The Largest Segments In The Global Trade Commerce Essay

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Auto Sector forms one of the largest segments in the global trade. It is drives the economic growth and business activities. Auto Industry puts multiplier impacts on the economic development. Every Global production during economic boom period of 2006 the annual production for cars and trucks stood at 50.35 million and 20.57 million [1] that were roll out of the assembly lines world over. The auto industry has come long from making a humble start in 1890s and emerging as a market leader in manufacturing activities and one of the major employment providers roughly providing jobs to one in seven people directly or indirectly [2] . Component of car was the dominant major segment in the industry. In the engineering sector, the automobile industry is quite rightly termed as the mother of all the industries [3] . Auto Industry incorporates almost every facet of the engineering such as electrical, technical or mechanical.

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Growth of the Auto market has been directly proportional to the performance of the auto industry. Changing models, improving fuel efficiency, cutting costs and enhancing user comfort without compromising quality are the most important challenges of the auto industry in a fast globalizing world. Hence there is a need for exploring the potential of the industry keeping in view the better quality, favorable costs, fuel efficiency and attractive designs.

The Pakistani auto sector has played an important role in the growth and development of the local economy in terms of revenue generation, foreign exchange, human resource development and technology transfer. According to the statistics of 2006- 07 [4] there were 82 vehicle assemblers in the industry producing passenger cars, light commercial vehicles, trucks, buses, tractors and 2/3 wheelers. Besides these there were over 600 players in the vendor industry. The Auto Sector provide employment to over 192,000 , attracted foreign investment of US$ 1.5 billion million and paid Rs. 63 billion in taxes [5] . The auto industry has played a significant role in the large scale manufacturing industry as it contributed $3.6 billion total economy besides import substitution resulting in annual foreign exchange savings of over $ 1 billion [6] .

Auto Industry in Pakistan is an emerging market for automobiles and automotive parts and offers immense business and investment opportunities. The total contribution of Auto industry to GDP in 2007 was 2.8% while Engineering Development board is actively implementing Auto Industry Development Program (AIDP) with the aim to increase the GDP share up to 5.6% and achieve auto exports target of US$ 650 million [7] . The Automobile industry has been an active and growing field in Pakistan for a long time, however not as much established to figure in the prominent list of the top automotive industries of the world. Initially to internal political instability and law and order situation and of late global economic slowdown has impacted upon the performance of Auto Industry. With the exception of Tractors where the production has gone up by 12 percent the cumulative production of all other automotive vehicles in the country such as passenger cars, jeeps, buses, trucks, light commercial vehicles and

two/three wheelers have encountered massive downturn by 30.57 percent i.e. from 616,964 to 428,335 units, during (July-March 2008-09) as compared with the corresponding period of last year [8] .

Statement of the Problem:

Auto Industry is the key driver of the economic growth in Pakistan. It has helped in development of industrial foundation, transfer of technologies, savings in foreign exchange and creation of jobs. The industry is playing a pivotal role in economic development of the country and can rightly be termed as mother of all industries and the engine of growth [9] . Until 2007, the auto industry was performing extraordinarily but due to some internal and external both political and economic factors it has slowed down and finding it difficult to recover.

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The aim of the research is to study the technological base of the industry, its capacity and capabilities. Emphasis of the study shall be on understanding and analyzing the challenges and opportunities for Pakistan. The aim is to identify and analyze the challenges and opportunities.

Hypothesis:

Auto Industry has cross-cutting impact on all the sections of the industry. It development would impact upon improving the pace of economic growth in the country.

Under this research the areas that shall be studied are a) Impact of monetary and fiscal policies and global meltdown b) Advanced technology acquisition barrier c) Under developed human capital d) Credit availability e) Volume of local content and f) Exploring export potential

Mamam

Chapter 2

An overview of Pakistan's Auto Industry:

In the global world trade the Auto Sector is one of the largest segments. It is considered as the "major driver of economic growth and business activities. It puts multiplier impacts on the economy" [10] . Every day thousands of vehicles roll off the assembly lines world over. Out of which the car form the major component.

