Automobile

Industry Analysis 2018/2019 in Pakistan

  AUTOMOBILE INDUSTRY

An industry that produces automobiles and other gasoline powered vehicles, such as buses,
trucks, and motorcycles.

 INTRODUCTION

Started in Pakistan when the first automobile plant was set up in May 1949 by General Motor
& Sales Co

According to Ministry of Industries, Pakistan produced its first vehicle in 1953, at the National
Motors Limited

Manufacturers from the US collaborated with Pakistani businessmen to set up; Ali Automobiles
to manufacture Ford Products in 1955

The end of the seventies all automobile assembly in Pakistan stopped, until 1983 when Pak
Suzuki started manufacturing their vehicles in Pakistan.

The Industry highly regulated in early 1990’s

Further Toyota Indus Motors was set up in 1990, followed by Honda • Key driving sector of the
economy

Motorcycle production hit the country's record level of over 1.5 million units in 2010-2011.
Car industry saw boom in 2006-2007 when sales touched record peak of 180,834
  MARKET STRUCTURE

The market structure of the automobile industry in Pakistan is concentrated. In economics

term, we could say its an oligopoly, which is characterized by imperfect competition in which
the industry is dominated by a small number of suppliers. This is because the auto industry is
highly capital-intensive requiring high investments and the products are expensive

Moreover, the market can also be categorized as price-oriented. As cars are luxury items,
especially in developing countries (Pakistan being one of them), the demand for them is elastic.
Any prices change affects the sales of the company to a great extent.
 Analysis Of the Industry

 MAJOR ASSEMBLERS

• Indus Motors

• Pakistan Suzuki

• Honda Atlas

• Ghandhara Nissan Ltd.

  MAJOR PLAYERS IN THE MARKET

There are some automobile companies listed on the Karachi Stock Exchange under the sector of
Auto & Allied. The car industry in Pakistan primarily comprises of four players, all of which are
Japanese.

 Indus Motor Company Ltd

 Pak Suzuki Motor Company Ltd
 Honda Atlas Cars Ltd.
 Ghandhara Nissan Ltd.
 Amongst these, the first players comprise the major position in the market.
 Naya daur Motors are the manufacturers of Kia.
 The market for Buses and trucks include Hino-Pak Motor,
 National Motor, Ghandhara Nissan Diesal etc.
 The tractors market comprises of Al-Ghazi Tractors, Millat Tractors.

A brief profile of the five major players is given as under:

 NDUS MOTOR COMPANY LIMITED

Indus motors is a joint venture amongst the house of Habib (50% equity), Toyota Motor
company (12.5%) and Toyota Tsusho Corporation (12.5%) initiated in December 1989 for the
assembling, progressive manufacturing and marketing of Toyota vehicles in Pakistan. IMC is
also the sole distributor of Toyota vehicles in Pakistan. The company started commercial
production in May 1993.

 PAK SUZUKI MOTOR COMPANY LIMITED

This company was the first passenger car manufacturer in the industry. It was formed in
August 1983 as a joint venture between Pakistan Automobile Corporation Limited (PAC O) and
Suzuki Motor Corporation (SMC)-Japan. The former party represents the Government of
Pakistan. The company started commercial production in 1984. The company was privatized in
September 1992 and SMC progressively increased its equity to 72.8% by acquiring the stake of
PACO.

The company today is the largest player in the industry wit over 50% market share and a
virtual monopoly in the fastest growing small car market. it represents 47& of the total
installed capacity in the passenger cars segment.

 HONDA ATLAS CARS LIMITED

Honda Atlas stepped into the Pakistani market in November 1992 as a joint venture between
Honda Motor Company, Japan, and Atlas Group of Companies, Pakistan. Commercial
production started from July 1994.

