Automobile Market - The largest segments in world trade

Auto market is one of the largest segments in world trade. This annual size of automotive export trade in the world has grown to a massive level of over US$ 600 billion, which accounts for about 10% of the world export.
Changing models, improving fuel efficiency, cutting costs and enhancing user comfort without compromising quality are the most important challenges of the auto industry in a fast globalizing world.
The first phase of automotive assembling in Pakistan started in 1950 with Bed Ford truck followed by Ford Prefect, Ford Cortina and Dodge Dart.
The indigenized parts in these vehicles did not exceed 20% with only exception of Bed Ford trucks with a deletion level of 80%. By the end of 70s practically all automobile assembling in Pakistan ceased.
The 2nd phase of Automobile assembly started in 1983 with the introduction of FX 800 CC Suzuki Car. In 1989 Pak. Suzuki changed the Model of FX 800 CC with Mehran 800CC.
Pak Suzuki thereafter in 1992 introduced Khyber 1000 CC and 1300 CC Margala but the indigenization levels from 1983 to 1995 were not significant (ie Mehran 30%, Khyber 20%, and Margala 15%).
In 1993, Indus Motors Company Ltd, Karachi introduced Toyota Corolla. Honda Atlas cars (Pak) Ltd Lahore in 1994 introduced Honda Civic having 1300CC engine capacity. Indus Motors, Dewan Farooq Motors and Pak Suzuki introduced smaller Cars ie Cuore, Cultus and Santro of engine capacities 850 cc, 1000 cc respectively in 2000. This was known as era of competitiveness.
Up to 1995, the deletion cell of MOI&P was formulating and monitoring the deletion programmes.
The industry specific deletion programmes were formulated to specify local content requirements for cars, motorcycles, Buses and Trucks Tractors etc.
The deletion policy finalised in 1996 has the following features:
-- Industry Specific Deletion programme.
-- No roll back from achieved Deletion Levels.
-- Even handled Tariff Protection at all levels of processing.
The deletion levels were finalised by the sub-committees for cars, LCVs Motorcycles and tractors etc, constituted by indigenization committee of EDB on the basis of technology levels prevalent in the engineering industry of Pakistan.
The Industry specific deletion programme (ISDP) books were published and distributed amongst the stakeholders, which resulted in a significant improvement in indigenization.
The country's auto-industry is now making an even greater contribution to making Pakistan a progressive & competitive industry entity. Deregulation of the industry and the evolution of stable policies by the government were now beginning to make a positive impact on the industry.
The growth of the automotive sector has resulted in the increase of the manufacturing units, giving a healthy impetus to the industrial output and generating over 140,000 direct employment opportunities and contributing over Rs 24 billion to the national exchequer.
The Original Equipment Manufacturers (OEMs) have also been instrumental for transfer of technology, value addition and human resources development. As a consequence of car manufacturing in Pakistan, a vibrant auto vendor industry has emerged that is now not only supply parts to local OEMs like Toyota, Honda, Suzuki, Nissan, etc, but also exporting internationally.
Auto part exports were around US $ 31 million during 2002-03. Due to the existing deletion policy from 50% to 70% local components depending on the engine capacity of the cars for motorcycles 81 to 88%, for tractors 63.5 to 85.5%.
Over the years, vehicles manufacturing has been among the few industries that has continued to attract local and foreign investment even when the investment climate in the country was not very favourable.
The development of the local car-manufacturing sector is a key element in the industrialisation process.
The automobile industry in Pakistan can be broadly categorised into following segments:
-- Cars and Light Commercial Vehicles (LCVs)
-- Two and Three Wheelers
-- Tractors
-- Trucks and Buses
-- Vendor Industry
The industry operates under franchise and technical co-operation agreements with Japanese, European and Korean manufacturers.
AVERAGE PROFIT/(LOSS) PER UNIT: The per unit average profit is based on the net profit of the company and No., of unit sold during the year as shown in the following table.
The automobile industry of Pakistan has travelled a long road to get to where it is now. The ups and downs, the shifts and turns have buffeted it many a times, but it has displayed a resilience that has enable it to counter adversities that it has come to face with.
CURRENT AUTO MARKET -- STATUS AND PROSPECTS: The existing population of automotive vehicles in Pakistan is around 4.0 million. The annual demand is estimated at three hundred thousand.
The market value of automotive vehicles in dollar terms is estimated at more than one billion out of which import constitutes around US$ 200 million. The after market of auto parts is estimated at US$ 750 million, (imports and local production taken together).
PRODUCT CHARACTERISTICS: As the production of automotive vehicles is based on foreign joint ventures of Japanese, Korean and European Origin, therefore, the product quality is of international standards. The quality standards being followed are mainly:
i) Japan Industrial Standards (JIS).
ii) Society of Automotive Engineers, USA, (SAE).
iii) International Standards Organisation (ISO).
AUTO EXPORTS: Export of automotive vehicles has been sporadic. Export of some tractors and a few thousand motorcycles now and then does not qualify the country as an exporter of automotive vehicles. But export of auto parts is registering a continuous growth over the years.
The export destinations are Europe, USA and Japan.
DIAGNOSIS OF PRODUCTION ELEMENTS: Pakistan's strength of production elements lies in vast reservoir of land, labour and even capital. But technology and purchasing power of the consumers are its major weaknesses.
Technology requirements are being met by joint ventures and technology tie-ups with foreign players in automotive sector.
The Japanese, Korean and European entrepreneurs have invested almost US$ 1.5 billion in Pakistan's Automotive Sector. The local investment in the Auto motive sector is approximately US$ 1.0 billion.
MARKET ACCESS FACTOR PRICES AND MARGINS: The prices of locally manufactured automotive vehicles are generally less than the landed cost of imported vehicles. But these are higher than the CIF values of imported vehicles.
That is one of the major reasons why automotive industry in Pakistan has not been able to make a break through in the foreign markets.
TARIFF STRUCTURE: Pakistan has dismantled all non-tariff barriers to trade except second hand automotive vehicles import of which continues to be prohibited.
The general tariff regime of Pakistan comprises four slabs ie 5%, 10%, 20% and 25% on all commodities except automotive vehicles.
It will be observed that whereas, tariff on CKD import of cars is 35%, the tariff on CBU import of cars ranges from 75% to 150% dependaing upon engine capacity.
High tariff rates on CBU imports are being maintained to protect the local car manufacturing industry.
VENDOR INDUSTRY: The industry has the potential for development of entire engineering sector. Development of vendor industries in return assure transfer of technologies in nearly all spheres of engineering, specifically, metallurgy, plastics and glass.
Technology exists for major engine, suspension and transmission components but due to low volumes, prospective entrepreneurs shy away from investment. Over 400 vendors are engaged in the production of auto parts locally including tyres, sheet metal parts, mirrors, gaskets, engine valve, camshaft, oil pump gears, pistons, radiators, seats, dashboard, and axles.
LOCAL CONTENT SCHEME: Pakistan has been pursuing a useful local content scheme which has done some good to its technological base of the automotive sector and improved its design development capabilities. The methodology adopted is that the manufacturers are offered tariff incentives for progressive local manufacture of automobiles and other engineering goods.

