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Economic Survey
2015-16
AUTOMOTIVE INDUSTRY

For the last three years, there has been remarkable growth in the auto
industry, except the Farm Tractors which is now, fifth year running, continued to
be in a state of turmoil. This year (9MFY16) it has registered sale volume of
22169 units which is the lowest since last fifteen years. The first great dip in the
volumes came when sales tax was imposed in 2012. A recovery from that shock
was being taken in that the government possibly, in its attempt to back the
industry, announced a tractor subsidy scheme in the budget 2015-16. The
farmers postponed their buying relying on the word of the scheme. However,
the year is almost closing the scheme is not yet in sight and the deferred buying
resulted into further production losses. In case of SUV/jeeps too, there is decline
in sales which is due to partial closure of a unit and that five years old SUVs are
still allowed to be imported which continue to pose stiff competition to locally
made SUVs.

In a scenario of dismal performance of other manufacturing sectors,

steady and significant growth in the automobile sector has been gratifying. In
case of passenger cars there has been 30 % growth year-on-year basis which is
rather turning up of latent demand duly assisted by lowest ever financing rates,
improved real incomes and better economic and security conditions. The
current year’s figures also show a boost in the sales of vans and picks ups which
were due to Apna Rozgar Scheme of Bank of Punjab. The scheme came to a
close on March 31st 2016 after running for three months and uplifting about
50000 units of vans and pickups. In case of LCVs, 68.5% growth shown herein
below is due to the increased sales of pick up during the period under the said
scheme.

During 9MFY16 the sales of locally produced Trucks have gone up by 38 %.

This is continuation of the increasing trend of previous two years when the
increase was respectively 56% and 30%, during 9MFY15 and 9MFY14. For the
steady growth in trucks, the industry owes it to certain praiseworthy measures
taken by the Government such as combination of stringent enforcement actions
and policy interventions; whereby disguised/mis-declared import of Trucks

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could be curbed. The situation would further improve with expected imposition
of age limit on import of used trucks in the forthcoming trade policy.

As would appear form the chart given below there is pleasant increase of 82% in
the production of locally manufactured Buses during 9MFY16. This has come
about due to increased uplift of buses by the transporters in Punjab where the
network of roads and their conditions are fast improving. The locally produced
buses are being offered at highly competitive prices, despite imposition of sales
tax, compared to the prices of imported buses. Besides the service and
maintenance are not the issues with the local product compared to the
imported ones.

Truly, the two/three wheeler sector has led the growth of auto sector of the
country for decades; recording a cumulative and mostly continued, since 2001.
Nevertheless, there were closures and production losses at several units,
however, the overall growth stayed at 20%. The reason for these losses and
closures rests with individual units for undertaking change in business model
(like cash to credit) or on account of stiffening of regulatory regime like
compliance of motor vehicle laws. There is latent demand and this sector would
continue to lead the growth of auto sector.

While there is no issue with new CBU imports; an undue affront to local auto
industry comes from the continued import of used vehicles in large numbers.
Used cars enjoy about 16% market share which reflect that no significant impact
on used import is in evidence despite reduction in the age limit to three years.
Similarly, in case of heavy commercial vehicles (buses and trucks) market share
enjoyed by such vehicles comes to 23.4%. Therefore, reducing the age limit
would not be worthwhile without effective checking on the misuse of the
facility. Further, there is partial exemption on the amount of duty and taxes on
used cars, under SRO 577/2005, that makes them feasible in the market vis-a-vis
locally produced cars. This implicit subsidy costs billions to the exchequer.

The table below shows comparative position of the production and sales figures
in the industry for the 9MFY16; at a glance:

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The above production and sales figures are for PAMA member companies only. These are by and
large national figures except for two/three wheelers which, in the above chart represent as much as
60% of the total production of in the country.

As would appear from the gap between the actual production, column 11, and
the installed capacity shown at column 2 above, there is idle capacity in almost
all industry sectors. This idle capacity is in agreement with the latent demand in
the country where consumption of automobiles in Pakistan is much lower than
the countries of the region. The recent spur in growth in response to some
favourable market conditions is evidence to this effect. However, it is time that
government may also wisely intervene to protect and support the investment
already in the field with appropriate incentives that their planned further
investment actualised; latent capacity indeed show up in actual growth and also
be able to face globalisation pressures. While it is so much welcome that
government has announced the ADP 2016-21, the policy initiative therein
offering outright unprecedented tariff incentives to new comers may imperil and
out price the existing industry and may end up cross purpose to the policy which
indeed is to develop the industry.

Concluded

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