AUTOMOBILE INDUSTRY

Ali Feroz – 06886
Muhammad Mustafa Sarwar - 07428
Abdur Rehman- 06848
Haseeb Ahmad- 07112
Ahmed Javed – 06869
Shehryar Waqas Malik -06873

AGENDA FOR TODAY
Historical Analysis of the economy of Pakistan
 Historical Analysis of the Automobile industry
 Current Scenario of the economy of Pakistan
 Current Scenario of the Automobile industry
 Porter’s Diamond model
 Recommendations and Conlusions
 Q/A

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Analysis of Pakistani Industries

ECONOMY OF PAKISTAN
AND TREND OVER THE
YEARS OF MACROECONOMIC VARIABLES

ACCORDING TO THE ARTICLE PUBLISHED BY DR ISHRAT HUSSAIN (ECONOMY OF PAKISTAN: AN OVERVIEW), THE SALIENT FEATURES OF PAKISTAN’S ECONOMIC HISTORY ARE:

Analysis of Pakistani
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• Pakistan is self-sufficient in most food production.
• Per capita incomes have expanded more than
six-fold in US Dollar terms.
• Pakistan has emerged as one of the leading and
successful producers of cotton and cotton textiles.
• Pakistan has developed a highly diversified base
of manufactured products for domestic and world
markets.
• Physical infrastructure network has expanded
with a vast network of gas, power, roads and
highways, ports and telecommunication facilities

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PAKISTAN’S GDP OVER THE YEARS

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GDP GROWTH RATE

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GDP PER CAPITA

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UNEMPLOYMENT

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RATE OF INFLATION

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BALANCE OF TRADE

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FOREIGN DEBT

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HISTORICAL ANALYSIS OF
AUTOMOBILE INDUSTRY

INDUSTRY ANALYSIS
Manufacturing sector takes up to 18.5% of
total GDP.
 Growth in GDP from 2000 to 2010 by 8.5%
 The automobile industry is considered to be a
fast growing industry within the
manufacturing sector.
 In the 2010 survey, the automobile industry
contributed to 5.3% of the manufacturing
sector.
 Increase in production of 44.1% for
passenger cars, 19% for tractors and 50.5%
for motorcycles

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POSITIONING IN THE NATIONAL
ECONOMY
Automobile industry is dominated by the parts
manufacturing sector.
 Highest assembled products are motorcycles.
 Cars and tractors constitute to less than 20% of the
assemblers.
 In 2005 employment within the automobile sector was
comparatively low
 2014: 1.5 million people are employed in this sector
including car dealers.
 More than 82 assembly companies have been
established and almost 2,000 manufacturing plants
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exist within Pakistan.

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DEVELOPMENT HISTORY OF THE
AUTOMOBILE INDUSTRY
Divided into four different eras:
1949 to 1971:
 Emergence of the production of Bedford
Trucks in 1949 by General Motors.
 Establishment of National Motors Limited,
with the support of General Motors, the first
assembly plant was established in Lahore.
 Introduction of commercial vehicles
 Confidence in the industry was at a high with
a positive response.

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Production of parts soon followed but majority of
them were still imported due to limited
knowledge.
 Non-mechanical parts such as seats and
upholstery were produced locally.
 In 1972 Automobile industry was nationalized
and combined to form the Pakistan Automotive
Corporation (PACO)
 They began the production of all sorts of parts,
and assembly of vehicles.
 Huge drop in investor confidence, with many
businessmen highly against the policies.
Inefficiency grew following obsolete procedures

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1980 was the re-emergence of the automobile
industry.

Encourage private individuals to reinvest

Highlight of this time was the production of
tractors

Locally produced tractors constituted of
92% of total tractors used at the time.

Introduction of Pak Suzuki motors

In the early 90's other international brands
followed suite; Toyota, Honda, Hyundai, GM
entered the Pakistani platform

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Many new part manufacturing firms were
created, and the government encouraged the
growth
Real emergence of the automobile industry
came after 1991
 Pakistan Automotive Corporation began to
privatise its holdings.
 1992 Suzuki took the first step in acquiring
majority share of Pak-Suzuki Motors.
 Joint venture between Habib Group and
Toyota Corporation in 1993, formed the basis
of the Indus Motor Company.

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Success of Honda Atlas Cars Pakistan Limited
Current analysis
 Pakistan was amongst some of the first few
countries to enter into the automotive industry.
 Due to its turbulent past many countries have
surpassed our local industry
 The industry is characterized by its ability to
fully produce trucks, buses, rickshaws and
tractors, yet due to the poverty levels in the
country they cater to a small section of the
population
 Labour intensive production systems.

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Producing cars of a lower quality and
standard as compared to international
companies
 Local parts manufacturers have not improved
the quality of parts that they produce that
does not fall into competition with global
producers.
 The automobile industry has fallen because
of its lack of quality control and technology,
that does not allow it to compete upon an
international level.

