AUTOMOBILE SECTOR

1. Introduction:Pakistan is one of the leading countries in the world having a large number of vehicles. Thus Auto sector in Pakistan is improving each day and its contributing to the GDP of the country to an effective extent. The basic idea in this report is to make new vehicles from the spare parts of used vehicles due to the increasing prices of current vehicles and also the automobile industry of Pakistan is compared with that of India in the end.

2. Automobiles Industry in Pakistan:Pakistan is an emerging market for automobiles and automotive parts offers immense businessand investmentopportunities. The total contribution of Auto industry to GDP in 2007 is 2.8% which is likely to increase up to 5.6% in the next 5 years. Total gross sales of automobiles in Pakistan were Rs.214 billion in 2006-07 or $2.67 billion. The industry paid Rs.63 billion cumulative taxes in 2007-08 that the government has levied on automobiles.There are 500 auto-parts manufacturers in the country that supply parts to original equipment manufacturers (PAMA members). Auto sector presently, contributes 16% to the manufacturing sector which also is expected to increase 25% in the next 7 years, as compared to 6.7 percent during 2001-02.Vehicles manufacturers directly employ over 192,000 people with a total investment of over $ 1.5 billion. Currently, there are around 82 vehicles assemblers in the industry producing passengers cars, light commercial vehicles, trucks, buses, tractors and 2/3 wheelers. The auto policy is geared up to make an investment of $ 4.09 billion in the next five years thus, making a target of half a million cars per annum achievable.

3. Contribution to the GDP:Today the automotive industry annually contributes over Rs 30 billion toPakistan's GDP and is also paying approximately Rs 8 billion per year inthe form of taxes and thereby playing a pivotal role in the developmentof Pakistan's economy. Presently the auto industry has the capacity toproduce 120,000 cars annually on a double shift basis. Carmanufacturers in Pakistan over the last decade have contributedconsiderably towards employment generation. Car manufacturers inPakistan and vendors employ around 150,000 to 200,000, peopledirectly and indirectly. The Original Equipment Manufacturers (OEMs)have also been instrumental for transfer of technology, value additionand manpower development. As a consequence of car manufacturing inPakistan, a vibrant auto vendor industry has emerged that is now notonly supplying parts to local OEMs like Toyota, Honda, Suzuki, Nissan,etc, but also exporting internationally.Auto-part exports are approximately $20 million per annum. Due to thedeletion policy, cars manufactured by OEMs now consist 50% to over70% local components depending on the model. Over the year vehiclesmanufacturing has been among the few industries that has continued toattract local and foreign investment even when the investment climate inthe country has not been very favorable. The development of the localcar-manufacturing sector is a key element in the industrializationprocess. It must be remembered that the import of used cars as opposedto Complete Knock Down (CKD) parts would cause a major drain onPakistan's foreign exchange and work towards retarding the overallgrowth of the engineering sector in Pakistan.The auto manufacturers in Pakistan are playing a significant role in theexports of the country. From July 2001-March 2002 auto parts exportshave been to the tune of $27 million.. The deletion process is ongoingand every year a certain set number of locally manufactured car parts areincorporated. According to the deletion program car makers have toprogressively increase quantum of locally made car parts till themaximum level is attained. Currently in small cars the deletion level isalmost 75% and in larger cars it is close to 60%. A change in the shapehas impact on the deletion program. A change in shape means aninvestment of anywhere from Rs 4-5 billion, which economically is nota viable proposition keeping in view low demand trend.Pakistan is an emerging market for automobiles and automotive parts,offers immense business and investment opportunities. The totalcontribution of Auto industry to GDP in 2007 is 2.8% which is likely toincrease up to 5.6% in the next 5 years. Total gross sales of automobilesin Pakistan were Rs.214 billion or $2.67 billion in 2006-2007. Theindustry paid Rs.63 billion cumulative taxes in 2007-2008 that thegovernment has levied on automobiles. There are 500 auto-partsmanufacturers in the country that supply parts to original equipmentmanufacturers (PAMA members). Auto sector presently, contributes16% to the manufacturing sector which also is expected to increase 25%in the next 7 years, as compared to 6.7 percent during 2001-02.Vehiclesmanufacturers directly employ over 192,000 people with a totalinvestment of over $ 1.5 billion. Currently, there are around 82 vehiclesassemblers in the industry producing passengers cars, light commercialvehicles, trucks, buses, tractors and 2/3 wheelers. The auto policy isgeared up to make an investment of $ 4.09 billion in the next five years

Contribution of Indian auto sector to its GDP:The Indian automobile sector is more secure than the Pakistanis and its strong economic condition of the Indian economy,it contribution in Indian GDP is more than that of Pakistan.According to the statistical division of india,the automobile sector contributes about 10% to Indian GDP.It is almost double the number,what the Pakistani automobile sector contributes to its GDP.

