Two – three wheeler Sector Summery

Background

Two-three wheeler industry can trace its roots to 1962 when Atlas Auto's Ltd started production.
Presently Two wheeler industry has installed capacity of 2.5 million. A total of 1.6 million units
were produced last year. Industry maintained a Cumulative Annual Growth Rate (CAGR) of
35% from 2001 - 2010. This growth has since tapered off. At present there are more than 100
players having certificates of production out of which 81 are engaged in activities of
manufacturing of various levels.

Present Situation

The phenomenal success story of the motorcycle sector is now facing tough time as the unfair
competition in the market has almost forced out the organized sector from the industry. The few
left in the organized sector may not be able to survive much longer if rampant practice of under
invoicing, outright smuggling and massive tax evasion is not checked.

At present the unfair competition has reached a stage where the players are using all unlawful
means to survive. The large unorganized sector after exhausting all avenues of tax evasion is
now engaged in supporting its credit circle through delaying, or in many cases, refusing
payments to the vending industry. The vendor industry is under a lot of pressure these days as
they are not being paid and a huge credit has been piled up resulting in stiffening of growth.

Motorcycle Assemblers Production Figures Slab wise Analysis 2009 ~ 2012

Years
Sr. No. Description.
2009-10 2010-11 2011-12
No. of M/C Assemblers having production > 50,000
1 5 6 6
units.
No. of M/C Assemblers having production b/w
2 0 2 2
40,000 to 50,000 units.
No. of M/C Assemblers having production b/w
3 4 3 3
30,000 to 40,000 units.
No. of M/C Assemblers having production b/w
4 4 6 5
20,000 to 30,000 units.
No. of M/C Assemblers having production b/w
5 8 5 4
10,000 to 20,000 units.
No. of M/C Assemblers having production b/w 5,000
6 10 12 10
to 10,000 units.
No. of M/C Assemblers having production <
7 34 39 43
5,000 units.
8 No. of M/C Assemblers having nil production. 6 4 8
Total M/C Assemblers in Production 71 77 81
 NOTE:

1) More than 50% of the M/C assemblers assembling/manufacturing less than 5,000 units a year.
2) Capacity Utilization of Two wheelers industry for the year 2011-12 is 60% means 40% of the capacity is
still idle.
3) To be successful two wheelers export industry, economies of scales has to be achieved in domestic
production through efficient utilization of existing production capacities by creating competition among
organized M/C assemblers only.

Tariff on Motorcycle Industry in Pakistan

Previous Tariff Tariff rates approved in ECC meeting dated:

Rates Oct 23, 2012

Custom
1 CBU 65% 57.50%
duty(%)

2 CKD in Kit (%) 15% 10%

Components for assembly of

3 Motorcycles as are listed in SRO Localized 47.5% 38.75%
693(I)/2006 dated 01-07-2006

4 Raw Material 0% 0%

5 Sub Component (%) 5% 5%

6 Components 10% 7.5%

7 Sub-Assembly (%) 20% 15%

New Entrant Policy in Motorcycle sector

In view of large number of players in this sector and availability of more than 180 models in
different CC category in the market there was never a need of a new entrant in motorcycles. In
2012 a need was felt to promote "New Technology" in this sector. This coupled with a need to
provide incentives to “New Investors” that was bringing in new technology. A policy has been
brought in through SRO 939 & 940(1)/2013 dated: October 21, 2013 based on ECC decisions
ECC-121/14/2013, dated: August 22, 2013 & ECC-129/15/2013 dated: September 07, 2013,
whereby the policy salient features are:

1. Ministry of Industries will process the cases of new entrants under this policy and make
recommendations for the approval of the ECC.
 2. "New Technology" will be defined by the Engineering Development Board (EDB) and would be
approved by the ECC on the recommendation of the committee comprising representatives from
BOI, Ministry of Commerce and chaired by Secretary Industries.
3. The News Entrants shall have incentive of importing localized CKD kit in any form at custom duty
leviable on non-localized CKD kits (10%) in any form for a period of five years subject to
localization plan. The additional custom duty leviable shall not be charged on sub components
and components imported in any kit form. The concession shall be withdrawn on parts localized
by the new entrant each year in accordance with the approved localization plan.
4. At the start of Commercial Operation by the new entrants, localization level shall be kept at a
minimum of 25% localization per annum.
5. By the end of five year, localization level shall reach a minimum of 85% at an average rate of at
least 15% per annum each for the subsequent four year.
6. The minimum investment for any New Entrant in motorcycle manufacturing industry with new
technology will be US$ 100 million as per localization plans contained in Para 3, 4 & 5 of this
notification.

So far only one player that is Yamaha Pakistan has been declared new entrant. The industry
needs time to adjust to these changes and it should not be subject to any further jolts through
further policy changes before the very recently introduced policy initiatives start bringing in the
deemed results.

Going Forward

Industry is most competitive at present tariff rates. Comparison is tariff rate of regional countries
that are major payers in two-three wheeler industry are given below:

Production
Country CBU Tariff Rates
(No's)
China 90% 27,500,000
India 100% 15,758,689

 India tariff in First Schedule continues to be 100 percent. It has been brought down to 60 percent through
an SRO.
 Para tariffs and technical barriers to trade are also strongly in place to support local manufacturing.

What Industry needs now is proper implementation of some of the best laid out legislation and
tariff structure. A long-term consistent policy will go a long way in giving impetus for future
growth.