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Pakistan is an open economy with population of more than
19 million.
Adversely effected by earthquakes, floods, terrorism acts
Oil price hike in 2007 and global financial crisis in 2009
IMF provided US$7.6 billion loan in November 2008

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CURRENT ECONOMIC
CONDITION OF PAKISTAN

ECONOMIC INDICATORS

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FOREIGN TRADE

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PRIVATE
INVESTMENT

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FOREIGN DIRECT INVESTMENT

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A holistic division encompasses the following
1.
Current state of Car Manufacturers
2.
Current state of Rickshaw Manufacturers
3.
Current state of Truck and Bus Manufacturers
4.
Current state of Tractor Manufacturers
5.
Current state of Two Wheeler Manufacturers

Analysis of Pakistani Industries

CURRENT STATE OF
INDUSTRY

CAR MANUFACTURERS
10 major automakers out of which 5 produce
cars namely Honda Atlas, Indus Motors, Pak
Suzuki, Ghandala Nissan and Dewan Farooq
 The Japanese companies have an
overwhelming majority

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RICKSHAW MANUFACTURERS

3 major companies
1.
3.

Around 50 smaller companies

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2.

Sazgar Engineering Works
Plum Qingi Motors
HKF Engineering Pvt Ltd

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TRUCK AND BUS MANUFACTURERS
Japanese
Isuzu
Nissan

Non Japanese
Master Motor
Corp

Japanese: 80%
share (Trucks)
74%
share(Buses)

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Hino

Sind Engineering
Sigma Motors
Two smaller local manufacturers include Afzal
Motors and Bibojee Services

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TRACTOR MANUFACTURERS

Dominated entirely by 2 firms
1.

Record Breaking production in FY 09/10

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2.

Al Ghazi
Millat Tractors Ltd

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TWO WHEELER MANUFACTURERS
More than 60 companies present
 2 Japanese companies dominate the market
 Entrance of Chinese companies captured mkt
share of Japanese companies
 Local firms include Fateh Motors Ltd, Ravi
Automobiles

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SALES TRENDS

General Trends
Total sales have increased more than 4 times
from 2096 to 9768
 Sales for every category of vehicles have grown
by at least two fold

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SALES TRENDS (PASSENGER CARS)
Total Sales
200000
180000
140000
120000
100000
80000
60000
40000
20000
0
2002/03

2003/04

2004/05

2005/06

2006/07
Total Sales

2007/08

2008/09

2009/10

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160000

Source: PAMA RESEARCH
Steady increase from 2002/03 to 2006/07. Sales incr. from 66315 to
180834. Decline in 2007/08. Sharp decline in the following year. 34
Recovery in 2009/10

SALES TRENDS (COMMERCIAL
VEHICLES)
6 types( LCVs/ Vans/ jeeps, buses, trucks,
pickups)
 LCVs vans and jeeps: Overall Fall, Rise till
2007. Sharp falls in 2007/08 and 2008/09.
Recovery in 09/10 ( Master became
monopoly after 2007)
 Pick up and Trucks: Overall Increase. Rise till
2007/08. sharp fall in 08/09. recovery in
09/10 ( Suzuki Monopoly in pick ups and Hino
mkt leader in Trucks)
 Buses: Sharp overall decline. Hino still
monopoly with 73% (previously 80 in 04/05)

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TRACTOR MANUFACTURERS
2 major companies with 100% mkt share
 Sales have grown steadily from 43578(04/05)
to 71512 (record sales)
 Both firms are operating close to capacity
 ADBP has helped boost sales greatly

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SALES TRENDS (FOUR WHEELERS)
Projected production for Four Wheelers
highlighted in AIDP
 Gaps between actual and projected output
increasing quickly (13 to 243)
 Actual < Projected each year

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IMPORTED CARS
Around 3000-4000 b/w 2000-2003
 Grew nearly 10 fold in 2006 due to loosening
govt restrictions
 Restrictions loosened further in 2007
 Restrictions tightened once again to protect
domestic industry (imports fell to about 5600
in 09/10)
 Illegal imports from Afghan Transit around
2000 cars per year

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OBSERVATIONS
Domination of Industry by Japanese
Companies
 Large inclination towards certain models
 Passenger cars mostly bought by high
income group (contrast to trends in India and
China)

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PARTS INDUSTRY
The assessed quantities of Automotive parts
suppliers working in Pakistan is at around 1,600
– 1,700 organizations, larger part of them are
occupied with generation of repair parts.
 
 PAAPAM is fundamentally composed by
producers supply parts to automakers. It has 253
formal part organizations, of which 153 are
situated in the Karachi district and 100 in the
Lahore area. The aggregate participation is
around 450 organizations including partner
individuals.