4. Production (P) and Sales (S) of Vehicles of Paksitan automobile sector:

5. VISION 2013: The Future of Pakistan Auto Industry

Product2007-8VISION 2013

Cars (nos.)164,710500,000

2 wheelers1.06 million1.7 million

Investment (Billion)98225

Contribution to GDP (%)2.85.6

Contribution to manufacturing sector (%)1625

Direct Employment192,000500,000

Gross sales turn over (Billion)214600

6. Automobile Industry and the Allied industries:The automobile industry has also strengthened many associatedindustries and allied industries. It has not only provided jobs to alarge number of people but has also contributed significantly to thenational exchequer. The most prominent allied industries are asfollows.1-CNG (compressed natural gas stations)2-workshops3-tyre shops4-Automobile parts shops

7. Decline and sales revenue:Unfortunately, the recent downward trend in auto sales (cars + LCVs) continued as auto sales stood at 27,034 units for July-September 2008, showing a decline of 44 percent year-on-year, the data released by Pakistan Automobiles Manufacturers Association (PAMA) shows. (Link)Automobile grew from 2001-2007, the industry and the government of Pakistan fixed a target of over half million units production by the year 2011-12 that now seems out of reach. The industry slightly fell short to achieve the targeted productions in 2006-07 when 1,95,688 cars were manufactured against a target of 2,26,620 units. However, there was some growth in production that year. In 2007-08 the production declined to 1,87,634 units against a projected target of 2,66,543 units. In the current fiscal year they said the production is expected to decline to 1,50,107 units that are half the projected target of 3,13,486 units.Despite an additional levy of 5 per cent excise duty, the revenues from automobile sector would decline by over 25 per cent this year due to declining demand. The industry paid Rs.63 billion cumulative taxes that the government has levied on automobiles. This year, despite additional duty the sector would hardly contribute Rs50 billion in the national exchequer.

8. Automobile Manufacturers and Vendors concerns:Automobile manufacturers and auto-parts vendors have warned the government that despite an additional levy of 5 per cent excise duty, the revenues from automobile sector would decline by over 25 per cent this year due to declining demand.The Pakistan Association of Auto Parts and Accessories Manufacturers (PAAPAM) and Pakistan Automobile Manufacturers Association (PAMA) in a joint presentation have suggested various steps that should be taken by the government to arrest the slowdown in sales. The two associations appealed to the government to withdraw the 5 per cent excise duty on cars and impose a ban on import of used parts instead of allowing their import after imposing 30 per cent redemption duty.They asked the government to place stringent checks on auto-parts imported commercially or as semi knock out kits. They proposed the introduction of non-tariff measures to curb the import of parts that are being manufactured in Pakistan. They pointed out that the 50 per cent duty has failed to stop the import of these parts as the import prices are easily manipulated by the importers. Moreover, import under SRO 63 attracting 50 per cent duty should not be allowed under FBRs CARE system. They have also appealed for special incentives for the auto sector including lower mark-up on loans and a waiver of 35 per cent L/C margin.The two associations pointed out that investment in the automobile sector has frozen at Rs98 billion and is expected to remain at the same level by 2011-12.

9. Key players in Automobile industry:

a) Honda Atlas Cars Pakistan Ltd:Honda Atlas Cars Pakistan Limited is a joint venture between Honda Motor Company Limited Japan, and the AtlasGroup of Companies, Pakistan. The company was incorporated on November 1992 and joint venture agreement was signed on August 1993. The ground breaking ceremony was held on April 17, 1993 and within a record time of 11 months, construction and erection of machinery was completed. The first car rolled off the assembly line on May 26, 1994. Official inauguration was done by President of Pakistan, SardarFarooq Ahmad Khan Leghari. Mr Kawamoto, President of Honda Motor Company Limited Japan was also present to grace the occasion. The company is listed on Karachi, Lahore and Islamabad Stock Exchanges. In July 1994, car bookings started at six dealerships in Karachi, Lahore, and Islamabad. Since then the Dealerships Network has expanded and now the company has sixteen 3S (Sales, Service and Spare Parts) and thirty 2S (Service and Spare Parts) Pitstops network in all major cities of Pakistan. Since the commencement of production in 1994, the company has produced and sold more than 150,000 cars till Oct, 2008. All dealerships are constructed in accordance with the standards defined by Honda World over.

