At a meeting with the representatives of the Pakistan Automotive Manufacturers Association (PAMA), led by Kunwar Idrees, on Friday September 17, the Federal Minister for Industries and Production Jahangir Tareen expressed his concern over the persistence of problems faced by genuine buyers of cars in obtaining deliveries from the dealers on the scheduled dates even after several months of their bookings.
During a review of the overall situation relating to production of cars and complaints of genuine buyers over the prevailing malpractices, he also referred to the predicament of buyers who are generally confronted with the demand for payment of a premium if they wanted immediate deliveries.
The minister urged the car manufacturers to chalk out short and long term plans for increase in production commensurate with the rising demand for cars. He also exhorted the manufacturers to streamline the cost of production and thereby to reduce the market price of cars for the benefit of the consumers in general. The minister was of the view that the existing mechanism of car sales strictly against National Tax Number of a buyer should be made more effective to ensure that speculative investors were eliminated from the scene.
In this connection, he indicated that he would discuss the matter with the CBR that they should provide proper confirmation of the NTN of a buyer along with the track record of his tax payments. It may be recalled here that the government recently enforced the condition of producing National Tax Number by a car buyer with a view to ensuring that speculative investors were discouraged from taking advantage of relative short supply of locally-assembled cars.
This rule also aimed at detecting new taxpayers who are still out of the tax net. However, there has been no follow-up by CBR thus far to snare speculators.
It appears that the NTN condition has not proved effective enough to curb the prevailing premium on the prices of cars and to ensure timely deliveries. The core problem is the wide gap in the existing supply of cars in the local market and the surging demand from new buyers.
The abrupt rise in the number of car buyers is definitely attributable to liberal availability of loan finance from almost all the commercial banks and lease finance companies. In fact, the financing banks and institutions are consistently inviting buyers through advertisements to take advantage of the loan facility for buying a car. However, it may not be possible for the assembly plants to increase their production overnight to cope with the buying spree. According to figures published by the car manufacturers, production of cars last year registered over 100 percent increase to a little over 88,000 units from the previous year's level of 42,000 units.
This shows that the assembly plants have started utilising their capacity vigorously and more efficiently. Yet they cannot be expected to meet the demand fully in the short term.
Seen in this context, increase in production can only be effected through additional investment in the expansion of production facilities. Implementation of expansion plans is likely to take not less than a year and therefore the car market would continue to remain under the pressure of a rising demand from a growing number of buyers. It may be emphasised here that these circumstances underscore the need for allowing the market forces to take their course. The process of fresh investment should be encouraged in a deregulated atmosphere but on the condition of ensuring increasing the level of locally-manufactured components in an automobile.
The existing steps like the compulsion to sell cars to only NTN holders can lead to a decline in the demand for new cars in the short term, but in the long run may have a negative impact on the process of development and expansion in the car industry. The question of protection to consumers belonging largely to higher income groups who only can afford to buy a new car would appear to deserve little attention and the government's efforts should be directed mainly to the task of protecting common consumers against unbridled upsurge in the prices of common consumer items like wheat flour, mutton, beef, sugar and other food items.
The process of expansion in the car industry is likely only to be retarded if the demand for cars is suppressed by official measures. The minister reportedly promised incentives for the car manufacturers subject to their efforts to increase production levels and slash prices. The best incentive for the expansion of any industry is the rise in the demand for its a product which alone motivates continued investment.
While the government has been pressing the assemblers it also needs to take steps such as mandatory registration of vehicles immediately upon delivery from the factory. Auto-assemblers can order their dealers to register the vehicle in the name of the person who has booked it. This step coupled with NTN condition should eliminate the premium and reduce the average waiting period from three to four months to four weeks. However, when it comes to popular models of cars or a popular colour the waiting time may be a little longer. That is how the market operates the world over.