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2010

Potential for Growth?


Pakistan’s Automobile Industry

Tanvir Aslam
Ahmed Ismail
Pakistan Economic Policy
12/13/2010
Table of Contents
Table of Contents .............................................................................................. Error! Bookmark not defined.
Abstract ............................................................................................................................................................. 3
Introduction ....................................................................................................................................................... 4
Literature Review .............................................................................................................................................. 6
Article: Automobile industry in Pakistan: History and Prospects. ................................................................... 6
Analysis of Pakistani Industry ........................................................................................................................ 6
Methodology ..................................................................................................................................................... 7
Data Analysis .................................................................................................................................................... 8
Contribution to National Exchequer ............................................................................................................... 8
PRODUCTION & SALES ............................................................................................................................. 9
Production and Sales of Cars (Light Weight Vehicles) ............................................................................... 9
Production and Sales of Trucks ................................................................................................................ 10
Production and Sales of Buses.................................................................................................................. 11
Production and Sales of Pick-up ............................................................................................................... 12
Production and Sales of Farm Tractors ..................................................................................................... 13
Production and Sales of Motorcycles ....................................................................................................... 14
ANNUAL PLANT CAPACITY .................................................................................................................. 15
INVESTMENT............................................................................................................................................ 16
EMPLOYMENT ......................................................................................................................................... 17
Conclusion ...................................................................................................................................................... 18
Policy Recommendation .................................................................................................................................. 18
Appendix ......................................................................................................................................................... 19
Contribution to National Exchequer ............................................................................................................. 19
Production and Sale of Cars ......................................................................................................................... 19
Production and Sale of Buses ....................................................................................................................... 20
Production and Sale of Farm Tractors .......................................................................................................... 20
Production and Sale of Motorcycle .............................................................................................................. 21
References ....................................................................................................................................................... 22
Primary Sources:.......................................................................................................................................... 22
Secondary Sources: ...................................................................................................................................... 22
Abstract

The following research paper is an in depth analysis of Pakistan’s Automobile Industry. We collected
data from various sources to analyze the potential and positive aspects the automobile industry has to offer in
Pakistan. We concluded that the industry has had positive growth and has affected the economy in a good way;
there has been an overall development process in which, due to the automobile industry, further supporting
manufacturing industries have formed. There was major government involvement during the early stages of the
automobile industry, however this has decreased now, and the protection levels the industry use to receive is no
longer there. We saw that there is opportunity for further development, which will bring more jobs, and create
new sectors in manufacturing. We recommended that there be a mixed policy, where the public and private
industries work together, and the government regulates the market enough to preserve our local industries and
protect them from foreign competition. The automobile industry is an integral part of our economy, and still
has a lot to offer if proper measures are taken to ensure its development.
Introduction
Having a country that is only sixty years old gives us a disadvantage, comparatively to other countries
with far more history then us. However, Pakistan is a country full of un-exploited resources, rich in minerals,
and raw materials. We have the opportunity to grow, and be among the top countries of the world. In recent
years, we have been in the sights of global markets, yet continually destroy our reputation with corruption, and
illegal acts around the world. If we look at the Pakistan economy over the last sixty years of existence we can
see how we have progressed, and what the potential of our country is, only being pulled back by dictatorship,
and propaganda in our democratic governments. We chose one particular industry, in order to do an in depth
analysis to prove that Pakistan has the means for growth, with positive government help, through the
implementation and maintenance of policies and regulations beneficial towards manufacturing industries.

The Pakistani automobile industry is a crucial part of our growing economy, the industry started in
Pakistan in when the first automobile plant was set up in May 1949 by General Motor & Sales Co. It was set up
on an experimental basis, however grew into an assembly plant for Bedford Truck, and Vauxhall cars. Seeing
such progress, three major auto manufacturers from the US collaborated with Pakistani business men to set up;
Ali Automobiles to manufacture Ford Products in 1955, Haroon Industries to assemble Chrysler Dodge cars in
1956, Khandawalla Industries to assemble American Motor Products in 1962, and Mack Trucks Plant in 1963.
The absence of technological knowledge, and basic professionalism, led to the demise of these organizations.
However towards the end of the seventies all automobile assembly in Pakistan stopped, until 1983 when Pak
Suzuki started manufacturing their vehicles in Pakistan. Further Toyota Indus Motors was set up in 1990,
followed by Honda.