b) Indus Motor CompanyIndus Motor Company (IMC) is a joint venture between the House of Habib, Toyota Motor Corporation Japan (TMC),Daihatsu Motor Company Ltdvehicles in Pakistan through its dealership network. The company was incorporated in Pakistan as a public limited company in December 1989 and started commercial production in May 1993. The shares of company are quoted on the stock exchanges of Pakistan. Toyota Motor Corporation and Toyota Tsusho Corporation have 25 % stake in the company equity. IMCs production facilities are located at Port Bin Qasim Industrial Zone near Karachi in an area measuring over 105 acres. Indus Motor companys plant is the only manufacturing site in the world where both Toyota and Daihatsu brands are being manufactured. IMCs Product line includes 6 variants of the newly introduced Toyota Corolla, Toyota Hilux Single Cabin 42 and 4 versions of Daihatsu Cuore.Toyota Tsusho Corporation Japan (TTC) for assembling, progressive manufacturing and marketing of Toyota vehicles in Pakistan since July 01, 1990. IMC is engaged in sole distributorship of Toyota.c) Pak Suzuki Motor Company:Pak Suzuki Motor Company Ltd (PSMCL), established as a joint venture between Suzuki Motor Corporation of Japan (SMC) and Pakistan Automobile Corporation (PACO) Govt. of Pakistan in 1983. Started commercial operations with production (S.O.P.) of Suzuki FX in 1984.In 1992, started production of MARGALLA at new Plant.In 1997, started production of 1300cc BALENO replacing Margalla.In 2001, launched the CNG version of MEHRAN, RAVI and BOLAN. By 2005 capacity expansion up to 80,000 vehicles per year were completed. In 2006, capacity expansion up to 120,000 vehicles per year was completed and production of 1300cc/1600cc car LIANA and BALENO commenced. In 2007, the thirdphases of capacity expansion up to 150,000 vehicles per year were completed. Amalgamation of Suzuki Motorcycle Pakistan Ltd into Pak Suzuki Motor Company Ltd took place and new land of 120 acres was acquired for further expansion adjacent to current plant. In 2008, the company started exporting Suzuki LIANA to Bangladesh. Pak Suzuki acquired a land of 25.22 acres at Lahore for setting up PDI centre, Spare Parts Ware-house, Regional Office and other related facilities.

d) Nexus AutomotiveChevrolets were sold in Pakistan well into the 1970s, after which the automotive regime was changed and Chevroletgradually withdrew to its home market in the United States. In 2004, after an absence of three decades, Chevrolet was re-introduced in Pakistan. Once again, a global brand with a product line-up suited to developing markets such as Pakistan, Chevrolet has made a successful return to the country. Working with Nexus Automotive, General Motors partner in Pakistan , Chevrolet can once again be seen on roads all over the country. Today, Nexus Automotive assembles the 1000cc Chevrolet Joy at Port Qasim (Sindh), and imports a broader line-up of cars, including Aveo, Optra, and Colorado (coming soon) from the General Motors global network.e) Al-Ghazi Tractors:Al-Ghazi Tractors Limited (AGTL) was incorporated in 1983. In 1991 the project was offered for privatization, and acquired by Al-Futtaim Group of Dubai who took over the management control of AGTL in December 1991. Ever since AGTL is a case study of rollicking corporate success. 50.02% shares of the company are held by Al-Futtaim Industries Co. LLC and 43.17% shares are held by CNH Global NV, with whom Al-Ghazi Tractors Limited has signed an Industrial Collaboration Agreement for manufacture of New Holland brand tractors. The Agreement is valid till April 2016. With expansions carried out in 2005, the plant is now capable of producing 30,000+ tractors per year in a single shift the most enduring competitive edge being the quality of our tractors, which are robustand sturdy and carry a local content as high as 92%. AGTL was the first automobile company in Pakistan to earn the ISO-9002 Certificate.f) Dewan Motors:DewanFarooque Motors Limited has one of the most advanced automobile assembly plants of South Asia. Located at Dewan City, Sujawal, Thatta, with a total project cost of Rs. 1.8 billion, the plant is built on an area of 42,000 square meters. Selection of the site reflects the commitment of Dewan Group towards building of a prosperous Pakistan and its contribution to national wealth. The project has provided direct employment to over 700 personnel. The plant is the first automobile manufacturing unit in Pakistan to be independently invested by 100% Pakistani investors. The annual capacity of the plant is 10,000 units on a single shift basis. The groundbreaking ceremony for the plant was held in June 1999, and the first Kia Classic rolled-out in a record time of six months. Today the modern state-of-the-art plant is rolling-out cars every day. This is the first and only automobile assembly plant in Pakistan with state of art robotic equipment. DewanFarooque Motors Limited has technical collaboration and license agreements with the following Korean companies:Hyundai Motor Company December 25th 1998Kia Motors Corporation July 27th 1999g) Ghandhara Industries:The Ghandhara Industries Limited is a public limited company quoted on the Stock Exchanges and registered under the Companies Act, 1913 (now companies Ordinance, 1984). It was established in Karachi by General Motors Overseas Distribution Corporation U.S.A. in 1963 Lt. Gen. M. Habibullah Khan Khattak acquired these facilities from General Motors and renamed it Ghandhara Industries Limited. The Government of Pakistan nationalized Ghandhara Industries Limited in 1972 and renamed it National Motors Limited. In 1992 M/s. Bibojee Services (Pvt) ltd. acquired it under Privatization Policy of the Government, and adopted its original name Ghandhara Industries Limited w.e.f. 27-11-1999. The major business activities of the company comprise of progressive manufacture, assembly and marketing Isuzu truck and bus chassis and fabrication of Bus and Load bodies. Ghandhara industries Ltd have a product range of ISUZU medium-duty vehicles (F-Series) & light-duty Vehicles (N-Seies) in Pakistan.h) Hino-Pak Motors Ltd:Hino Motors Japan and Toyota Tsusho Corporation in collaboration with Al-Futtaim Group of UAE and PACO Pakistan formed Hinopak Motors Limited in 1986. In 1998, Hino Motors Ltd., and Toyota Tsusho Corporation obtained majority shareholding in the company after disinvestments by the other two founding sponsors.