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Number of employees

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Annual Sales

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PORTER’S DIAMOND
MODEL

FACTOR CONDITIONS

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Infrastructure
 Massive expansion in road networks is expected
with collaboration with Chinese companies.
 Projects include :Karakorum Highway (RaikotIslamabad via Mansehra), Karachi- Lahore
Motorway (Multan-Sukkur section) and Gawadar
East Bay Expressway.
Labor force
 Pakistan’s population has a low literacy rate
 Labor costs own comparative advantage but
may not be as competitive interms of
productivity

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FACTOR CONDITIONS
Transfer of technological and managerial
skills will make the labor force competitive.
Technology
 Pakistan lags behind in technology, mostly in
assembly parts.
Raw materials
 Incapable of producing high quality auto
parts and mechanisms such as engine,
transmission
 57% of raw materials are imported from
Japan

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FACTOR CONDITIONS
Pakistan is changing from its basic factor
competitiveness to an early stage of
advanced factor conditions.
 Improved infrastructure, labor force,
technological advancement are key
competent factors.

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DEMAND CONDITIONS
Sales of cars over and above 1,300cc engine
category have shown upward growth over
the last five years
 Sales of smaller engine vehicles have shown
unstable growth
 Produced 303,383 motorcycles units in year
2003-04 that rose by 154% to 771,507 units
in 10 years in 2013-14 (PAMA)
 Pakistan produces over 1.8 million
motorcycles annually including all the
Chinese assemblers.

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DEMAND CONDITIONS

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The question arises that why are not car sales
following a similar trend?
 Discontinuation of Suzuki Alto and Daihatsu
Cuore models after June 2012
 The used imported cars of 1,000cc or below
engine categories have slowly taken over the
space provided by the discontinuation of
these local models
 The share of small cars (up to 1000cc) was
45% in fiscal year 2012 which jumped to 59%
in 2013 and then crossed over 72% 2014

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DEMAND CONDITIONS
There is a massive growth in the import of
1,000cc or below category cars reflecting a
tremendous opportunity
 The government should provide special
incentives, which will result in greater
volumes, and will decrease prices of these
economical vehicles.

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FIRM STRUCTURE, STRATEGY AND
RIVALRY

Divided into 5 segments
1.

3.
4.
5.

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2.

Passenger Cars
Commercial Vehicles (LCVs/Vans/Jeeps, Trucks,
Buses, Pick-ups
Two Wheelers
Tractors
Rickshaws

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FSS&R (PASSENGER CARS)

Can be classified into 3 different categories
1.
3.

Hence Suzuki with overall domination

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2.

Small Cars- monopoly for Suzuki
Medium Cars- monopoly for Suzuki
Large Cars- Dominated by Toyota and closely
followed by Honda

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FSS&R (COMMERCIAL VEHICLES)
Six types( LCVS/Vans/Jeeps, Trucks, Buses
and Pick-ups)
 LCVs/Vans/jeeps- monopoly for Master after
2007
 Trucks- Hino(56%), Nissan and Master (14%
each)
 Buses (monopoly for Hino)
 Pick-Ups (monopoly for Suzuki Ravi)

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FSS&R (TWO WHEELERS)
Most Competitive
 Intense rivalry b/w Jap (2 companies) and
Chinese (around 60) companies
 Entrance of Chinese companies saw a
massive drop in share of Japanese companies
 After massive marketing program Honda
regained a large part of its mkt share

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FSS&R (TRACTORS)
Dominated by two firms (Al- Ghazi and Millat)
 Rivalry intense b/w but restricted to them
 In 2013 OMI entered however it is v small
compared to the other two

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FSS&R (RICKSHAWS)
Moderate rivalry amongst top 3 firms
 50 smaller companies ( however too small
right now to pose substantial threat)

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RELATED AND SUPPORTING
INDUSTRIES

Four prominent industries identified
2.

3.

4.

Petroleum industry (CNG and petrol stations, other products
such as engine oil)
Automobile parts industry (low quality and limited range,
57% parts imported from japan)
Tyre Industry ( High proportion of imports, under invoiced
imports destroying local industry)
Workshops ( massive industry, lags behind in technology,
needs investment in tech)

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1.

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KEY ISSUES
Inconsistent developmental
programs/policies
 Obsolete technology and inefficient
production processes
 Lack of trained and competent managerial
staff
 Failure to meet international quality and
safety standards

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RECOMMENDATIONS
Banning imports of used cars will help
domestic automobile industry to flourish.
 Establish the strategic tariff policy for
automotive parts.
 Exploring new markets for automobiles and
automotive parts.
 Development of supplier base and stable
electricity supply.
 Government should take effective action to
increase local supply of industrial materials
used in the automotive industry .

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KEY AREAS OF FUTURE RESEACH
Investment in human capital
 Market development
 Product development
 Image problem
 Imports threat and export substitution problems

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QUESTIONS

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