AUTOMOTIVE INDUSTRY IN PAKISTAN: Interview with Masafumi Harano, MD Pak Suzuki Motor Co. Ltd.

TEXT: 1) How do you see the upcoming auto policy? Current prices have come down for cars but will it promote affordability in the long run?

Although Auto Policy 2021-2026 has not been fully revealed yet, but some portions of the upcoming policy have been implemented, like reduction duties and taxes.

The price of vehicles has come down due the reduction in taxes. This will certainly be benefit of the customer for affordability in long run if it will be a long-term policy with stability and sustainable in future. It is also very important that along with long term policy, good, sustainable and stable economic atmosphere is necessary; otherwise the required and fruitful results will be temporary.

2) What is the total tax incidence on Suzuki cars before and after the policy?

Auto policy for 2021-26 has not yet been formally announced, However, in Finance Act 2021-22 Government already granted substantial reliefs to Auto Sector by reducing sales tax, Federal Excise Duty (FED) and Custom duty.

In current budget, the Government provided substantial reliefs to vehicles up to 1000 cc which includes reduction in sales tax from 17% to 12.5% and abolishment of Federal Excise Duty and Additional Custom Duty which were previously 2.5% and 7%, respectively. Further Government also reduced FED by 2.5% and ACD by 5% on above 1000cc variants.

3) What is your current localization level for different vehicles (Alto, Wagon-R, Cultus)

Pak Suzuki has achieved good localization status, that's why our vehicles are not costly and we are continuously increasing the localization.

4) Imported CBUs will also become cheaper due to the policy. Who will that benefit?

Pak Suzuki strongly advocates local assembly as it is the harbinger of not only technology transfer; skill enhancement but mass employment for OEMS and vendor industry. Currently Automobile local industry contributes to more than 500,000 Skilled Workers through Direct Employment and Indirect Employment 2.4 million Workers. So, we are not the one who get benefit by this CBU import duty reduction. We feel this reduction is regression to the local industry development.

5) Automakers say, localization will grow when there are volumes. (Is that correct, what is your view?)

At what volumes (per model), can we take average localization up to 70%. What is the sweet spot for localization for Suzuki, given it makes smaller cars. Obviously, right now, dependence on higher import content makes car prices more sensitive to the exchange rate.

Is localization important for your company?

Due to previous ADP 2016-21, so many OEMs have come to Pakistan Market. Now, next important necessary thing for Auto industry is inviting more Global Auto Parts Manufactures into Pakistan Market. Without industry volume, Global Auto Parts Manufactures will not show interests to this market. Industry volume need to surpass half Million at least and strive toward 1 Million per year. That growth trend is necessary.

6) What are your thoughts on used car imports? Should they be allowed - commercially - for consumers that are looking for more options of vehicles, especially in the small car segment? Do they give Suzuki competition?

After the inclusion of so many new players into Pakistani automobile market as a result of ADP 2016-21, that has also brought added choices to the customers, the focus should be how to increase local industry volume for local OEMs and Vendors as explained above. Used car import is completely opposite direction from this and regression to the employment and huge investment in automobile industry. The industry is not supporting the import of used cars.

7) Electric Vehicle and Hybrid EVs. The government is going to announce a cascading tariff structure for hybrids and EVs. Both get incentives. But if folks are getting affordable hybrids, where no charging infrastructure is required and drivers don't have to worry about range anxiety or charge anxiety, would this policy really promote EVs?

Technology of Battery Electric Vehicle, is still very expensive and its driving distance is not yet long enough for the customer needs at current stage (Cost of Battery and Driving distance do not match). And reduction of Green House Gas in LCA-Life Cycle Assessment is not big enough when the Electric Power is generated by Thermal Power Plant (like burning Coal, Gas or fossil fuel). Moreover, the cost of electricity in Pakistan is quite high, hence it will not offer much benefit to the consumer if one switches to EV from a gasoline engine car, and still customer must worry about where the Battery Charging station is located while driving.

In contrast, Hybrid Vehicle technology is quite good, easily manage- able, consumer friendly, mature and very successful all over the world and since several years also in Pakistan. It is also far less expensive and does not require any intensive new investment in the infrastructure, hence it is more suitable for the Pakistani market.

8) Current car financing - how many cars (Suzuki and industry in general) are being financed by banks?

Currently; around 40% cars are being contributed by auto financing.

9) Why don't auto companies want to bring small cars? What is the rationale, because clearly the market indicates potential demand in that segment is immense.

Pak Suzuki is No.1 share in Automobile industry and our strength is providing affordable motoring solutions to every segment of society, specially to middle class.

Every Assembler/OEM has its own strengths in particular car segment.

Suzuki has its strength in small cars and economic solution to motorization, so is Pak Suzuki being subsidiary of Suzuki Motor Corporation, Japan inherited this strength. We achieved competitive edge through maximum localization in industry despite low volumes and efficient supply chain operations and attain leadership position in automobile industry of Pakistan.

10) Is competition from new players healthy for the industry?

Certainly competition is always healthy and encourages competitiveness subject to level playing field for all players in the industry.

Existing OEMs are in Pakistan since 1983; investing billions in plant, machinery, equipment, trainings, local vendor industry development and proved their long term commitment and sustenance through thick and thin of the economic cycles. We expect that level playing field should be provided to existing OEMs as provided to New OEMs under green filed investment whose sustained performance and commitment can only be assessed in long term and in testing times.

11) How do Pakistani auto companies target their production and inventory building for inputs? Walk us through the process (including timelines) that Suzuki adopts. Is the Just-in-Time model retiring?

As per uncertain situation of Sea Shipment Leadtime, lock down in several countries, closure of several concerns, we are trying to keep inventory of imported components and Parts as much as possible but even then it is too difficult for us to manage, same problems are with our local vendors.

12) What are current delivery times for Suzuki vehicles? How much of advance is collected for each vehicle?

All local assembly Suzuki vehicles have tentative delivery periods within 2 months; but now due to different force majeures now it is very difficult to manage in given time period. So, for this we requested Government to consider genuine force majeures.

13) How many jobs do the auto industry creates every year? What would be a fair number for the jobs that Suzuki has generated, both direct and indirect?

Direct and indirect employment at Pak Suzuki is 3360. The multiplier effect of auto industry is fairly estimated at 1:8. As per the said formula, estimated direct and indirect jobs created by Pak Suzuki is around 26,880.

Copyright Business Recorder, 2021