A What are the biggest impediments to auto sector growth?
Macro environment has greatly impacted the buying power of our customers such as inflation, depreciating value of rupee against major currencies, etc. An example can be the limited availability of auto financing at higher rate.
Moreover, lack of consistency in policies and abrupt changes in them during last couple of years has given very wrong impression and signals to current & potential investors. Policies regarding CNG usage, used car import and new entrants in auto sector are few examples of the policies which are going against the auto industry.
Another big blow which auto industry received is when the Government was being advised of import tariff rationalisation by a foreign consultancy firm, which had ignored ground realities and economic situation of Pakistan and made a devastating recommendation which is suicidal for local auto industry.
B What do you think about new AIDP (Automotive Industry Development Program)?
The current AIDP policy expires in June end 2012 and therefore it's imperative that new AIDP is framed as soon as possible. We are envisioning that the Government will provide long-term, consistent and stable policy to encourage investment and growth of local auto sector. We have also presented our input to relevant authorities and forums on our issues and demands and to devise a balanced new policy to ensure stability in industry and save us from devastation. What we need is government's consideration of the ground realities, current and market forecast while devising new policy. The final plan and government decision should include industry's recommendations as well.
C. What are impacts of the government policy to relax used cars imports in early 2011?
The policy shift to relax the rules for import of used cars has severely hurt the local industry and has equally affected the government revenue collection. Due to this policy, the local automakers have been deprived of higher growth and this loss of volume has affected the parts suppliers in engineering and manufacturing industries. Since the policy change in December 2010, more than 25,000 vehicles have been imported in 2011 and we expect that this number would increase to 35,000 in FY 2011-12, which is over 20% of total volume. Interestingly most of the used cars imported were more than 1,000 cc vehicles.
As per IMC estimate, government has lost more than Rs 700million due to its own announced policy compared to if these vehicles were manufactured locally. No country in the world has such a liberalised import policy on used cars as Pakistan.
D. What role IMC has played in establishing the auto industry?
IMC has played a major role in establishing the auto industry in Pakistan. Our base of 60 vendors, spread throughout Pakistan, employs over 200,000 people, producing over 1,300 parts and assemblies locally amounting to Rs 24 billion, whereas, IMC directly employs over 2,100 people and 100,000 people indirectly and alone has contributed more than Rs 80 billion in the national exchequer in last 5 years.
Last year only, IMC sold 51,000 vehicles and recorded an annual turnover of Rs 62 billion. The company's contribution to the national exchequer was in excess of Rs 22 billion. In the same year, IMC brought a new technology and completed its Press Shop project at a cost Rs 3.5 billion.
In addition, IMC has arranged 34 Technical Assistance Agreements for transfer of technology to Pakistan. The company is continuously looking to expand its operations with investments plant and machinery and new models and variants.
E. What are your views on trade with India and its impact on Auto Industry?
We are in favour of Trade with India, however, the government should move cautiously as it moves to liberalise the trade regime.
In the first phase, the Government should allow CKD, jigs, raw material and machines which we normally import from other countries. However, CBUs and spare parts should remain on negative list as they could have negative repercussions and impact local auto industry, the employment situation and revenue to the national exchequer. These aspects can be looked as our volumes increase. At the moment India has a huge advantage on economies of scale. Indian market car sales for 2010-11 were 3.7 million units compared to only 160,000 vehicles in Pakistan.
F. Do you see absence of CNG as challenge for the demand of automobiles?
Yes, the ban on CNG kit imports will have negative impact on demand. IMC invested Rs 30 million and 3 years in research with Toyota to launch the CNG vehicles. IMC introduced CNG-fitted Toyota Corolla cars in July this year and got a good response. Currently our share of CNG Corolla is about 15% of total Toyota Corolla production. Similarly, other foreign companies specialising in CNG kits invested and established manufacturing facilities in Pakistan. It's another classic case of wavering government policy that shakes investor confidence.
Certainly, there is need for the government intervention to better regulate the safety standards governing the CNG fitted vehicles, especially in roadside CNG installation workshops. The OEM manufactured vehicles are already complying with their high international standards.
G. How do you see the growth of auto sector in near future?
The growing population and increase in per capita provides a real opportunity for bright future of the automotive industry in Pakistan. Toyota is committed to Pakistan and sees huge long term potential. Our historical growth and performance during the economic recession is testimony to this fact. The government of Pakistan should take into account the legitimate concerns of the industry and, for its part, must provide a framework of level playing field and an environment of consistent and stable policies to ensure growth in local automotive industry.