The automobile industry witnessed yet another month of extraordinary performance, posting sharp improvement in production and sales figures in all categories in March 2006.
Customised nature of auto financing by banks on soft and easy terms, coupled with introduction of new brand of cars by the locals, and reduction in premium on cars have paved the way towards an unimaginable growth in the sector. All these factors resulted in a jump of 29 percent and 26 percent in the overall local production and sales of cars to 112,478 units and 111,155 units, respectively.
Production and sales figure of tractor manufacturers also shot up by 16 percent and 22 percent to 36,383 units and 33,305 units, respectively. Almost a cent percent rise in the production of trucks was registered as the manufacturers anticipated its demand to rise on the back of a surge in the road trade and better relations of Pakistan with its neighbours and provisioning of food rations to remote earthquake affected areas. The influx of more and more second-hand buses under different schemes continued to submerge the local bus manufacturers.
"As the budget-making process sets in motion, the local automobile assemblers feel panicked over the proposed government's decision of duty withdrawal on import of CKD and CBU," Hettish Karmani, research analyst at Atlas Investment Bank said. The auto assemblers fear that the proposed policy would discourage new investment, create unemployment and would hamper expansion of their business. Also causing them worry is the increased imports of reconditioned cars and buses under the gift and transfer of residence scheme.
According to industry sources, the Engineering Development Board (EDB), along with the customs department, vendors and auto-assemblers have worked out a comprehensive tariff regime to be applicable on import of parts and accessories for automobiles. In the meeting it was decided to move away from a penalty-driven localisation policy, to a policy which would give incentives for local value-addition and export of auto-parts and completely built units (CBUs) from Pakistan.
In the proposed new policy, any new entrant who introduces new models, or if the original equipment manufacturers (OEM) bring new platform, they will have the relaxation on the localisation by way of import of 100 percent CKD at the CKD duty rate as an incentive for three years, after which, TBS will apply. As a consequence, in the absence of any reward for localisation, the new entrant will continue with a strategy of least localisation for three years, and may subsequently phase out the model. Such policy negates the basic premise of Tariff Based System, which is transparency and uniform application of rules.
Hettish said that after witnessing phenomenal growth in the demand and production of automobiles in Pakistan during the last few years because of ultra-liberal bank loans and lease, a considerable number of investors (foreign and local) who too are keen to grab a share from the growing market have entered the industry. Porsche and Rolls Royce, to say, are the initiators. Porsche returns to Pakistan after less than a year.
Porsche, 'Cayman's' would be the first in a series of new Porsche models to hit the Pakistani roads. Soon the second-most powerful road car ever built by Porsche after the Carrera GT, the Cayenne Turbo S, will follow in addition to the legendary new 911 Turbo and 911 GT3 in summer of 2006.
Porsche's next step in Pakistan will be relocation to a permanent facility scheduled to take place during 2007. Rolls Royce has signed its pact with Dewan Motors for distributing its state-of-the-art cars in Pakistan.
Automobile imports constitute single largest segment of the machine category as in the eight-month (July 2005 to February 2006) they witnessed a rise of over 44 percent. Total imports of vehicles in the last eight months, amounting to 16,000 units, claimed about $852 million, which are expected to exceed $1 billion figure by the end of this fiscal year. At the present level, imported cars have 8 percent share of the market, which is expected to go up to 12 percent--13 percent in the coming year.
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