Asif! Do not understand what’s ministry of water and power got to do with Auto policy. However, Khawaja Asif deferred the approval of the policy because Chairman of Board of Investment was not present during the meeting.

ET reports that the main reason behind the deference of the policy was because the Ministry of Industry and Production’s summary was different to what had been agreed upon at the committee level, which prompted Khawaja Asif to intervene and defer the approval.

The summary presented had the same tax benefits that were to be offered to new automakers, as they were also being offered to the existing automakers. Both FBR and the government believes that offering incentives to existing automakers is of no use further since they’ve received them for over two decades.

BoI Chairman has said that the policy will be approved within this month.

Baber K. Khan

An auto enthusiast trying to bring car media mainstream.

  • Sajjad

    I knew that’s what going to happen. When we gonna get rid off these thugs, these three big goons must have bribed our government.

  • Ehs

    This is sad news, essentially it means that entry of VW, GM, Nissan-Renault, and Audi is blocked.

    Now Paksuzuki will continue to enjoy complete monopoly in small car market and it will not replace models on time and continue to dump ancient 1970s-80s junk in the market. Honda Atlas has also taken inspiration from Paksuzuki and now is in no mood to replace the City. The way things are going Toyota might also consider not replacing models.

    Competition is direly needed in the market.
    Modern Safety standards and emission standards must also be enforced. (it is sad that even in 2016 pakistan has no automotive safety standards.)

  • Sherry

    All those people who were getting excited that VW and Audi and Nissan/Datsun will launch their brands in Pak and establish factories and create employment, to them I say “Buhuhahahahahaa”. Its Pakistan, stop dreaming. And i’m sure the new Honda Civic to be launched will come with the same old 1.8L engine instead of the 1.5L turbo. Enjoy the past in the present. Cheers 😀

  • Ehs

    Civic has been further delayed to 2017 as per news report now while new City is nowhere in sight.
    No plans to replace Mehran, Bolan, Ravi, and Swift as well.

    The lack of competition and no safety standards are making it really easy for existing assemblers (especially Paksuzuki) to not invest in new models or introduce even basic safety features.

    Pakistan is becoming a obsolete car production ground.

  • Usman Ansari

    The past 25 years speaks that Govt. is not at all serious in bringing the competition in, or to make any substantial efforts to really develop the industry here. Unfortunately its all about commissions, and let the Big3 manipulate the market. The only option, yet the most effective option is to stop buying. The only way these monopolists will ever offer us good is when they suffer losses in terms of sales.

  • Sherry

    True that.. and then people say why have neighbouring countries such as India (especially) have gone way ahead of us and others start getting angry. Its our corrupt officials who take bribes and continue to place Pakistan in the dark. So I say to the people of Pak, “Keep calm and enjoy your 1980’s Mehran, 2008’s Honda City and the other non-sense”. Enjoy the past and your sorry state of affairs. 😉

  • Muhammad Aamer

    You are right Mr. Usman, its all about commissions which every government earns from these three. But who will stop buying these 25 years old models like Mehran, Bolan, Ravi, Cultus and so on. All these vehicles are made of “Ghee Tins” and no safety measures. Its the government who is not serious bringing the new investors in the country and not even asking the present three makers to improve their quality and features of the current vehicles.

  • M Waqas

    so no other option for us. Just stick with age old Mehran 🙁

  • Kashif Akbar

    We believe that BoI Chairman has a responsible say that the policy will be announced this month. if it does not come out in march it means that current govt. like the previous has no interest to protect the money of car buyers. on this forum join my voice to request PM of PK to look into this matter and announce the policy in the favor of people of Pakistan.

  • Ikramullah Khan

    Policy making is the job of Government and new comers have the right to negotiate. The old players do not have right to dictate the policy or object on the incentives specially those that were enjoyed by them when they were new comers.

    More variety and choice will reduce the import of cars and therefore save the foreign exchange as well as create new jobs. Definitely they will also bring their money as foreign investment.

    The old players should stop crying and get ready for the competition.

  • Muhammad Yasir

    this is WRONG !!
    so fucking stupid !

    if ANYTHING , the upcoming policy should PENALISE the current local automakers for their HORRID performance in the market !!!

    also , what about the FREAKING BUDGET market section of automobiles in the country ?! it doesnt fucking exist at ALL because WE can’t buy a new car in the price range of 2-4 Lakhs !!!
    WTF ?! Even INDIA has better offering of car at those rates ?! when will the rulers and bureaucrats LEARN ?! if you CANT offer a respectable standard of living to your people , you are a failure REGARDLESS of ANYTHING else you achieve.

    fucking imbeciles and jackasses !

  • Guest

    There is no validity of your buhahahaha.

    There has been a struggle for everything we got, but surely progress has been made. There was s struggle to gain the country, then there was struggle to gain atomic power. There was a struggle for computerized NIC, there was a struggle for computerised passport, there was a struggle acceptance of mobile phone (if you remember in the 97-99 era of Nawaz Sharif, he said that mobile can be easily used to commit dacoities so it should not be popularized), then there was a long struggle for 3G license of phone operators. There was a struggle against narcotics in the 90s, there was a struggle against the terrorism in the oughties. There was always a struggle and only when the people dared to struggle, then the fruits were achieved.

    Even in the modern countries we look up to, like USA where NHTSA and others are there to watch the quality and safety of cars, even those places have struggled greatly, even for some really, really small things such as the right of person with dark skin to sit on the bench of a park.

