Reading Time: 4 minutes For a few decades, there have only been three major players in the Pakistan automotive industry. Toyota, Suzuki, and Honda have been dominating the industry for a long time now. Without extensive competition in the industry, these three companies have been selling all types of vehicles at a price much higher than their production costs.
The automotive industry of Pakistan accounts for 4% of the country’s total GDP. Furthermore, the industry employs over 1.8 million people making it one of the biggest industries in Pakistan. Apart from that, the industry is responsible for 2.7 million additional jobs in the vendor industry for the acquisition of spare parts.
Even though the industry has seen a positive change in recent years, there are still several problems that are up for discussion.
For a few decades, there have only been three major players in the Pakistan automotive industry. Toyota, Suzuki, and Honda have been dominating the industry for a long time now. Without extensive competition in the industry, these three companies have been selling all types of vehicles at a price much higher than their production costs. Moreover, due to a lack of competition, the companies don’t have an incentive to improve the quality of their vehicles. To this day, Pakistan has not produced a single vehicle that is worth exporting. The vehicles prices also increase from time to time owing to the constant depreciation of the Pakistani currency additionally to the reason mentioned previously.
From time to time, the “Big Three” often fail to produce enough units to fulfill the demands of the people. Due to this, after booking a vehicle, a customer usually has to wait for four to twelve months to receive the delivery. During this time, if the price of the vehicle increases, that will also have to be endured by the customer. This has given rise to a shadow market that is disastrous for the Pakistani economy. If a customer wants immediate delivery of a vehicle, they will have to pay a 10-15% premium. The dealers keep this money undocumented. According to research by the Pakistan Institute of Development Economics (PIDE) Islamabad, 80 to 90% of passenger vehicles are acquired with own money. The own money has summed up to 150 to 170 billion rupees in the short span of five years. As the money doesn’t contribute to capital tax gains, this concept is a huge loss to the national treasury.
The biggest issue faced by the auto market is the horrendous build quality of the vehicles and the lack of basic safety features for cost-cutting. For example, the enforced emission standard for Pakistani vehicles is Euro-II which started fading back in the ‘90s in the rest of the world. Over and above that, these emissions standards are not even implemented properly. While the rest of the world is giving extra safety features such as parking sensors, lane assist, and autonomous emergency braking, Pakistani manufacturers have failed to provide the most basic feature in most of their cars: airbags. Even Senator Shibli Faraz recently criticized the build quality of the locally manufactured cars as the new ones are decades behind the vehicles manufactured in other countries in terms of safety and other features.
For a long time, the government stayed a silent spectator in this whole monopolistic fiasco. However, in the past five years, the government has taken a few positive steps to ensure a good future for the industry.
In 2016, the country introduced an Auto Development Policy. To this day, the policy has not been able to bring about significant changes in the industry, but it can be seen as a positive step toward the problems faced.
According to this policy, new entrants in the automobile industry would receive tax incentives while setting up plants as well as the import of localized parts. Additionally, for completely built-up cars, the customs duty was reduced by 10%.
This policy didn’t change much in the industry as most of it is still dominated by the Japanese Big Three because of the unstable economic conditions of the country. Big companies such as Nissan, Renault, and SsangYong put a hold on their activities before they could even begin. Only two new brands were introduced: Hyundai partnered with Nishat Group and Kia partnered with Lucky Motors. Nonetheless, the cars manufactured by these new companies still cost an arm and leg which doesn’t benefit the middle-class population of the country.
Despite all that, there were a few positive changes such as:
Upon the expiry of the previous Auto Development Policy, the government introduced the Auto Industry Development and Export Policy in July 2021. The new policy added some updates to the previous policy. The most important feature of the policy is that the government has decided to disallow the manufacture and import of vehicles that don’t comply with WP29 regulations. The regulations include:
Features of the AIDEP include:
The most important update in the new auto policy is the establishment of the Auto Sector Monitor Committee. The main job of the committee will be to ensure that the automotive industry members are compliant with the new auto policy and to ensure that the complaints of the customers are given due attention.
In conclusion, the Pakistani automotive industry still lags behind the rest of the world in many ways. In recent years, the government has introduced several policies to incentivize the customers; however, the main challenge is the implementation of these policies. As previously mentioned, the Auto Development Policy 2016-2021 failed to make a significant impact on problems faced by the consumers. Only time will tell if the government will be able to hold up the promises made by the new Auto Industry Development and Export Policy 2021-2016.
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