Today we have four major automobile manufacturing industries, these include, Toyota Indus Motors,
Pakistan Suzuki, Honda Atlas, and Diwan Farooq Ltd. The most recognized are Toyota, Honda, and Suzuki;
producing the majority of the light weight vehicles.

“The Toyota Motor Company has taken a leading role in the world only because their vehicles are
designed and produced as a result of the best possible interaction between them, their vendors and the ancillary
industry. The Toyota production system is not only conceptually unique but has also proved to be the best when
put into practice. It ensures negligible or zero waste, optimum product quality and reliability and thus
competitiveness together with best service to customers throughout the world.” (Economic Review)

Pakistan’s view towards the automobile industry is undisputed; we know its importance and contribution
towards the growth and stability of our economy. We need to understand the mechanism which is the industry.
In the above passage from an article from the Economic Review, it discusses why Japan has the world’s leading
automobile industries. It is because of the integration of vendors, suppliers, and supporting engineering
industries. According to the Economic Review, the working of an automobile industry requires the following
things.

1. The original equipment manufacturer or assembler.


2. A network of component manufacturers or vendors.
3. An ancillary or supporting engineering industry to provide assistance in design and production of required
equipment, tools, jigs and fixtures.
An assembler acts as the center, it is constantly in research and development, design and final
production, however there are many more diversified and complicated technologies that are involved in
successful mass production. The Economic Review stated, “The key areas where improvement is desired are:

1. Training and development of managerial staff to change-modify the management's attitude towards the
implementation of sound production, planning and control functions.

2. The use of appropriate production techniques (not necessarily the most updated).
3. The enforcement of discipline in maintaining facilities.”

We believe that the Pakistan automobile industry is an important part of the countries growth process
and can be a leading industry because there is room for growth and development, there still is a vast domestic
market with a demand for vehicles.
Literature Review
Article: Automobile industry in Pakistan: History and Prospects.

The Following article was written by Economic Review, and published in 2006; the writer along with
Toyota Indus Motors did a research on the Pakistan automobile sector and its development. They found that, the
industry had room for growth.

“The performance and present state evaluated jointly using Toyota's techniques was not all that
disappointing. Whilst we are not too far behind some of the rapidly developing countries like Thailand,
Malaysia and Indonesia,”

They suggested that the key attributes towards developing an automobile industry was in developing
supporting industries as well, such as an engineering industry to provide them the support with required
machinery and equipment. We agree with this philosophy as it can be seen in Japan, and they have the biggest
automobile manufacturers in the world.

Analysis of Pakistani Industry

This report was written by Economic Watch, and was also an analysis on Pakistan’s automobile
industry, they discussed pervious and current policies that have been implemented, and they looked at
government support towards the industry and how they can help develop the auto industry in Pakistan.

“Before the TBS was introduced the auto industry was well protected by the government but now as the import
of CKD and CBU is liberalized the protection level to industry by government is decreased.”

We agree with their analysis, and that for us to have a successful market, there has to be some
government intervention and they should help protect the local industry. It is hard for new manufacturing
industries in Pakistan to compete against international organizations.
Methodology

We collected our secondary data from the Pakistan Automobile Manufacturing Association. We decided
to collect the historical data and create graphs to show us a representation of what the industry has been like
over the past two decades, and determine whether there is still opportunity for growth in this sector or if we
have reached our limits.

Our Hypothesis was:

H0: There is no more opportunity for growth in Pakistan’s Automobile Industry

H1: There is opportunity for growth in Pakistan’s Automobile Industry

We used the data we had collected, and created multiple graphs to analyze the trends in different aspects
of the automobile industry. These included looking at the total production and sales of different classes of
vehicles, the Industry production capacity of different manufacturers, and the increase in employment over the
last decade. We also analyzed the monetary contributions towards the economy, to see how important the
automobile industry is towards our GDP and whether it is helping in the growth of our economy.

