Auto industry

Analysis of Industries in Pakistan

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Introduction
 In Pakistan, automobile components
manufacturing industry consists of mainly units
producing original components for assembly
under deletion program.
 There are three types of units which include,
original equipment manufacturers,
independent manufacturers and ancillary
industry, producing small parts and non-
automotive items.

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Cont…
 They manufacture and supply the local car
assemblers with auto parts such as pistons,
engine valves, gaskets, camshafts, shock-
absorbers, struts, steering mechanism, cylinder
head, wheel hubs, brake drums, wheels,
bumpers, instruments and instrument panels,
gears of all types, radiators, cylinder liners,
blinkers, lights, doors and door locks as well as
auto air conditioners etc.

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History
 Investment in automobile industry in Pakistan
started in the mid-50's when Kandawalla
Industries established its units for assembling
buses and trucks, the company's name was later
changed to Naya Daur Motors.
 The National Motors took the indigenization
when it came out in the 60's and was said to
have reached above 80 per cent deletion of the
Bedford lorries and trucks before it closed down.

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Cont…
 Kandawalla Motors on its part came up with 'Nishan', a
jeep copied on the pattern of Willeys Jeep of USA by the
Pakistan Army, it was said that the project was
successful but was killed before the commercial
production could begin. It may be worth mentioning here
that the same blueprint is still in use in Iran but under
their own brand name.
 The automobile industry took another turn in the early
70's when the government took over the industry and
placed it under public sector. The Pakistan Automotive
Corporation (PACO) was established in 1973 to regulate
and supervise the automotive industry in the country.

5
Cont…
 It wasn't until the early 90's that the industry could have
any private participation.

 Next in the line of indigenization came the 'Proficient', a

brainchild of a roadside mechanic, late Khalil-ur-
Rahman, in the early eighties. It was said to be
successful but lacked any patronage from any quarter
whatsoever.
 Today the automotive industry annually contributes over
Rs30 billion to GDP and pays approximately Rs8 billion
per year in the form of taxes and thereby playing a
pivotal role in the development of the economy.

6
Cont…
 Pak Suzuki Motor, the producers of Suzuki
vehicles, started commercial production in
January 1984. By early 1990s two other
Japanese car producers, Toyota and Honda, set
up auto production plants to cater to the big car
segment of the market. Today there are four
active car producers — Suzuki, Indus Motor (the
producer of range of Toyota cars and 4-by-4
trucks as well as Daihatsu Cuore cars), Honda
and Dewan Farooque, the producer of Korean
Kia cars.
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Auto Industry Today
 Pakistani automobile industry is in transition,
thanks to the increasing competition, particularly
in the small car and generally in medium car
segment, and the emergence of leasing
companies becoming extremely active during
the last 5-6 years.
 Potential car buyers in Pakistan today not only
enjoy a better choice in term of brands and
models but also in term of car leasing options
aimed at meeting personal budgets.
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Competition
 The four car producers are competing against each
other in both the small and big car segment of the
market.
 For instance, Suzuki which entirely dominated the
small car segment for over 14 years today is facing
competition not only from Daihatsu's compact Cuore
850 cc car (commercial production started March
2000) but also from Dewan Farooque Motors' Kia.
 On the other hand Suzuki's 1300 cc Baleno and
Dewan Farooque's Hyundai Santro Plus are
competing for the share of big car segment in which
Toyota in particular and Honda in general plays the
leading role. 9
Trendz
 The automobile industry in Pakistan has
achieved tremendous growth during recent
years due to friendly economic policies and of
course easy and cheap finances available in the
market.
 In Pakistan there are 6 cars/1000 persons,
which is well below the world standard of 120
cars/1000 persons. However, if local industry
reaches the 500,000 units per annum mark, it
will start giving result is the form of cost effective
local components resulting in most competitive
product prices. And that is not very far.
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SUZUKI
 Suzuki utilized just 31 per cent of its 50,000
annual plant capacity on double-shift basis.
During the half year it produced 7,676 units
compared to 10,731 units during the
corresponding period the previous year.
 The sales declined by 22 per cent — 8,640 units
were sold compared to 11,052 units in the
corresponding period the previous year.
 Suzuki's gross profit declined by 54.5 per cent
from Rs 111 m to Rs 50.5 m.