i) Adam Motor Company:We would dogreat injustice if we fail to mention, the only large scale effort made by a Pakistani to achieve what othersfailed toimplement or even envision. Mr.Feroz Khan,founder of theAdam Motor Company, Ltd.was an automobile assembler based in Karachi, Pakistan. They were notable for producing theRevo, which was Pakistans first homegrown company to assemble a decent car. Together with stylerMehmoodHussain, Chief Engineer N. A. Salmi and two fresh graduates from NED, Khan designed and manufactured Pakistans first car. In fact, Khan invested in the latest software programs to train his team using Computer Aided Design (CAD) and Computer Aided Manufacturing (CAM). Khan is also Chairman and CEO of Omar Jibran Engineering Industries and has twice been Chairman of Pakistan Association of Automotive Parts and Accessories Manufacturers.All their vehicles used Made in China components due to lack of a modern manufacturing industry in Pakistan. Initially Adam Motor was involved in assembling cheap Made in China light trucks, followed by a Made in China four-wheel drive off-road vehicle. Later they started manufacturing the Revo. The 800CC version of the Revo costs Rs. 269,000 (about $4,500) and the 1050 model is Rs. 369,000 (about $6,200). The Revo has also been built in accordance with EU safety regulations. Mr. Feroz Khan blames the politicians for the companys failure.

Market share of Indian cars companies:1-Maruti Suzuki 40%2- Hyundai 25 %3- TaTa motors 20 %4-M&M 5 %5- General motors 4%6- others 6 %

Market share of Pakistan cars companies:1- Suzuki 49%2- Indus motors 38%3- Honda 13%

10. Major problems faced by the Sector:

a) Input Cost:In Pakistan as the inflation is increasing so as the input costs and formanufacturers it is becoming harder to produce at lower cost.Increasing cost of energy and its unreliable and inconsistent supplyadds up the cost of manufacturing and wastage of resources. It isestimated that by the year 2012, auto industry consumptionof electricity will cross 500 600 MW from around 250 - 300 MW, as of now.

b) Protection level:Be f o r e t h e TBS(tariff based system) was i n t r o d u c e d t h e a u t o i n d u s t r ywa s we l l p r o t e c ted b y t h e government but now as the importof CKD(cars knocked down) is liberalized the protection level to industry bygovernment is decreased.

c) Lack of skilled manpower for modern machinery:In Pakistan conventional machines are not able to meet the precisionmanufacturing and the available labor is not familiar with moderntechnology it caused by lack of coordination and linkages withGovernment/Semi Government Supporting Bodies and Technical TrainingInstitutesd) Scarcity of raw material especially steel:Through previous years the world prices are rising and causingcostly inputs and Paki s tan has lef t with scarce Steel andI ronleft , so manufacturer s are facing difficulties in producingcars with low prices