 GHANDHARA NISSAN LIMITED

Ghandhara Nissan was established as a private limited company in August 1981 to import and
market Nissan vehicles in Pakistan. It also has been marketing Nissan Diesel Trucks assembled
in the country. It was converted into a public limited company in May 1992 to undertake
production of Nissan vehicles. The company has a very low market share and its products are
not doing so well in the Pakistani market. The reasons to which this state is attributed include
lack of financial resources, internal strife in the company, and restructuring efforts. To handle
this situation the company is considering to have their loans converted into equity, or to sell the
stakes to a new group so that outstanding loans could be paid or rescheduled. The problems of
Nissan are further aggravated by stiff competition from the large car market covered mainly by
Toyota and Honda.
  NATIONAL MOTORS

This company was established in Karachi by General Motor Overseas Distribution Corporation
of USA. In 1953 Lt. Gen. (Rtd.) M. Habibullah Khan Khattak acquired these facilities from
General Motors and renamed it Ghandhara industries Ltd.

The Government of Pakisan nationalized Ghandhara industries in 1972 and renamed it

National Motors. In 1992, M/s. Bibojee Services (Pvt.) Ltd. acquired it under the Privatization
Policy of the Government. The major business activities of the company comprise of progressive
manufacture, assembly and marketing of Isuzu truck and bus chassis.

Rising Car Prices Will Have a Negative

Affect on the Automobile Industry
Since December 2017, automakers operating in Pakistan have revised their product prices four
to five times already with an increase of up to 200,000 on each local assembled model. With
Pak Rupee now hitting the record low, auto consumers of Pakistan are going to be hit by
another price revision quite likely in near future.
This price increase will be based on the parts, components as well as CBUs that are currently
being imported as the car assemblers won’t bear the added cost, thus the price affect will be
transferred directly to the consumers.

Related:  Car Sales Fall for Second Consecutive Month on Tax-Related Curbs

This will surely affect the growth of the auto industry which is already suffering low sales for
the last couple of months. This is for the first time since fiscal year 2015, that auto industry
reported a decline in sales.

The downfall in sales is due to the restrictions on income tax non-filers, that are barred from
purchasing new automobiles as announced by the Government of Pakistan in the Federal
Budget 2018-19.
More than 60% of car buyers in Pakistan are said to be non-filers. This move dented the
industry which is currently being joined by new investors courtesy Auto Policy 2016-21. The
downfall in sales is a major concern for existing as well as new automakers emerging in the
scenario.

Related:  Non-Filers Cannot Buy New Cars and Property

Various automakers have shown anxiety foreseeing a tough future environment in the auto
sector. According to Khalid Mushtaq Motors CEO, Mr Anwar Iqbal, fears loom in case non-
filers are permanently put on hold to buy cars and other vehicles as it will cut the market size
due to possible reduced sales and create problems to achieve sales target.

      “I fail to understand why the government is specifically targeting the auto

industry to improve tax net.”
Another official from a major new entrant, on the condition of anonymity, said so far there is
no immediate issue for a new player but definitely non-filer restriction will cast shadow on the
sales and growth of the industry.
According to Pak Suzuki spokesperson Shafiq Ahmed Sheikh:

“Putting a complete ban on non-filer to buy car is not the solution. Our advance
booking of Suzuki vehicles up to 1,000cc fell by 42% during July to mid-September
period due to ban on non-filer to purchase cars.”
Related:  Automakers Have Mixed Opinion Regarding the Ban on Non-Filers

Director General PAMA (Pakistan Automobile Manufacturers Association) Abdul Waheed Khan
said there was a commitment under the Auto Policy 2016-21 that tariff and policy measures
would remain unchanged for five years.

      “So there is no chance of any midway change in the already approved policy
unless discussed and agreed by the auto sector stakeholders. Any change in the
policy is a clear violation for the new and existing investors.”
Now with the dollar reaching this high, and the car prices to be revised again, newcomers will
be facing a major jolt as the current situation will totter their plans and pricing strategies quite
badly.
The already established names will face some downfall in sales but overall they will still be in a
better position in the market, however the upcoming price increase will affect the automakers
which are yet to plant their feet properly. Furthermore, most newcomers will be reportedly
delaying their vehicle launches hoping for the situation to get better.

Industry analysts believe that low booking of vehicles coupled with increase in car prices will
have a huge impact on the automobile industry resulting in a significant sales drop by the end
of this year.