The Economic Co-ordination Committee (ECC) of the Cabinet has constituted an inter-ministerial committee to formulate a policy on commercial import of used cars, a longstanding demand of importers with strong political links, well-informed sources in the Industries Ministry told Business Recorder.
The committee which met with Finance Minister Hafeez Shaikh in the chair on November 4, 2010 was informed that prices of locally assembled cars have been constantly rising over the last few years and, as a result, indigenous cars have become too expensive for consumers.
As directed by the ECC in its meeting March 30, 2010, the Minister for Industries & Production held a series of meetings with manufacturers of automobiles and gave them a clear message to lower the price of their products. In contrast M/s Indus Motors increased prices three times, whereas Suzuki and Honda raised their prices twice till date.
It was further revealed that the ECC in its meeting on 1st July, 2010 had, inter alia, directed the Ministry of Industries & Production to bring a summary in the next ECC meeting with full information about profit/loss by the automobile sector with proposals for improving the personal baggage, transfer of residence and gift schemes for the purpose of import of used cars, in consultation with other stakeholders. The ECC had also directed a presentation by the EDB on its role regarding auto sector be made.
During presentation to the ECC by the EDB, it was revealed that while M/s Indus Motors (Toyota) has attained sales volume of over 50,000 cars during 2009-10 and achieved a gross profit margin of 7.5 percent, whereas M/s Atlas Honda sustained losses worth Rs 852 million and M/s Suzuki Motors had a gross profit margin of only 1.42 percent. However, sales volume of M/s Atlas Honda Cars had risen from 11,144 units in 2009 to 14,120 units in 2010 and that of M/s Suzuki Motors from 83,350 units in 2009 to 124,100 units in 2010. The position of M/s Indus Motors in the stock market has also improved with a net profit of Rs 3443 million in 2010 as compared to Rs 1385 million in fiscal year 2009.
It was stated that while reiterating government's commitment to follow Auto Industry Deletion Programme (AIDP) in its true spirit, it was agreed by the concerned ministries that an effective way to ensure reduction in prices of locally assembled cars was to modify the schemes concerning import of used cars, viz transfer of residence, gift and personal baggage scheme, so as to ensure a competitive market for the local car industry.
It was, therefore, proposed that the age limit in respect of imported used cars upto 1000CC may be enhanced from three to four years considering the narrow price gap between used imported cars of 1000CC and Pakistani used car of similar capacity. Since the price gap between 1300CC imported and local used cars is substantial, therefore, the age limit in respect of imported used cars exceeding 1000CC may be increased from three to five years. Moreover, the ECC may like to reaffirm its earlier decision concerning consistency of Deletion Programme, besides endorsing the changes in transfer of residence, gift and personal baggage schemes for import of used/second hand cars. Commercial import of three-year old cars by amending the Import Policy was also recommended.
The ECC was further informed that the Minister for Industries & Production held three meetings with car manufacturers but those remained in-conclusive as the manufacturers were reluctant to decrease the price of locally manufactured cars on the grounds of depreciation of Pak rupees vs Japanese yen, as well as USD; they also demanded zero rated tariff on the import of CKD kits.
During discussions, it was argued that the main reason for rise in prices was non-serious efforts/attitude of carmakers towards AIDP compliance, which was meant to achieve targeted deletion or otherwise face increased tariff on import of such non-localised parts. Moreover, they were also working below capacity and producing fewer cars against the local requirement. In this way they collected the full price of a car at last three months before it was delivered. This gave birth to sale of car at "on money".
The Ministry of Commerce pointed out that subject of imports falls under its domain under the Rules of Business, 1973. Therefore, the Ministry of Industries & Production should not have initiated this summary. Moreover, they have historical data of import of used cars from time to time under different schemes ie under transfer of residence scheme, gift scheme and personnel baggage scheme, etc. In the light of past experience it can be recommended as to which method can be more effective for rationalising the prices of cars in the country. It was also noted with concern that the car manufacturers have also failed to honour "deletion programme," hence they should be persuaded to ensure its timely implementation failing which appropriate action may be initiated as per terms of agreement.
After detailed discussions, the ECC while agreeing to increase the age of imported used cars from 3 years to 5 years, constituted a committee comprising Secretary Commerce (Convenor), Finance, Industries & Production and Chairman Federal Board of Revenue, to discuss this issues in detail, including allowing commercial import of used cars and under various other schemes, proposing tariff structure and suggesting a workable mechanism. Mandate of this committee will also cover motorcycles, trucks, buses and tractors.
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