We used Microsoft Excel to create our graphs, from which we did a visual trend analysis. Further we
used Excel to calculate the slopes for a majority of our graphs to give us a better understanding of the change in
production, employment, or monetary contribution according to time.

Our end result showed that we would reject our null hypothesis, and agree that there is opportunity for
growth in Pakistan’s Automobile Industry. The next section shows the basic graphs and contents used to do our
analysis, the data used, including regression models, and other functions can be found in the Appendix, and are
cited in the report where necessary for analysis.
Data Analysis
Contribution to National Exchequer

Contribution to National Exchequer


25,000

20,000
Rupees in millions

15,000

10,000

5,000

0
2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
01 02 03 04 05 06 07 08 09 10
Pak Suzuki Motor Company Ltd 2,446 1,126 4,029 6,286 8,473 12,224 16,318 16,838 13,286 8,461
Indus Motor Company Ltd 3,106 3,440 5,776 8,303 10,098 12,474 13,791 14,478 14,144 20,524
Honda Atlas Cars (Pakistan) Ltd 1,540 2,300 1,713 3,782 6,371 8,481 6,213 4,958 6,452 6,316
Dewan Farooque Motors Ltd 1,079 1,236 1,423 1,737 2,542 2,433 2,074 1,617 500 301
Atlas Honda Ltd 1318 1508.39 1962.75 3,183.674,514.175,034.164,294.354,310.562,922.075,441.70

http://www.pama.org.pk/custom_traffic.htm 1

The Following Graph Shows the Contribution to National Exchequer by the various automobile
manufacturers, overall we can see a positive slope showing that, the amount towards Pakistan’s economy is
increasing, and with a few downturns in current years, it has an overall positive correlation with time. This
shows that the industry has been progressing.
PRODUCTION & SALES

Production and Sales of Cars (Light Weight Vehicles)

CARS
200,000
180,000
160,000
140,000
120,000
'000 UNITS

100,000
80,000
60,000
40,000
20,000
0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
PRODUCTION 41,556 42,679 66,432 103,662 133,722 170,487 176,016 164,710 84,308 121,647
SALES 40,310 44,378 66,315 101,848 134,550 165,965 180,834 164,650 82,844 123,957

http://www.pama.org.pk/historicaldata.htm

This Graph Shows the overall Units sold over the last decade, as we can see up to 2007 there has been
positive growth, however a decline in sales thereafter, the decrease can be due to political instability, the
transition from military rule to a democratic government, and further the recession that affected global markets
in 2008. Thus we can see that the overall Industry has been growing, and still has potential to increase as it is
currently producing less then what it had in the past.
Production and Sales of Trucks

TRUCKS
6000

5000

4000
'000 UNITS

3000

2000

1000

0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
PRODUCTION 912 1,134 1,929 2,022 3,204 4,518 4,410 4,993 3,135 3,425
SALES 925 1,208 1,883 1,868 3,345 4,273 4,293 5,350 3,136 3,620

http://www.pama.org.pk/historicaldata.htm 1

This Show’s the production and sales of Trucks in Pakistan, also an important part of the automobile
industry. It follows the same trend as the previous graph for vehicles, and same analysis can be applied.
Production and Sales of Buses

BUSES
2,000

1,800
1,600

1,400

1,200
'000 UNITS

1,000

800

600

400

200

0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
PRODUCTION 1,326 1,086 1,296 1,380 1,762 825 993 1,146 662 628
SALES 1,384 1,065 1,332 1,363 1,605 927 978 1,195 686 657

http://www.pama.org.pk/historicaldata.htm 2

The overall production and sale of busses has decreased, over the last decade, this could be due to the
foreign contracts set for the CNG busses which were to be introduced. Other data also shows that the Busses are
used and reused for many years, no matter what the condition maybe thus leading to less production since
busses are not being replaced, only added.
Production and Sales of Pick-up