The roots of the Auto Industry could be traced back to 1949. However, the "first vehicle that was a Bedford truck produced the National Motors Limited in 1953 at its assembly plant at Karachi. Subsequently, buses, light trucks and cars were assembled in the same plant" [11] . During its early part of the development phase the industry remained highly regulated until early 1990's. However, after deregulation major Japanese manufacturers, entered the market that brought with it some element of competition in the industry. These developments heralded entry of Japanese vehicles in Pakistan's Auto Industry, and assembly of HINO Trucks, Suzuki Cars (1984), Mazda Trucks, Toyota (1994), Honda (1994), Daihatsu was started. Korean companies also ventured into Pakistani industry with the introduction of Hyundai cars (1999) [12] . For the purpose of analyses the development of Pakistani Auto Industry in being divided into phases. Under each phase the developments that took place shall be briefly indicated.

Initial Developmental Phase 1949-69: The initial period with year-wise progress is briefly outlined below [13] :

1949: Vauxhall Cars introduced by General Motors & Sales. Bedford Trucks introduced by General Motors & Sales. Ford Trucks introduced by Ali Automobiles.

1953: Exide battery started production.

1956: Dodge Cars introduced by Haroon Industries.

1958: Ford Angela Cars introduced by Ali Automobiles.

1959: Ford Pickups introduced by Ali Automobiles.

1960: Ford Combi introduced by Ali Automobiles.

1961: Precision auto parts manufacturing started at Allwin Engineering.

1962: Lamberate Scooter introduced by Wazir Ali Engineering. Jeep CJ 5, 6, & 7 introduced by Kandawala Industries. Bedford Truck assembling started at Ghandara Motors.

1963: Mack Trucks introduced by Hye Sons. General Tyres & Rubber Company started production in Karachi.

1964: MF Tractors introduced by Rana Tractors. Vespa Scooter and Rickshaw introduced by Raja Auto Cars. Honda Motor Cycle introduced by Atlas Autos. Ghandara Industries launched Localization Plant for Bedford Trucks.

1965: Specialized Vehicles Production at Jaffer Industries.

1967: Toyota vehicles introduced by Monnoo Motors.

Second Phase 1972- 84: Under this period developments starting from nationalization of industries and deregulation took place as detailed below [14] :

1972: Nationalization, Pakistan Automobile Corporation (PACO) was formed. Ali Autos renamed Awami Autos, Wazir Ali Engineering renamed Sindh Engineering, Haroon Industries Renamed Republic Motors, Ghandara Motors renamed National Motors, Kandawala Industries renamed Naya Daur Motors, Hye Sons renamed Mack Trucks, Jaffer Industries renamed Trailer Development Corporation, Rana Tractors renamed Millat Tractors, Tractor Corporation of Pakistan formed.

1974: Yamaha Motor Cycle launched by Dawood Yamaha, Diesel Engines manufacturing started at Bela Engineering.

1976: Suzuki Motor Cycle introduced by Sindh Engineering.

1977: Kawasaki Motor Cycle introduced by Saif Nadeem Kawasaki. Suzuki Jeep introduced by Naya Daur Motors.

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1978: Plastic parts manufacturing at SPEL

1980: Suzuki Pickups introduced by Awami Autos, Mazda Truck introduced by Sindh Engineering, Project approved for production of wheel Rims at Balochistan Wheels under TAA with GKN-Sankey.

1981: Wire Harness production at Ayenbee, Production of Specialized Auto Parts at Agriauto Industries.

1982: Suzuki Cars production started by Pak Suzuki. Bolan Castings started production, Belarus Tractors introduced by Fecto Tractors

1983: Fiat Tractors introduced by Al-Ghazi Tractors, Vendor Development & Technical Cell (VDTC) formed.

Third Phase - The Preparatory Phase 1985- 05: During this phase the Auto Industry followed Deletion Programmes that were based on the formulation and implementation of compulsory local content conditions. These programmes were both Industry Specific and Product Specific. "Under these programmes annual deletion targets for each model of vehicle would be set by giving choice to assembler to choose components from the basket carrying fixed indices based on their individual values. The Engineering Development Board (EDB) was required to conduct the technical audits annually to determine the achievement or shortfall of deletion targets. In case of shortfall, the assembler would be penalized by charging the CBU rate of duty on the value of components which were not indigenized in that period" [15] . During this period following developments of the industry took place [16] .

1986: Hinopak Motors Limited formed as joint venture company between PACO, Al-Futtaim, Hino Motors & TTC.