    Recently Pakistan has managed to get modern designs like Swift (only one generation old) and Wagon-R (completely new), as compared to previous days when we were producing 5-6 generations obsolete.

    So many people like you were saying buhahahaha in all those times too but when the fruits were achieved they quickly joined to enjoy those fruits.

    PW blog and its readers will keep struggling with all their bad grammar and poor selection of words to achieve this new improvement.

  • Guest again

    Actually the market performance of the existing car makers is very good. Look at the sales figures, profits and revenues and share price. All going up vertically.

    What we should talk about is the performance of their products.

    You are a good person. Please avoid foul language the next time. There are better ways to express your frustration, anger and dissatisfaction.

  • Guest

    While you are right, the vision is narrow. It is not only about protecting the money of the car buyers. These cars have abysmal occupant safety. They have to protect the car buyer first, if he/she manages to live, then can think about protecting his/her money.

  • Guest again

    It is not a problem for the old players. The incoming german and italian cars would be so expensive, mehran will not lose and inch of its ground.

  • Muhammad Yasir

    k .. unknown guest.

    remember how locally made Glis were labelled too soft ? and dent havens ?
    which is why EVERYONE started importing Japanese made corollas !

    we need foreign investment AND expertise here. the cars here are wayy too over priced and horrible in terms of what they offer !

  • Sherry

    Actually there is validity of my buhuhahahaha.. If you say that us getting “new” designs such as swift and wagon R, that was a necessity and not something additional. It was a must to renew old models. But then again, the models of the cars in Pakistan are changed once every decade.
    When you live inside a box, any change is seen a revolutionary however try moving around to different countries and see the situation in Pakistan from outside to get a more holistic view then you’d realize that the country which gained independence on the same day as us has 10+ automotive companies operating there while we have 3. So besides English, if you can do basic math, then you’d realize that we are way way behind. But if you cant do math then enjoy your “inside the box” view.

    Cheers 😉

  • Sunny

    Basically its not just the existing car assemblers,
    its also there local partners that provide parts etc.

    These local peoples are not less than gangsters,
    they have strong hold within assemblers,
    for example, they provide sub standard parts to assemblers,
    if any new person try to provide better quality parts to assemblers at same price,
    his better parts get rejected in favor of inferiors quality ones.

    So unless this monopolistic nexuses is broken no thing will change.
    For example you will have new entrant like FAW V2 but it will still have cheap local parts as interiors etc

    These gangsters disguised as local parts manufactures only oppose new entrants
    because they’ll have to infest more to build cheap parts for new brands instead they are happy with status co. They bribe Govt. and Bureaucrats to either keep new brands out or force them to just buy there cheap parts.

    The phony excuses they provide that people will get jobless are a joke.

    As long as there is demand for cars there will be need for some one to make and maintain them. It like early era of cellular providers that use to say that PTCL/Paktel and its partners will lose jobs if new entrants allowed, yes they for sure will because its not the jobs its the business they’ll lose to new entrants and those jobs will be then be provided by new entrants.

  • Abdullah

    The Economic Coordination Committee (ECC) of the Cabinet on Friday, 19 March, 2016 approved Automotive Development Policy 2016-21 that offers incentives to new manufacturers through lower tax rates to bring vehicle prices down through competition with existing players.

    Board of Investment (BoI) Chairman Miftah Ismail told Dawn after the meeting that basic policy objective was to bring in new brands and revive some closed units to generate healthy competition in the market, leading to reduction in prices and improvement in quality standards.

    He said the existing players were running with 20-year-old models despite government encouragement to roll out new models and reduce prices. “The existing three have not been able to bring in enough competition. As a result, car prices in Pakistan are much higher than they should be.”

    The policy defined new entrants as carmakers whose models are not produced in Pakistan at present and would set up greenfield projects, he said. This would mean that Honda, Toyota and Suzuki would not be offered incentive facility which the government would provide to new players like Fiat, Volkswagen, Renault and Nissan.

    Mr Ismail said new entrants would be allowed import of plants not produced locally at 10 per cent duty and 25pc duty on localised plants for five years. These rates would remain unchanged for five years.

    Simultaneously, a brownfield category has been created for plants like Ghandhara-Nissan and some others which are currently lying closed for various reasons. The incentive package for new entrants would be available to this category for three years to facilitate their revival as economic activity picks up pace.

    For existing carmakers, the duties would also be rationalised. In doing so, the import tariff would be reduced from 32pc to 30pc for non-localised plants and from 50pc to 45pc for localised plants.

    The policy also promised reduction in duties by 10pc for all cars up to 1,800cc engine capacity over the next two fiscal years i.e. 2017-18 and 2018-19. This would mean the import tariffs on 800-1,200cc cars would be brought down from 55pc to 45pc and so on. However, there would be no change in these rates in the coming budget.

    The import regime for used cars was kept unchanged because this fell in the jurisdiction of parliament, the BoI chairman said. The import tariff on completely knocked down (CKD) units would also be reduced to 30pc from existing rate of 32.5pc for non-localised parts and from 50pc to 45pc on localised parts, he added.

    Also, the new policy set a uniform 10pc rate of duties on components and sub-components by merging the two in one category because 5pc duty on components and 10pc on sub-components led to mis-declaration in the past.

    He said the new policy would facilitate higher volumes, better investment, enhanced competition and better quality with latest technology. It creates a balance between industrial growth and tariffs to ensure sustainability for all stakeholders and encourage consumer welfare.

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