The auto industry of Pakistan is completely shattered as the situation further worsened with a decline of nearly 50% sales in the month of July 2019. The current circumstances of the local auto sector have matured in the wrong direction and don’t even seem to be coming back on track anytime soon. Under the prevailing policies of the government, the sales figures are expected to drop even further in the coming months which could be disastrous for the industry which is considered as the backbone of the country. The government of PTI has taken several steps in the recent past, which have turned out to be a nightmare for the auto sector itself and other associated small industries. The previous government introduced Auto Development Policy 2016-21 (ADP), offering several tax-based incentives to the new entrants in the country. It contributed immensely towards bringing huge amounts of foreign investment as several European and Korean auto giants made their way into the country by acquiring Greenfield status to assemble its cars at their respective production plants. However, it didn’t take long for the new government to change things dramatically against the existing as well as new players in the market. It imposed several high amounts of taxes and duties on the automobiles that adversely affected the sales. A majority of new entrants have introduced high-end cars to their line-up and as the prices went up for several reasons, selling them became an uphill task.
The high-rising US dollar against the local currency has led to a massive increase in the prices of cars as a lot of parts or raw material used to manufacture them, is imported from other countries. Under the prevailing situation, the industrial efforts of producing 550,000 units annually would only remain a dream. In case of further declining sales, there could be a revenue loss of Rs.225 billion per annum, which is not a good sign either. Employment will be directly affected, and nearly 1.8 million jobs could be at stake. The new players have invested millions to set up their plants for long-term purpose and therefore it’s the responsibility of the government to provide a secure environment to their investment plans through a set of consistent policies.
A sharp decline in local car sales:
Currently, the existing auto manufacturers regarded as big three are also facing the heat of the situation as their sales numbers have dropped significantly. According to the stats revealed by Pakistan Automotive Manufacturers Association (PAMA), the sales of Pak Suzuki went down by 23% in July 2019 as compared to its corresponding period last year. Even its hot-selling model Wagon R witnessed a decline of 70% in the period under review. The sales of Honda Atlas dropped by 66% in July 2019 as it managed to sell only 1694 units against 4981 units in July 2018. The accumulative sales of Honda City and Civic were 1452 units as compared to 4609 units last year with a drop of 68%. Toyota Indus was no exception as it also went into the crisis with a whopping 56% decline in the sales. Toyota Corolla, the highest-selling model of the company, witnessed a decrease of 57% with 1981 units sold in July 2019 as compared to 4566 units in July 2018.
The deadly FED:
Another contributing factor in the declining as mentioned above sales figures is the imposition of Federal Excise Duty (FED) by the government on all categories of locally assembled cars divided into three slabs with a tax rate of 2.5%, 5%, and 7.5% respectively. Previously, 10% FED was applied only on cars of 1700 cc and above engine capacity. However, the government expanded its circle in the recent budget, which turned out to be devastating for the local auto industry.
Automakers halting production:
Combining the FED and rupee-dollar parity, the auto manufacturers are forced to reconsider their production and expansion plans in the country. Nearly Rs.140 billion has been invested by the local auto sector recently, and as far as the new entrants are concerned, approximately $1.3 billion is in the investment process. But the current deteriorating conditions have led them to hold their investment and decrease production due to lower sales in the market. Toyota Indus has already reduced its production days to 5 days a week while Honda Atlas halted its production for more than 10 days in July 2019 due to piled up inventories. It is indeed very disappointing and discouraging for both existing and new players in the market. Especially the new players are not being able to benefit from what they had expected at the time of their investment in the country.
Impact on localization:
It will also directly impact the purchases made locally from the suppliers in the country. Of the total price of a car, almost 50%-60% belongs to the localized parts installed in it. It means that hundreds of local vendors will be affected by such a sharp decline in the sales of the automobiles. It will eventually dent all the hard work done for the localization in the recent past.
A threat to employment:
Apart from the automobile industry, several other associated industries like engineering, plastic, rubber, auto parts, etc. are getting adversely affected by the current economic slowdown process. Consequently, there is a serious threat to employment in the local auto industry, and the downsizing process could be just around the corner. There is direct employment of 0.3 million in the auto sector, which leads to indirect employment of nearly 2.5 million people in the associated industries. The reduction in production days of the auto manufacturers would certainly mean a considerable cut down in the employment.
Loss/loss situation for the government:
The government’s policies are turning horribly-wrong for the revenue collection perspective. A car’s total price has approximately 30%-38% portion of only taxes payable by the consumers. Such a sharp decline in sales means a massive decrease in tax collection. As a result, the government could face a loss of Rs.3 billion per month.
Nonetheless, it’s a loss/loss situation for everyone, including the government, auto manufacturers, linked industries, and obviously, end consumers. The government needs to bring more stability and consistency to its policies related to the automobile industry. The exchange rate shall also be controlled, and the imposition of FED be reversed to help the sector to grow. The policies should be made, keeping in view the Auto Development Policy 2016-21 and the foreign investments be given a secure environment in the country.