1987: Production of Nissan Diesel Trucks by Ghandara Nissan.

1988: Pakistan Association of Auto Parts and Accessories Manufacturers (PAAPAM) formed.

1989: Second car plant sanctioned by the GoP (Indus Motor Company).

1992: Privatization of Pak Suzuki Motor Co.

1993: Production of Toyota Corolla by Indus Motor Company Limited First export of Buses and Trailers by Hinopak Motors Limited. 1994: Production of Honda Civic by Honda Atlas Cars Pak Ltd. Import of Vehicles under Yellow Cab Scheme. Pakistan Automotive Manufacturers Association (PAMA) formed.

1995: Engineering Development Board (EDB) formed First PAP Show in Islamabad.

1996: First Industry Specific Deletion Programme (ISSDP) printed for the period up to 2001.

1997: VDTC renamed AT & TC. Second PAP Show held in Lahore. Aircon Systems production starts at San pak Lahore. Production of Sohrab Motorcycle.

1998: Export of Light Commercial Vehicles by Pak Suzuki Motor Company. Saigol Quingqi starts production of motorcycles with Chinese collaboration.

1999: Dewan Farooque Motors starts production of Korean Pickup named Shahzore. Hinopak Motors Ltd. taken over by Hino Motors and TTC of Japan.

2000: 3rd PAP Show in Karachi. Raja Motors starts production of UNO Cars. Production of Daihatsu vehicles by Indus Motor Company Ltd.

2001: Molded Interiors manufacturing starts at Procon Engineering.

2002: Adam Motors launches Chinese Truck named Zabardast. Revised and updated ISDP for the period up to 2005 finalized.

2003: Sindh Engineering launches range of Chinese Trucks. Economy of the country is at Take-off stage and so is the Auto Industry. 1st PAMA AutoExpo held in Islamabad (May 12, 13, 2003).

Fourth Phase - Development Phase 2005 onwards:

5 Author: Sharfuddin Pirzada, Secretary Fiscal Research and Statistics Wing, CBR.

Industry Profile:

Automobile Industry in Pakistan5

Introduction

The automobile assembling industry claims to be playing a vital role in Pakistan's economy. Undoubtedly, with a long chain of backward and forward linkages, it mobilizes and generates diverse activities in the services sector. The upstream economic contributions and downstream impacts of the automobile industry signify its central role in gearing up the economy of a country. It is often contented that no economy can develop on modern lines without the development of its automobile industry. Many material-producing industries such as iron and steel, aluminum, plastic and rubber industries etc. rely on automotive industry purchases for a substantial share of their production. Similarly, the services sector relies on the automotive sector as a major contributor to their growth. The industry is a global phenomenon. A small number of companies with worldwide recognition are the major players around the world.

With this background, the purpose of present study is to ascertain the strength of automobile industry in Pakistan. The focus is on its growth within the existing protective barriers, its role in the development of vendor industry, its tax contribution, consumer satisfaction, and future prospects.

Historical Background

The history of automobile manufacturing in Pakistan begins from 1950 with the installation of assembly plant by international automobile company General Motors in the private sector.

(5 Author: Sharfuddin Pirzada, Secretary Fiscal Research and Statistics Wing, CBR. )

Notwithstanding the significant increase in manufacturing of various products during 1960's, the auto-manufacturing was badly hurt in 1970's due to government policy of nationalizing the industries in Pakistan. For instance, despite achieving accelerated indigenization of about 80% in the manufacturing of Bedford trucks by 1972, the assembling units almost ceased its operation during the remaining period of decade. However, from 1980 onward, especially after the privatization of automobile industrial units, a new phase of the industry started with the collaboration of local companies and foreign manufacturers in the form of joint ventures. Major joint ventures include:

i) Pak Suzuki Motor Co. with Suzuki, Japan for manufacturing Cars, Van, Jeep, Pick-up;

ii) Indus Motor Co. and Toyota & Daihatsu, Japan to manufacture Corolla & Cuore Cars.

iii) Atlas Honda Ltd with Honda Japan to manufacture Honda Cars/Motorcycle

iv) Gandhara Nissan Ltd with Nissan Japan for the production of Cars & Trucks; and

v) Dewan Farooq Motors with Kia and Hundai, Korea for manufacturing of Cars and LCVs.