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Indus Motor
 Indus Motor's Toyota enjoyed a healthy share of
53 % in the Toyota range of vehicles and 47 per
cent in the Hilux commercial category in the year
1999-2000.
 Since the inception of its commercial production
in May 1993, Indus has sold over 50,000
vehicles till June 31 last year.
 Indus registered a healthy increase in sales
which increased to Rs 4.1 billion compared to Rs
3.4 billion in the corresponding period the
previous year .
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Cont…
 gross profit increased to Rs 255 million from Rs
215 million.
 Net profit increased to Rs 74 million from Rs
63.4 million.
 sales turnover improved with the addition of the
Daihatsu Cuore to the company's product line-
up and the overall unit sales totaled over 6,000
units in the six months period.


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Honda Atlas Cars (Pakistan)
 Honda Atlas Cars (Pakistan): production
increased by 18 per cent from 14,891 units to
17,555 units.
 The company also reported increase in its
production by 68 per cent and attributed it on
better quality, appropriate model line up at
competitive prices.
 It reported increase in sales revenue from 1.3
billion to Rs 2 billion; gross profit from Rs 164 m
to Rs 217 million.

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Dewan Farooque Motors

Dewan Farooque Motors sold 3,268 units.

The pre-tax profit totaled Rs 39.5 million
and after-tax profit was Rs 32.5 million.
The turnover was Rs 1,364 million.

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Vending Industry
 Auto parts vending industry comprises some 750
various sized industries; large, medium and small.
 It provides jobs to half a million people and Rs 20
billion investment.
 Perhaps, vending industry in Pakistan is the most
deprived industry running strictly on self-financing
basis.
 While Pakistani auto spare parts and components
have found a welcome niche in such developed
markets as Germany, Italy, UK, USA and Turkey —
both as replacement parts as well as original
components in vehicles produced there, they are
unable to fully capitalize on the local market. 16
Under-Utilization of Production
Capacity
 Indus Motors bettered its production by 1,074
units last year but managed to improve its sales
by 695 units. It showed an overall profitability but
the profit margins were narrowed — operating
profit declined by over 43 per cent; pre-tax profit
by 44 per cent; and net profit by 31 per cent.
 On the other hand, Suzuki managed to produce
just 20,404 units. Its sales also dipped to Rs 6.8
billion from almost Rs 9 billion during the same
period. Suzuki earn Rs 75 million profit last year.
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Cont…
 The under-utilization of production capacity is
also an indicator of the problems the car
producers are reeling from.
 Suzki utilized just a little over 40 per cent of its
50,000 double-shift plant capacity last year.
Indus, which expanded its production capacity
from 20,000 units to 26,000 units on two shift
basis, managed to use 43 per cent capacity last
year.

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Facts
 Today the automotive industry annually contributes over
Rs 30 billion to Pakistan's GDP and is also paying
approximately Rs 8 billion per year in the form of taxes
and thereby playing a pivotal role in the development of
Pakistan's economy.
 Presently the auto industry has the capacity to produce
120,000 cars annually on a double shift basis.
 Car manufacturers in Pakistan over the last decade have
contributed considerably towards employment
generation. Car manufacturers in Pakistan and vendors
employ around 150,000 to 200,000, people directly and
indirectly.

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Cont…
 The Original Equipment Manufacturers (OEMs)
have also been instrumental for transfer of
technology, value addition and manpower
development.
 Auto-part exports are approximately $20 million
per annum. Due to the deletion policy, cars
manufactured by OEMs now consist 50% to over
70% local components depending on the model.
 auto parts exports have been to the tune of $27
million.

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Imports
 A mere 3,000 Daewoo Chevrolets were
imported this fiscal year, a part of which has
already find their way into the local market. The
negligible import volume is just not enough to
offer any competition to make local producers .
 the total impact of 115 per cent duties and taxes
— 75 per cent duty, 15 per cent withholding tax
and 5 per cent income tax — makes it
impossible to retail the imported model at
competitive price to the buyers.
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Cont…
 Chinese motorcycles, both completely built-up as
well as locally produced, have been able to snatch a
respectable share of the market from the traditional
manufacturers of Japanese two-wheelers.
 It has forced the biggest producer Honda to cut the
prices of its 70cc and 125cc models by Rs 10,000
and Rs 5,000 respectively.
 The prospects of the import of Chinese cars is all
the more real because an estimated 4.9 million
sedans are expected to be produced in China this
year far in excess of local demand of 2.3 million.

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Cont…
 China has joint ventures with many
multinationals auto manufacturers — including
Germany's Volkswagon, American General
Motors and Ford Company and Japanese
Honda and Suzuki. South Korean Hyundai also
has plans to set up plants in China, the biggest
outside the country.
 Chinese imports may well be available in the
market in not too distant a future. As is, Chinese
Dong Feng truck, bus and LCV have already
started rolling off Sindh Engineering's assembly
line in Karachi.
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