Well dear first understand the protected market concept which is very simple. Our government restricts import of new cars by imposing huge duties and it is also called tariff barrier to allow local industry-vendors-assemblers to survive in a monopolistic environment. So basically our local car industry is protected by government in the name of local job and revenue creation.
If there are no restrictions on imports than due to scales of economy we will be able to buy cars from abroad cheaper and of better quality than Pakistan and the local car industry would be forced out of business and profitability.
Why Honda Atlas is not competing with Indus?
The answer is simple. They are still so over booked that it takes one to three months to deliver the units according to the demand.
IMC's sales have declined since 2012, but they descended from a very high sales position to a lower sales position due to huge influx of used car imports, but still there sales are higher than Atlas.
Just see the official stats here to get a bigger picture about competition.
Monthly Production & Sales of Vehicles