Auto industry faces bleak future

The local auto manufacturing industry is being hit by one crisis after another, ie soaring prices and less production, while some external factors and indigenous government policies are also impeding its growth. It is among the worst hit victims of negligence and external factors beyond the control of manufacturers, according to industry sources here.
Local engineering industry manufacturing auto parts, which is struggling for its growth and stability, is going to face another challenge as, according to reports, the government has planned to allow import of used cars up to five years old while rise in steel prices and appreciation of yen against rupee would push up the car prices by Rs 50,000 to Rs 60,000.
According to experts'' analysis, appreciation of the yen would make a dent in the local car manufacturing industry as it depends on imported components for parts produced in Pakistan which would ultimately result in increased input costs with steep increase in steel prices.
With the rise of 10 percent (from 0.91 to 1.0037) in Japanese yen, in only last three months, the locally made cars of Japanese origin are likely to become more expensive. Price increase is very much likely in case of locally made cars of Japanese origin as more than 30 percent of the components of these cars are still imported.
Elaborating further, industry sources said that one dollar was worth Rs 73.81 in September 2008. Its value has since then increased by over 16 percent to Rs 85.68 now. Similarly Japanese yen was traded at Rs 0.6867 in September 2008 while its present value is Rs 1.0037, an increase of 46 percent. Similarly, steel sheet, which was worth $493 per ton in first quarter of 2009 has now increased to $1050 per ton, they said.
The second challenge the vendor industry faces is the plan proposed by the Ministry of Industries to the government to allow import of used cars up to five years old with depreciation benefit of 2 percent, instead of 1 percent, which would wipe out the downstream industry. Sources said that input costs have gone up manifold but the automobile sector did not shift this burden to the consumers. Car rates in the country have not jumped in line with the increase in the rates of other products. In fact, the rates of some brands have registered a decline as well.
There is a growing feeling in some quarters that the auto industry is being particularly targeted, and fear that imports of used cars would shatter the whole auto sector and it may take a very long time to counter the consequences of such disinvesting policies.
They also expressed concern that the rates of locally produced vehicles are generally the cheapest in the region when compared with other countries after accounting for government levies in each country. "We have to pay 35 percent taxes and duties on each car we produce," they said, adding that if the government wants the car rates reduced it should reduce its levies.
The Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) has already opposed commercial import of used cars as happened in the case of old used computers. This policy would also put under pressure foreign exchange reserves, which would be used on the import of spare parts to meet the demand, sources said.