Sunday, September 23, 2007
By Mansoor Ahmad
LAHORE: Auto vendors are facing the threat of elimination as auto assemblers have started reducing their vendor base to do away with the hassle of maintaining contacts with numerous suppliers and to force the remaining to slash prices on higher orders.
Though a seven-fold increase in car production during the last eight years has been a boon for the original equipment manufacturers (OEMs), the auto vendors term this a nightmare for some of the highly-developed vending industries in the sector.
They pointed out that when car production was half the current level, there were 210 vendors country-wide which were supplying international-quality parts to Suzuki, the largest producer of vehicles in the country. However, the number of vendors has now come down to 110.
They said other OEMs were also toeing the same line. Those vendors who are still in the market are no doubt getting higher orders because of less suppliers and more volume, but the prices they are getting for the parts are extremely low.
They said the government had levied 50 per cent duty on the parts that were manufactured in Pakistan under the deletion programme. These items would be very expensive if imported, so the manufacturers demand that the same parts be supplied by the local vendors at FOB (free on board) prices of parts made in Thailand or any other low-cost country.
They complained that the OEMs took the entire benefit of duty protection without passing a penny to the vendors. Still, the car prices in Pakistan are much above the global levels.
They said the OEMs contended that increased orders to the surviving vendors had provided them the advantage of economies of scale and their prices should be on a par with those in the international market.
They said another disadvantage that the vendors faced was that the OEMs did not permit them to supply parts they manufactured for OEMs in the local after-sales market.
The News found that some of the quality vendors de-listed by the OEMs were barely surviving by supplying some components to the vendors which had been short-listed by the OEMs. However, about 50 per cent of de-listed vendors have been forced to close down their businesses.
Another problem faced by the auto vendors relates to the tractor industry. They have got enough orders, but the Pakistan Steel Mills has stopped supply of coke pig of 1,044 and 1,045 specifications used in the manufacture of many tractor parts.
They complained that the same item imported from China lacked in quality and the manufacturers had rejected a large number of parts produced from Chinese material.
This has impacted tractor production which has gone down by 50 per cent because of inability of the vendors to supply required quantity of parts. The tractor manufacturers are also worried as they have orders in hand but they cannot manufacture their products due to non-availability of some parts.
The Engineering Development Board was the forum that the vendors used to air their grievances against the OEMs or government policies. But the EDB is currently operating without a chief executive. An additional secretary of the Ministry of Industries, assigned to officiate till the appointment of a new chief executive, reportedly barely sits in the EDB.