The industry in Pakistan is divided into five major categories that include: Cars/ LCVs; Tractors; Buses/ Trucks; Motorcycles and three wheelers; and Vendor industry. Currently the industry consists of 67 industrial units, involved in the assembly and manufacturing business and providing sizeable employment opportunities. During the past few years, the industry has registered a magnificent growth ranging from 28% to 58%. The Car/ LCV manufacturing is placed at the center due to its major contribution in the overall value addition by the automobile sector. There are 15 manufacturing units involved in the manufacturing of cars/LCVs providing employment to about

6 Source: Engineering Development Board, Islamabad

6000 persons, with an investment of Rs. 21 billion.6 Six units are engaged in the manufacturing of tractors; two-wheelers and three-wheelers industry consist of 39 units, and for manufacturing of Buses and Trucks there are five units. All these units of automobile sector are working as a hub for vendor industry in the country spread over around 1000 units. Although, lack of automation at different levels of economy and full documentation restricts the ability to estimate the contribution of the auto sector in terms of value addition, employment, and foreign exchange savings, notwithstanding the availability of various claims, suffice is to state that the contribution is substantial and quite visible in the economy.

Capacity and Production:

The automobile sector has shown an impressive growth during the past few years (Table 1). The major factors that have contributed in this upsurge are better performance of the economy, increase in the purchasing power of the general public, continued growth in the home remittances, and easy access to the financial assistance through attractive car financing schemes. With increasing of inflation and escalation in borrowing rates, the financial assistance for purchase of cars is still available and thriving. This phenomenon may be attributed to availability of excess liquidity in the financial Sector. The higher than production demand has resulted in long queue of customers waiting for delivery of cars for a period of 4 to 8 months despite making the full payments at the time of booking. The car dealers and speculators have invested heavily on booking of variety of cars models in advance and have developed a chain of delivery from the manufacturers. It has further increased the pressure of demand. Thus, a quick delivery requires payment of 'premium', which is fast declining due to the import of cars under the latest regime change.

(Source: Engineering Development Board, Islamabad )

Table 1: Capacity and Production of Auto-Industry during Last 4 Years

Product

Capacity (Latest)

2001-02

2002-03

2003-04

2004-05

Cars

Production

153,000

40,088

62,073

98,461

126,403

Sales

41,838

61,955

97,620

127,309

Trucks

Production

24,550

1,134

1,929

2,022

3,345

Sales

1,208

1,883

1,868

3,345

Busses

Production

4,800

1,086

1,296

1,380

1,762

Sales

1,065

1,332

1,363

1,605

LCVs

Production

30,000

9,055

12,548

14,896

25,177

Sales

9,033

12,383

14,933

25,056

SUV

Production

513

820

802

414

Sales

503

814

698

425

Tractors

Production

50,000

23,801

26,240

35,770

43,200

Sales

24,001

26,832

35,900

43,578

Motorcycle

Production

807,000

120,627

165,105

303,383

416,189

Sales

120,113

161,863

301,746

417,066

Source: Engineering Development Board and PAMA.

The sharp increase in demand has resulted in higher production of automobile during the past few years. The existing manufacturers have envisaged the ambitious plans for increasing their production capacity. The following Table 2 indicates company-wise future plans of expansion in their production capacity.

Table 2: Installed Capacity of Major Car Manufacturers

with their Projections for 2012

Unit

Current Capacity

Projection for 2012

% Growth

Suzuki

80,000

250,000

212.5

Indus Motors

37,000

130,000

251.4

Honda

30,000

60,000

100.0

Dewan

15,000

48,000

220.0

Nissan

6,000

15,000

150.0

Total

168,000

503,000

199.4

Source: Engineering Development Board, Islamabad.

Vendor Industry

The vendor industry has passed through several stages of development and has achieved a level where some of the products are being exported. This verifies that efforts to improve quality and maintain quality control have started yielding dividends and therefore materializing its strength by retrieving its share from the international open market of the industry. The table indicating the major products of the auto vendor industry is given below.