PICK-UP\ LCV
25,000

20,000

15,000
'000 UNITS

10,000

5,000

0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
PRODUCTION 4,982 5,900 7,815 8,888 16,294 19,152 19,672 21,354 16,160 15,768
SALES 5,041 5,987 7,558 8,898 16,301 18,951 19,981 21,321 15,400 16,496

http://www.pama.org.pk/historicaldata.htm 3

Pickups are becoming more popular, and as we can see the trend shows a positive correlation. The
number of sales has increased, and the decrease in the last two years, the same economic and political factors
come in play as the car production graph shows us, however the decrease is not as substantial as it was for Cars.
This shows that there is still demand for the pickup truck, and room for growth in this product.
Production and Sales of Farm Tractors

FARM TRACTOR
80,000

70,000

60,000

50,000
'000 UNITS

40,000

30,000

20,000

10,000

0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
PRODUCTION 31,635 23,801 26,240 35,770 43,200 48,887 54,098 53,256 59,968 71,607
SALES 31,121 24,001 26,832 35,900 43,578 48,802 54,052 53,203 60,351 71,512

http://www.pama.org.pk/historicaldata.htm 4

The Tractor manufacturing industry is very important to our country, since at one point we were an
agrarian society, agriculture is still a large part of our economy. Agricultural growth and development will also
help in the development of this sector. Our Agricultural sector is still growing and it shares a positive
correlation with Farm Tractor production.
Production and Sales of Motorcycles

MOTORCYCLE
800,000

700,000

600,000

500,000
'000 UNITS

400,000

300,000

200,000

100,000

0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
PRODUCTION 108,850 120,627 175,169 303,383 416,189 520,124 467,267 660,593 509,054 736,861
SALES 108,649 120,113 171,873 301,656 417,066 516,640 467,353 662,573 507,924 737,759

http://www.pama.org.pk/historicaldata.htm 5

Motorcycles have become an important mode of transport for many people in Pakistan, they are not too
costly, and annually almost a million motorcycles are purchased in Pakistan. Overall there has been a positive
growth for the motorcycle manufacturers; the overall growth rate is the best of all locally manufactured
transport vehicles. There is definitely growth opportunity for the motorcycle industry.
ANNUAL PLANT CAPACITY

Pak Suzuki Motor Co. Ltd


Capacity in Nos. 200000
150000
100000
50000
0
2005- 2006- 2007- 2008- 2009-
06 07 08 09 10
CAPACITY 120000 150000 150000 150000 150000

http://www.pama.org.pk/apc.htm 1

Indus Motor Co. Ltd


55000
Capacity in Nos.

50000
45000
40000
35000
2005- 2006- 2007- 2008- 2009-
06 07 08 09 10
CAPACITY 44298 53040 53040 53040 53040

http://www.pama.org.pk/apc.htm 2

Honda Atlas Cars (Pakistan)


Ltd
60000
Capacity in Nos.

40000
20000
0
2005- 2006- 2007- 2008- 2009-
06 07 08 09 10
CAPACITY 30000 50000 50000 50000 50000

http://www.pama.org.pk/apc.htm 3

We can see that the overall plant capacity for the three major car manufactures in Pakistan has increased
however been stable for the last five years. It seems that the reason that they have not grown, is because they
have not been able to create more demand in the market. Pakistan is a price conscious country, and with current
prices sky rocketing it will be a while before the demand starts to increase, but at the moment they are able to
handle the supply required.
INVESTMENT

Investment
6000

5000
Rs. in millions

4000

3000

2000

1000

0
2000-01 2001-02 2002-03 2003-04 2004-05
Pak Suzuki Motor Company Ltd 3000 3094 3105 3874 5144
Indus Motor Company Ltd 2154 2357 2442 2579
Honda Atlas Cars (Pakistan) Ltd 1094 1128 1188 1417 1619
Sigma Motors (Pvt) Ltd 3 13 34 115 160
Dawood Yamaha Ltd 10.37 16.007 139.654 24.58 13.332
Suzuki Motorcycles Pakistan Ltd 208 260 270 358 430
Pakistan Cycle Industrial
33.15 33.57 35.64 38.73 40.63
Cooperative Society Ltd
Plum Qingqi Motors Ltd 485.9 505.3 471.5 555.2 513.5

http://www.pama.org.pk/investmentnemployment.htm 1

We were only able to retrieve data from 2000 to 2005 for this graph, however it showed that there has
been a positive growth in investment towards the automobile industry, with current times being tough with an
economic recession we predict that the investment level has decreased, however the positive slope before the
recession shows that there are investors willing to support the automobile industry because they believe that
there is space for growth and development.
EMPLOYMENT

