Future of the Automobile Industry in Pakistan

By Ahmed, Nauman | Economic Review, September 1997 | Go to article overview

Future of the Automobile Industry in Pakistan


Ahmed, Nauman, Economic Review


The Automobile industry has a great influence on the economy of every country, as the total production value of this industry, when compared to all the manufacturing industries combined is more than 10 per cent. Moreover, the number of people it employs and the suppliers/vendors it engages is also higher. Automotive vehicle assembly operations in Pakistan started in 1953, when General Motors set up an assembly plant for Bedford trucks and Vauxhall cars. This plant was sold to Ghandara Industries in 1966 and was renamed National Motors on nationalisation.

Nine plants were in operation when the industry was nationalised in 1972 and Pakistan Automobile Corporation (PACO) set up. It was only after 1979 that PACO was finally able to implement its programmes to develop the automobile industry. To meet local requirements, PACO launched the Suzuki Project, which started production in 1984. In 1991, Suzuki was manufacturing 40,846 cars per annum and the deletion rate achieved was above 50 per cent. For transportation of smaller loads, PACO units started the assembly of Suzuki, Isuzu and Mazda pickups, coasters, jeeps and vans. To meet the demand for heavier trucks and buses, Isuzu and Hino production was undertaken at National Motors and Republic Motors. Later Hinopak Motors was incorporated in the private sector.

In 1987, Ghandara Nissan Diesel Ltd., a joint venture company of Ghandara Nissan (Pvt) Limited, Nissan of Japan and Toyo Menka Kaisha of Japan started commercial production. The company manufactures Nissan trucks and buses in Pakistan and is about to introduce passenger cars soon. In 1990, Indus Motor Company (IMC) began operations with a 20,000 unit capacity plant to manufacture Toyota cars in Pakistan. In 1992, under the privatisation programme, many PACO units were privatised. Since then, the government policies in respect to the automobile manufacturing industry remain inconsistent, its efforts to control the budget deficit have also slowed down development activities resulting in a reduction of economic activities. The economic slump still prevails, sales tax and other budgetary measures over the last years have proved to be unfavourable for the local auto industry.

Lack of Long-Term Policies

Notwithstanding various attempts by the Automobile industry to recommend a long term industry friendly policy to encourage local production and indigenisation, the government continues to burden this industry by increasing tariffs, sales tax from 15 to 18 per cent and additional Commercial Vehicle Tax (CVT). Mr. Javaid Iqbal Ahmed, Director of Honda Atlas Cars (Pakistan), said in a recent interview that an increase of three per cent in sales tax, 2 to 15 per cent additional CVT and eight per cent customs duty will result in lowering the government revenues by Rs.5 billion. Besides that, the production cost of the units would go up, resulting in a further price increase. The compound effect of these taxes is so high on the price of the products that either it will result in a drop in the volume of sales or will soak up the profit margins of these units.

International Scenario

The Japanese, Europeans and Americans are pouring billions into Asian assembly plants and parts factories. They are counting on politically connected local partners, setting up dealerships, conducting market research and creating promotional campaigns.

Vehicle sales in Asia are expected to surpass the volumes in North America and Europe by the year 2005, when they are projected to hit nearly 19 million a year. By conservative estimates, Asians will buy seven to eight per cent more vehicles each year, well into the next decade versus two to three per cent more per annum for North American and Europeans.

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