We had a speaker session at my university with Dr. Faisal Bari, an Associate Professor of Economics at LUMS and a senior research fellow at IDEAS. He has been doing research on the automotive sector in Pakistan with his colleagues and gave us an overview of the automotive industry in Pakistan. What he told us presents a very bleak picture. I have compiled some very rough points that I remembered on the top of my mind, along with some of his articles that have appeared in DAWN. Since this is a gearhead forum, i'm sure you guys will find this as insightful as I did. I'm hoping I can retrieve a video of the session too.
Cars
150,000 produced p.a. among all manufacturers ? doesn?t provide them economies of scale - on incentive to expand.
This is why we see infrequent model changes among the 3 car manufacturers ? they aren?t able to recoup the costs of retooling their plant for a model change due to the extremely low numbers of cars sold. They could import ckd kits and simply assemble them to subvert this problem but the auto manufacturers don?t want to do this (sunk costs in plants plus opening up trade with India will allow them to manufacture cars for their market). Technology adoption not an issue ? market size doesn?t allow such investments.
Car market is quite small ? high costs (due to govt. duty and taxes). High duty on imports to protect the infant car industry.
Will require sales of over 1 million cars p.a. to actually be able to benefit from economies of scale and thereby increase plant investment.
Auto parts
No r&d?still producing parts under licence which aren?t exportable to countries where the licenser is present. India is actually designing auto parts.
Auto parts being produced are actually obsolete (we are generations behind India) ? no demand for them elsewhere in the world except some niche markets who are equally or more technologically backward than us ? like our industry is currently doing.
Auto parts produced by OEM suppliers have limited market ? they can?t even sell in the local market as the price of their products are very high (due to high quality), smuggled versions are available in the local market which are priced lower, or Chinese crap which again undercuts the OEMs. If OEM suppliers want to manufacture for the larger secondary market, they would have to cut corners to reduce costs ? this they can?t do because if their product quality falls, perception in the minds of consumers falls as well ? since Pakistan has no auto standards, people cannot reliably tell which product is A quality and which one is D quality, as a result, no one wants to purchase the expensive OEM supplier parts.
No legal enforcement of quality standards - Pakistan Standards and Quality Control Authority is toothless ? doesn?t even have equipment to check product quality. As a result, there is no reliable way to determine quality standards of parts or what the part manufacturers claim (e.g. Euro 2 standard for local bike manufacturers).
Market development - Newspaper - DAWN.COM
Missing export focus - Newspaper - DAWN.COM
Discuss.