11.Government Policies for development of Auto Industry:Government of Pakistan had undertaken two major initiatives in the form of National Trade Corridor Improvement Program (NTCIP) and Auto Industry Development Program (AIDP) for the development of the automotive industry in Pakistan.Engineering Development Board (EDB) is actively implementing the AIDP to increase the GDP contribution of the automotive sector to 5.6%, boost car production capacity to half a million units as well as attract an investment of US$ 3 billion and reach an auto export target of US$ 650 million.Automotive engineering is a driving force of large scale manufacturing, contributing US$ 3.6 billion to the national economy and engaging over 192,000 people in direct employment.The Auto parts manufacturing is $ 0.96 billion per annum. The demand for auto parts is highest in the motor cycle industry which is 60%, then is for cars which constitutes to 22% and the rest 18% is consumed by trucks, buses & tractors. This demand is met by Imports which caters 22% while the remaining 78% is supplied by the local manufacturers.Due to the increase in demand for sophisticated machinery, the government has allowed duty free import of raw material, sub components, components assemblies for manufacturers & assemblers. Total import bill of machinery stands at $2.195 billion in the current fiscal year of 2007-08 which is 12.77% higher than that of the preceding year.The impressive growth in the machine tools and automation sector is directly proportional to the growth of the automotive industry which has become the fastest growing industry of Pakistan and contributes $3.6 billion annually to the countrys GDP.The aftermarket for spares has also witnessed immense expansion over the same period, with imported parts playing an important role in meeting local demand. The spare parts market is given further impetus by a total vehicle population of approximately 5.4 millionPakistan has the second highest number of CNG-powered vehicles in the world with more than 1.55 million cars and passenger buses, constituting 24% of total vehicles in Pakistan with improved fuel efficiency and conforming to the latest environment regulations.

12.Comparison of Pakistan and Indian Auto industry:A sample analysis of Indo-Pak economic compatibility has indicated that Pakistan's auto industry was at disadvantage as compared to India's high tech and robust industry.

According to the analysis, big market, non-tariff barriers and high duties on import and strong vending industry played a major role in making India a strong player in auto sector and after protection of decades through tariff and non tariff it is today a gainer in auto world.

A consistent and decade-long protection made it possible India's industry is not only meeting the local demand but also taking sizeable share from the international auto market.

The analysis added that Pakistan's relatively new auto industry has shown tremendous progress during the last few years and it could do even better in the coming years, but the last year switch over for cut in duty to introduce a liberal import approach put it on the back foot.

Pak auto industry showed fast growth during the last few years and contributed significantly to the national exchequer. The official figures showed that the CBR collected huge revenue from this sector during the last few years and its share in total annual revenue collection was showing upward trend.

It is also providing job to hundred of thousands families, besides keeping over 350 related industries on the move.

The analysis mentioned that India's market size and strong economy were providing big advantage to its auto industry and making it even more stronger with each passing day for providing potential to dominate over other countries when ever it gets a chance.

The analysis indicated that India is a market of 1065 million people against 152.53 million of Pakistan and its auto industry enjoys full backing of large scale hi-tech engineering and indigenized technical manpower. Whereas, Pakistan's case is different altogether, its industry is weak and newly born and victim of quickly changing government policies.

The local industry has shown tremendous increase in the last few years and is going for massive capacity enhancement. The manufacturers of the popular cars have come up with investment plan to increase their capacity to meet the buyers' requirement.

The local cars production in 2011 stood at around 250,000 units and the manufacturers are confident to take this number to over 350,000 by December 2013.

The analysis indicated that Indian auto industry was enjoying protection in different forms and delivering good to the industrial growth of that country but Pakistan's case was reverse as its newly grown industry was facing hard time for many reasons such as small market size, inconsistent government polices and high bank's interest rates on cars leasing.

The low banks return on car leasing was a major reason of great demand of cars during the last one and half years. But with quick increase in banks interest rates this factor may not play a role in the future.

The local industry's progress is dependent on necessary protection at least for the next few years. It becomes imperative when a strong competitor like India goes all out to protect its industry.

13.Conclusion:Therefore we can conclude that the automobile sector hasrevolutionized the life of common people. The automobiles are now thepart and parcel of our lives without which its nearly impossible tosurvive. This sector has contributed to the national exchequer as well asincreased the economic activities as well in the form of providing jobs tothe people as we have discusses earlier and also gave rise to otherallied industries. However the automobile sector of Pakistan is lackingbehind the automobile sector of the developed world in terms of thereliability of its products , competitive prices , safety concerns etc.Moreover the current energy crises has also hampered this industry aswell . Due to this factor the government also losses its considerablechunk of revenue which it would have otherwise collected.