What are your thoughts in this regard? Stay tuned to PakWheels for all the automobile-related news.
Their is no surprise non of current existing automobile companies are making engines locally, no new models current vehicals prices are too high as compare to their standards. One should ask these firms why they didnt gob100% local in so many years?
Agreed that PKR got devalued against the USD. However, the rise in car prices have been somewhat disproportionate. During all these years, we still have assembly plants and not manufacturing plants. If as per the author of this article, 50-60% parts are locally made, then why the sudden sharp hike in car prices. With such exorbitant prices, the value for money of locally assembled vehicles does not make sense anymore. I think that the sales are going to plummet even further if the prices remain the same. If they even go higher, then that would be the nail in the coffin for the automobile industry. They have always raised their prices no matter what the condition of economy has been throughout the years but I guess it is about time that they seriously consider what they have done.
The hypocrites are now finding the reasons but they don’t have the guts to tell the truth. The real truth is that some Generals destabilized the previous government, manipulated the elections and then installed their selected stooges on this country.
The current bootlickers have nothing to do with any professionalism and the economy of Pakistan is collapsing. The current situation will never change as Pakistan Army Generals will continue to destroy the governments and will keep on manipulating all institutes for their own personal needs.
well said sir
you have rightly pointed out……pakistani manufacturers of cars just want to pass on all the burden to the consumers.
PTI is focused on poor of the country. Only rich people buy cars. All auto manufacturers should be arrested by NAB and hanged. They send money back to their countries. We do not need cars. Their plants should be converted to Islamic Universities according to Riyasat-e-Madina vision of our supreme leader Imran Khan. Pakistan Zindabad. Imran Khan Zindabad.
Bhai jaan hosla. Inta zyada emotional burst???
You are a Ghaddar. A traitor. Your kind is well taken care of by Pak Amry in Baluchistan. They pick you up and ……. Same happening to your kind in Punjab now. All your Mir Jaffar and Mir Saadiq leaders will be dealt with in jail. They are not coming out of Adiala alive… ever. Pak Army Zindabad. Imran Khan Zindabad.
I think prices increased time to time by big three without changing in vehicles features no improve in quality of products as compared assumbled in other countries. As well as 50% car parts manufactured in Pakistan and increase in vehicles price is unjustifiable. As well as there is no manufacturing plants were established but only assumbly plants made to generate revenue for short term policy. It’s the main reasons increase high prices of cars.
Khota le lo
I agree with that, I’ve been following news related to prices since last 2-3 years and even though dollar price was stable at that time, they were increasing prices constantly. Last time they increased prices about 30% and they didn’t bother to explain why they increased so much prices. Also quality matters, they give us low standard pathetic cars with very high prices, people still want to purchase imported used cars because if their quality.
I would say govt role is also impacted the prices but these prices are unjust, auto manufacturers are sneaking behind govt.
Suzuki squeezed in Alto and adjusted the prices of their other cars. Big three don’t compete each other, they have their price brackets and they never cross each other.
Tu kya gadha gari per office jaya karey gaa. kis zamaney main reh raha hai tu. Are you living on stone age
Its an Unfortunate situation for the industries and Govt Revenue collection. The auto industry has done more harm to themselves than the govt policies. They have not improved quality or production efficiency. A second hand imported car is much superior even though its two years older. Thailand has a Toyota plant which is supplying car in the region and our auto players are busy making money in the local market and giving it to the owner. Also why have the support industries stuck their guns behind local auto plants why didn’t they venture or diversify into other industries and regions.
Basically a lot of mistakes bad and unstable polices industry which are only 25-30% owned by the owner remaining is financed by the banks and what is left goes to the stock market. Major industry permit should not be given to one person a group of no less than 10 major investors that contribute about 50% of the investment and Minimum 30% of its share be floated in the stock market. Banks should not finance more than 20% of the investment capital
A question to the person writing this article the same cars are also sold in usa and gulf with a less price tag and good quality of product…. But what happens in pakistan is higher price and low quality of product to us….. Are they not happy with the profit by fooling pakistani people from years and now if they still raise the prices so i say that let them suffer…. And you should avoid blaming govt. If they are not happy with cutting their profit margin or providing the same quality of product offered elsewhere then let them suffer. Regarding govt. Policies i wud not speak here cauz its quite long enough to explain it over here….
i fully support Ahmed sbs point of view , these companies should suffer as they fleeced the consumer for long years,
i say give 10 year tax holiday to chinese companies and kick these companies out of pk
donkey , like all PTI youthias , country went to dogs due to PTI, the party has just begun .
he is donkey youthia. https://uploads.disquscdn.com/images/e225a168ffa0d93bc079b43662ddd168ac681827945c4f8f67b65e31b39b72ae.jpg
well said sami sb , the truth is bitter and difficult to digest
pie maker , u are the only patriotic person in whole of pk? learn to listen to other people point of view < and who was responsible for 1971??? learn to spell before posting