Employment
2000

1800

1600
Employment in Nos.

1400

1200

1000

800

600

400

200

0
2000-01 2001-02 2002-03 2003-04 2004-05
Pak Suzuki Motor Company Ltd 1144 1130 1109 1378 1723
Indus Motor Company Ltd 628 697 1021 1226 1429
Honda Atlas Cars (Pakistan) Ltd 431 470 477 625 1032
Sigma Motors (Pvt) Ltd 15 46 73 112 159
Dawood Yamaha Ltd 466 506 557 623 809
Suzuki Motorcycles Pakistan Ltd 224 215 271 352 393
Pakistan Cycle Industrial
202 229 247 251 267
Cooperative Society Ltd
Plum Qingqi Motors Ltd 189 198 198 227 235

http://www.pama.org.pk/investmentnemployment.htm 2

This graph shows the employment rate in the automobile sector, and we can see that there has been an
overall positive growth in employment. This tells us that the automobile industry has been growing and
providing more job opportunities to the public, which will help develop our local economy and increase our
GDP. We conclude that the automobile industry is an important part towards employment, and the continual
growth will create more jobs, and help bring stability to the economy.
Conclusion
The Pakistan Automobile industry has had its up’s and down’s, however overall we can see that there
has been positive development in this sector. There has been a positive growth in all parts of this industry, from
production and sales, to employment levels. The automobile sector is an important one for our countries future,
with positive reinforcement from the government through policies and regulations; it can help boost our
automobile industry towards an important and leading role in our economy. According to a study by the World
Bank, the ratio for cars to population is one is to one thousand. There is one vehicle for every thousand people
in Pakistan; this alone shows the potential opportunity for growth in this particular industry. We believe that
even though there has been positive growth, the growth rate itself could be better, and development can be
faster. The automobile industry is important because it will not only create more jobs, it will help develop other
supporting industries as well.

Policy Recommendation
The first major policy that was implemented was the Deletion Policy, finalized in 1996. The core aspects
of this policy were local manufacturing protection. There were high import taxes on foreign cars, and low taxes
on manufacturing equipment. The deletion policy gave a boost to the growth in the automobile industry, which
was later replaced by the Tariff Based System and the Auto Industry Development Program, which gave the
auto sector less protection from foreign competition. However the competition did bring about more efficiency,
and protection for the final customers.

We see the automobile industry as a very important sector for the Pakistan economy; our research has
shown that there is potential growth, and a domestic market that could be developed and catered to. After
talking to some members of Toyota Indus Motors, we came up with the following recommendations which
should be implemented in a policy to help develop our Automobile Industry.

We need more government involvement, to help protect our domestic manufacturers as they do not have
the capacity, to compete with international companies importing their vehicles.

They should increase taxes on the import of cars, spare parts, and any other accessories which may be
manufactured over here.

They should decrease import taxes on machinery, and create incentives for business men to start new
factories in support of the automobile industry, such as vendors for spare parts, engineering sector for
development of machinery, and advanced technological capabilities.

They should allow multiple vendors to supply to the domestic market for spare parts, to create local
competition, which will protect the customers by avoiding a monopoly, and ban the import on such spare parts,
other than those imported by the vendors themselves.

