While the influx of imported used cars has resulted in a tug-of-war between the auto industry and dealers, the kingpin that has been neglected the consumer. Auto industry is happy and considers that the new policy regarding the reduction of age limit of used car import to three years will help the national economy in these difficult times. It also believes that the move will also benefit the consumer who is being fleeced by dealers through fraudulent schemes.
Industry is thinking is that used car importers are only interested in making money by selling junk cars, irrespective of problems being faced by customers after completion of transaction, whereas the consumer thinks he has made a bargain by purchasing an imported used car in excellent condition. Unmindful of the fact that sooner than later, the car starts having problems and that is when the buyer realises that there was no after sales service or spare parts available for his precious investment.
Another problem being faced by imported used car consumers is non-availability of trained mechanics. Regular mechanics are not able to fix mechanical and electrical problems in these cars. Even if they try, they end up damaging the car, which results in failure of major mechanical parts like engines and automatic transmissions. Hopefully, with the advent of the new government policy, there is a chance of fewer defective car imports and, in this way, the consumer has a lesser chance of being ripped off by used car dealers.
Samiur Rehman, an imported re-conditioned car owner in Rawalpindi, who recently bought an imported 660cc used car, Mira, said: "A couple of months ago one of the headlights of my car was broken and the radiator was badly damaged when I met with an accident. After searching for spare parts in Karachi's Shershah market, I found that the radiator was not available anywhere in Pakistan. On asking for other options, I was informed that the radiator could be imported from Dubai, but it would cost me Rs 40,000. With the budget I had, I was barely able to buy this reconditioned car. To have my car running again, I would either have to import the radiator from Dubai which I couldn't afford or dump my car at a junkyard and lose my precious investment."
Similarly another owner of an imported car said: "At one time I thought an imported used car would be within my means but unfortunately, I became a victim of the fraudulent scheme of the dealer mafia by purchasing this car. A few months ago, I had an accident in which the front headlight of my car was damaged. In order to get a replacement, I decided to search the market. After a long hunt, I was able to find the desired headlight which was being sold at a very expensive price and that too of a low quality. I had no option but to buy the headlight. As far as I am concerned, I would have been better off buying a locally-made car knowing that at least its spare parts would be easily available at an affordable price."
An auto industry source says that locally-assembled cars enjoy a definite advantage over imported cars. There is more or less no availability of spare parts of imported used cars. Even if by chance a part is available, its price is very high. On the other hand, spare parts for new cars are readily available at reasonable prices. The story doesn't end here: a locally assembled new car is backed by a warranty and nation-wide guarantee after-sales service, while there is no such facility available in the case of an imported used car. Buying a locally manufactured new car gives you the additional advantage of Customer Assistance Centers.
After buying an imported used car, you end up paying a lot more as the body of the car has been worked on ie dents have been removed and repainted, the odometer has been tampered with and the underbody is rusted, the source said. "So, when it comes to buying a used car, consumers need to research the pros and cons before throwing away their hard earned income on a car they have never even heard of before, he advised.
Meanwhile Pakistan Automotive Manufacturers Association (PAMA) has expressed concern over, what it describes, attempts being made to create confusion on ECC decisions. This will only hurt business environment in the country as ECC is a respected forum and any attempt to subvert its decisions will create a trust deficit between business community and the government officials, Director General, PAMA said in a letter sent to the Finance Minister and Chairman of the Federal Board of Revenue (FBR) on December 7.
He said that FBR's initiative of notifying the ECC decision in its entirety gives the industry very high hopes that it would go a long way in development of auto industry in Pakistan, however some elements are bent upon creating confusion regarding a clear decision by ECC on October 23, which has been communicated clearly in the form of SROs issued by the FBR.
"The issue of auto industry was and is sensitive to the long term growth of a vibrant sector of the industry; the decision was given only after a dozen or so meetings and a year-long dialogue. According to a reliable source the ECC in its meeting on October 23 had clearly decided and directed the FBR to issue SROs, amending the tariff structure for motorcycle manufacturers across the board, meaning that new or old all the players will be governed by the latest tariff structure approved by the ECC to be reviewed after one year.
