Automobile Industry Art

ARTICLE PRESENTATION SUBMITTED TO: SIR. AFAQ ALI KHAN

BY:

Syed Owais Ali SP07-BB-0135

Topic:

Automobile Industry

Automobile scenario in Pakistan After a boom of about five years the demand of cars has slowed down by 55 percent. The highest decline was seen in the sales of 1300cc and above cars, which decreased to 1,382 units in July 2008 as compared to 4,701 in July 2007, showing a decline of 71 percent, the lowest since November 2003. A month wise analysis shows that not a single category of vehicles showed positive results. For example, besides 1300cc cars, there was a decline of 79 percent in 1,000cc cars, 33 percent in 800cc cars and in all categories of cars decline was 66 percent. Trucks sales lowered by 43 percent, buses 60 percent, LCVs/vans 26 percent, tractors 45 percent, motorcycles and rickshaws 17 percent. While total sales of auto sector was 29 percent less then the previous month, June 2008, 80,156 units down to 57,203 units in July 2008. Main reasons for this decline were policies, under which sales tax increased by one percent, to 16 percent, five percent FED and fixing WHT at 2.5 percent in current budget. Besides, inflation raised the prices to about to 21.5 percent, curtailing the demand further. Increase in oil prices, and high interest rate made the situation more difficult. Moreover, a continuous increase in steel prices, by Steel Mills, increased operating cost for automotive sector. Price of steel used by automotive sector increased by Rs 7,500 per tone in July and Rs 8,500 per tone in August making around 12 percent increase in both months. To ease the financial burden the Federal Board of Revenue (FBR) suspended 2.5 percent withholding tax till June 30, 2008. The tax is now again restored and is being charged at the time of registration of locally manufactured cars. The Engineering Development Board (EDB) proposed total withdrawal of this tax to curb declining demand of vehicles. The auto industry demanded that not only tax exemption should further be extended but also one percent federal excise duty on purchase of locally produced vehicles be removed. The industry representatives say that levying taxes is actually a deviation from the agreement of Auto Industry Development

Programme (AIDP). In 2006, the government had approved a policy package as AIDP, which included a pre-announced tariff for five years. Now a 2.5 percent WHT along with 1 percent FED abruptly imposed, which was nowhere mentioned in the AIDP. This has affected the sales of all assemblers in the shape of negative growth during the first nine months of 2008. The auto industry is one of the important industrial sectors of Pakistan. It is providing direct jobs to more than 500,000 people and also contributing huge amount to the national exchequer. Therefore, it is encouraging to note that in spite of alarming law and order situation, high inflation and high interest rates, an Italian auto manufacture of bikes has shown interest to invest in Pakistan. A European company, Piaggio, has signed a Memorandum of Understanding (MoU) with a local entrepreneur to produce 125cc EuroII motorcycles in Pakistan, challenging the duopoly of Japanese and Chinese bike manufacturers. Piaggio is one of the leading motorcycle manufacturers in the world and the first two-wheeler scooter, Vespa, was introduced by it. Under the agreement, HKF Engineering will launch its first joint product Ravi Piaggio 125cc motorcycle, the first Euro-II motorcycle in Pakistan, followed by many other products. The motorcycle industry had registered a 25 percent growth during the last five years. Pakistan is basically an agricultural country and tractors and agricultural equipments have special importance in modernization of farming. The tractor sale in 1999 was about 20,000 units which are now about 70,000 units per annum. At present two companies is producing tractor. The production capacity of each company is 15,000 tractors per annum. About 49,500 units against the demand of 77,261 units were delivered in 2007. Approximately 35,000 units were to be delivered, which were booked with 100 percent advance payment and the farmers have to wait for at least eight to 16 months to get the supply. The local companies were allowed to import CBU tractors to fill the gap in demand and supply with the condition that they would establish tractor plant to manufacture tractors in Pakistan. They have not only failed to meet this goal, but raising prices of their products every now and then. For instance, ex-factory price of MF 240 50 HP was Rs 320,000 in 2007 that was increased to Rs 419,000 in 2008, showing an increase of 31 percent.

The Dewan Autos has asked the EDB to verify lists of importable components so that it could start production of the new tractor, namely Dewan Tumosan Tractor DT-550, 55HP. The company has established a manufacturing plant with a capacity to produce 9,000 tractors per annum. Millat Tractors Limited (MTL) has also submitted lists of EURO-II- parts for tractors for allowing import of the same at zero-rated duty. The Suzuki car prices increased by Rs 15, 000 to 30,000 in cars and LCVs Rs 40, 000 to 50,000 in petrol and CNG version, blaming depreciation of the rupee against the dollar, and price hike of raw materials in the international market, which has enhanced the cost of production. The Pak Suzuki had increased prices first on February 1 from Rs 5,000 to 20,000 and second on April 1 from Rs 10,000 to 20,000. Indus Motors has also raised the price of its vehicles by Rs 20, 000 to 40,000 from June 1. This was the second increase in car prices since February 2008. Imported vehicles, like Jimny Jeep, price has also become costlier by Rs 100, 000. The company had also increased prices on February 23 from Rs 10,000 to 20,000 and on March 10 also. Japan Toyota Company has increased prices every year. For example, the price of XLI 1,300cc was Rs 879,000 in 2006, Rs 893,000 in 2007, and Rs 910,000 in March 2008 that increased to Rs 925,000 in April 2008 and further increased to Rs 940,000 in June 2008. As the deadline is approaching for the replacement of two-stroke to four stroke polluting free rickshaws, the government is trying to come up with workable options with the operators. But the rickshaws owners are not fully cooperating and demanding that government should give rickshaws free of cost. The government said it will give them Rs2 billion to convert present rickshaw into four stroke engines. Earlier, Sindh minister for transport had proposed to the PPP Cochairman that the government should pay Rs 30,000 each to rickshaw owners on a non-refundable basis because they are too poor to payback loans. Transporters maintained that they never demanded any nonrefundable financial assistance from the government. They said that the government should allow rickshaw owners to acquire CNG engines and assemble them on their own. The union has already presented a locally assembled four-stroke CNG auto rickshaw for government

approval. They demanded that the government may arrange loans from banks on easy terms and without interest. The Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) have criticized giving permission to import 10 years old CNG buses from India in the Trade Policy 2008-09. They said Pakistan would become a junkyard of used vehicles because after five years of use in public transport, the buses lost their efficiency and after 10 years they are outlived their utility. Japanese and Chinese bike assemblers have again increased prices blaming the rupee depreciation against various currencies coupled with rising rates of sheet metal and other parts. The Japanese motorcycles price has increased to Rs 52, 990, including Rs 900 to be paid by the customer on account of PSQCA, registration and transportation cost. In April its price was Rs 50, 890 and in March Rs 49, 900. Similarly, the CG-125 standard is now priced at Rs 72, 990 from Rs 70, 900 in April. In March it was selling at Rs 69, 900. Motorcycle prices have been increased on an average of Rs 1,550 per unit. Chinese bike assemblers raised the price twice since April, while the Japanese makers enhanced the price three times, twice in May and once in April. It is to be noted that with the entry of Chinese bikes in the local market, few years back, forced the Japanese assemblers to reduce their prices to keep their market share intact that benefited consumers. Source: http://thepost.com.pk (8/31/2008)