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OEMS                       1998         1999       2000       2001        2002

                           (Rs)         (Rs)       (Rs)       (Rs)        (Rs)

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Indus Motor Company Ltd,

(Toyota + Cuore + Hilux)  18,690       24,922     17,223     21,461     45,674

Pak Suzuki Motor Co Ltd

(Cars + LCVs)                  -            -          -     19,110     34,870

Dewan Farooq Motors Ltd,

(Cars + LCVs)                  -            -     52,833     6,450       2,372

Honda Atlas Cars Ltd           -       54,740     39,270     41,960     53,908

Millat Tractors Ltd       17,582       15,220     16,230     18,871     13,211

Hino Pak Motors Ltd

(Buses + Trucks)               -        9,600     5,010     54,360     370,500

Sind Engineering (Pvt) Ltd,

(Truck + Buses)                -       77,762     43,872     27,737     32,635

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Market Share

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Market share of Japanese and non-Japanese brands

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Cars       Motorcycles   Trucks/Buses   Tractors   LCVs

   90%       90%             100%          0%       50%

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1  Suzuki    Honda           Nissan        -     Suzuki

2  Toyota    Yamaha          Hino          -     Toyota

3  Honda     Suzuki          Mazda         -          -

4  Nissan    -               -             -          -

5  Daihatsu  -               -             -          -

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Cars   Motorcycles  Trucks/Buses    Tractors       LCVs

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10%        10%         0%             100%          50%

Hyundai  Chinese    Volvo (Presently  Massey    Hyundai

                    Not operational)  Ferguson

Kia       -         -                 Fiat            -

Fiat       -       -                  -               -

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