However, the FBR source said that, after failing to have much trumpeted controversial policy for new entrants approved, the Ministry of Commerce (MoC) is now trying to give a new turn to ECC decision. A letter dated November 30 this year, was sent to the FBR, with copy to Ministry of Industries, by MoC alleging that ECC has approved the "New Entrant Policy" for motorcycles in its meeting dated October 23 this year.
Through this letter the MoC has conveyed an understanding that ECC in its decision had approved New Entrant Policy for motorcycle industry. It is interesting that as per ECC decision it is simply stated that "the proposed duty structure would apply equally to new entrants and existing manufacturers so as to provide a level playing field to all the manufacturers."
Director General PAMA while commenting on the situation said that the MoC is making a mockery of the SROs and subsequent formalities which followed the decision by ECC, which were made spirit of protecting the local industry while giving a projection of next year to all the stakeholders. Creating confusion out of a speaking order is not only detrimental to the industry but will create yet another embarrassing situation for the government which is already facing difficult situation in front on the courts, he said.
He said that industry will not spend a single day and will take the matter to courts if the MoC doesn't stop playing the game sponsored by vested interest. On the other hand better sense seems to have prevailed at FBR as they have already uploaded the relevant SRO's specially SRO 693 (I)/2006 with new entrant policy as approved through ECC decision of the case no. ECC-168/13/2007 dated November 13, 2007. This policy uploaded on the FBR site given in SRO 693/2006, covers only cars, trucks and busses etc but leaves out the two-three wheelers. These SROs were uploaded on FBR site on November 30 this year, while revenue division, FBR letter for clarification on the issue was written on November 21. This goes to prove that FBR is not satisfied with what it is being dragged into. They have taken a strong position in face of MoC letter and pressure from powerful quarters.
Interestingly, Vice-Chairman of Pakistan Automobile Manufacturer Dealers Association (PAMADA), Iqbal Hussain Shah has also come out with a statement saying: "The import of any manufactured item is detrimental to the local industry and consumer let alone a car and that too used for five years, government and legislatures should realise that promoting an illegal trade will not only devastate the local industry but will hurt its reputation as well."
He said these associations could not prove misleading figures as the government knew how damaging the imported used cars were for the national economy. "Used car business is providing employment to only a few of 4,000 dealers nation-wide which has non-technical labour and cannot be compared with the highly-trained and technical staff contributing to GDP through taxes and remittances," PAMADA said.
The Association said it is the local auto industry that has employment of over 2.2 million people while used car industry does not even have minuscule employment. Similarly, local auto industry saves more foreign exchange as it spends on average $4,600 to import one CKD unit against $9,800 spent on one used car unit and that too transmitted through illegal means, which means the government is losing $5,000 in terms of foreign exchange on one imported car.
It is not only the age but the ITPs set in 2005 after which international car prices have been jacked up due to currency depreciation and huge 40% depreciation allowance that eases down imported cars' prices, if the same rebate is given to local car industry the consumers will have cheaper brand new Made in Pakistan cars.
PAMADA further said that it is obvious that only local auto industry creates real economic activity as auto parts worth over Rs 60 billion manufactured locally every year, while in the used car import segment there is no local manufacturing. Importantly, it said, local auto industry pays more taxes to the government as over Rs 65 billion tax contributions were made by the entire local auto industry annually, while imported used car segment pays less than Rs 21 billion in this regard.
PAMADA questioned: who invests in Pakistan? Of course, it is local auto industry which can be gauged by the fact that over Rs 40 billion investment was made by just three Original Equipment Manufacturers (OEMs). On the other hand, zero investment is made by used car industry. PAMADA also questioned the validity of statements about tax paid by used car industry which is quite contradictory to FBR data.