There needs to be a mixed economy created where public and private help each other in boosting the
economy. We have seen that there is positive growth, and opportunity in Pakistan, now it’s time for investors
and the public sector to capitalize on these prospects.
Appendix
Contribution to National Exchequer
Pak Honda
Suzuki Indus Atlas Dewan
Motor Motor Cars Farooque Atlas
Company Company (Pakistan) Motors Honda
Ltd Ltd Ltd Ltd Ltd
2000-01 2,446 3,106 1,540 1,079 1318
2001-02 1,126 3,440 2,300 1,236 1508.39
2002-03 4,029 5,776 1,713 1,423 1962.75
2003-04 6,286 8,303 3,782 1,737 3,183.67
2004-05 8,473 10,098 6,371 2,542 4,514.17
2005-06 12,224 12,474 8,481 2,433 5,034.16
2006-07 16,318 13,791 6,213 2,074 4,294.35
2007-08 16,838 14,478 4,958 1,617 4,310.56
2008-09 13,286 14,144 6,452 500 2,922.07
2009-10 8,461 20,524 6,316 301 5,441.70

Production and Sale of Cars


PRODUCTION SALES This has a slope of 10651.15 which shows that the car
manufactures have had a positive growth rate of over
2000-01 41,556 40,310
10500 cars per year for the last ten years*
2001-02 42,679 44,378
2002-03 66,432 66,315
2003-04 103,662 101,848
2004-05 133,722 134,550
2005-06 170,487 165,965
2006-07 176,016 180,834
2007-08 164,710 164,650
2008-09 84,308 82,844
2009-10 121,647 123,957
Production and Sale of Buses
PRODUCTION SALES The data has a Slope of -73.32 which shows us that the
production of buses has decreased over the last decade at a rate
2000-01 912 925
of 74 buses per year.*
2001-02 1,134 1,208
2002-03 1,929 1,883
2003-04 2,022 1,868
2004-05 3,204 3,345
2005-06 4,518 4,273
2006-07 4,410 4,293
2007-08 4,993 5,350
2008-09 3,135 3,136
2009-10 3,425 3,620

Production and Sale of Farm Tractors


Has an Average Slope of 4901.018 Which means that at an
PRODUCTION SALES
average over the last ten years production and sales have
2000-01 31,635 31,121 increased by 4900 tractors per year*
2001-02 23,801 24,001
2002-03 26,240 26,832
2003-04 35,770 35,900
2004-05 43,200 43,578
2005-06 48,887 48,802
2006-07 54,098 54,052
2007-08 53,256 53,203
2008-09 59,968 60,351
2009-10 71,607 71,512
Production and Sale of Motorcycle
PRODUCTION SALES The motorcycle manufacturers have had the largest growth, with a
growth rate of over 69,000 motorcycles per year. This is the highest
2000-01 108,850 108,649
growth rate out of all automobile manufacturing. It shows the
2001-02 120,627 120,113 potential and demand for motorcycles in Pakistan*
2002-03 175,169 171,873
2003-04 303,383 301,656
2004-05 416,189 417,066
2005-06 520,124 516,640
2006-07 467,267 467,353
2007-08 660,593 662,573
2008-09 509,054 507,924
2009-10 736,861 737,759

*All the above data was collected from PAMA Historical data.
References
Primary Sources:
Mr. Khalid Latif Aslam Senior Manager Toyota Indus Motors
Mr. Faisal M. Khan General Manager Human Resources Toyota Indus Motors

Secondary Sources:
“Pakistan Automobile Manufacturing Association (PAMA)” (2010) http://www.pama.org.pk/

“Auto Industry Development Programme (AIDP)” Ministry of Industries, Production and


Special Initiatives; Government of Pakistan (2008)
http://www.engineeringpakistan.com/EngPak1/Auto%20-
Industry%20Development%20Programme%20(AIDP).pdf

“Pakistan’s Automobile Industry in Decline” Hafsa Ahsan (2009) South Asia Online
http://southasia-online.com/back-issues/288-pakistans-auto-industry-in-decline.html

“Pakistans Economy and the role of IMF and World Bank on it” Nauman Ayubi (2007)

“Automobile industry in Pakistan: history and prospects.” Economic Review (1991)


http://www.highbeam.com/doc/1G1-10839917.html

State Bank Pakistan http://www.sbp.org.pk/