Table 4: The Products of Vendor Industry in Pakistan

Domestic Use

Domestic Use and Exports

Piston

Wheel Rims & Spokes

Wheels

Timing Gears

Engine Valves

Transmission

Seat Belts

Gear Box Shafts

Gaskets

Silencer and Exhaust Pipes

Bumpers

Piston Cylinder Liners

Tyres

Engine Valves

Shock Absorbers

Hand Breaks

Rubber Trims

Radiator Cop Assy

Gears

Saddles

Radiators, Auto Air Conditioners

Seat of Motorcycles

Silencer and Exhaust Pipes

Hub & Fire Wheel

Source: Engineering Development Board, Islamabad

The technical processes available for the manufacturing of auto parts include designing, forging, casting fabrication, plastic & rubber molding, machining, mould & Die manufacturing, press work, electrical and electronic component assembly, 3-D laser scanner and CAD/ CAM.

It is important to note that vendor industry is surviving due to its cost effectiveness. After the full compliance of TRIM as per WTO arrangements, some of the local vendors have developed better

technical and production efficiencies with the collaboration of foreign companies (see Table 5 below) that have allowed them to compete within the highly competitive environment.

Table 5: Technical collaboration of Vendor Industry with

Foreign Companies

Components

Collaborating Company

Vendors in Pakistan

Shock absorbers

Showa, Kayaba Japan.

M/S Honda Atlas Ltd

M/S Agri Auto Ind.

Radiators

U.E. Radiators Japan

M/S Alwin Engg.

Toyo Radiators Japan

M/S Loads Pvt.Ltd

Car A/C

Sanden, Denso Japan

M/S Sanpak, M/S Thal Engg

Radio Cassette Player

Panasonic Thailand

M/S Automate Ind.

Lamps

Koito Japan

M/S Techno Pak

Spark Plugs

NGK Japan

M/S Shaigan Electric

Glass

NGS Japan

M/s NGS Pak

Steering Case Set

I.S.Seiseki Japan

M/S Polymer & Precision

Brake Drum Assembly

Nissin Kogyo Japan

M/S Alsons Auto Ltd

Source: Engineering Development Board, Islamabad.

Deletion Policy or Local Content Requirement (LCR)

With the objective to encourage development of a domestic component industry and consistent and sustainable technical infrastructure for manufacturing of automobile industry, the government adopted a deletion policy and imposed the condition of local content requirement. This policy not only created jobs and reduced the effect on the balance of payments of imports of vehicle parts, but also stimulated domestic technological capability more generally through spill over effect. It was further enhanced by joint ventures between local companies of the domestic component industry and transnational companies. The periodic levels of deletion for cars, LCVs, motorcycles, tractors and buses are fixed on the basis of technology levels prevalent in the engineering industry

of Pakistan. The industry-wise ISDP targets adopted for the last five years are given below.7

Table 3: Industry Specific Deletion Targets (ISDP) - Automotive Sector

Products

2001

2002

2003

2004

2005

CARS (800 CC to 1200 CC)

50-70

53-70

56-70.25

59-70.5

62-71

TRACTORS

Between 40 & up to 80 HP (2x2)

82.50

62.5-83

65-83

68-83

69-85

Above 80 HP (2x2) and (4x4)

0.00

0.00

45-65

47-66

50-67

MOTOR CYCLES (70 CC to 175 CC)

74-83

81-85

82-86.5

83-88

84-90

COMMERCIAL VEHICLES

Different Capacities

42.7-63

42.7-65

42.7-67

42.7-67

43.7-68

BUSES (30 t0 75 Passengers)

44.7-46.5

45.8-47.5

47-48.5

47-50

48-52

SPORTS UTILITY VEHICLES (SUV) 4x4

0.00

40.00

43.00

45.00

48.00

Source: Engineering Development Board, Islamabad

The latest position regarding local content level achieved in manufacturing of automobiles include 50-70% for cars, 43-88% for tractors, 84-90% for motorcycles, 50-55% for commercial vehicles and 43-52% for buses and trucks.

High Protection to Automobile Industry

The manufacturing of automobile industry has been enjoying high protection for decades in Pakistan. The long period protection was provided on the grounds that the industry being at the initial stage required due support to attain self-sufficiency in manufacturing of vehicles. However, this nourishing treatment resulted in inefficiency within the industry as well as higher cost to the consumer. The absence of competitive environment provided easy opportunities for the manufacturers to make profits and therefore, the growth in the field of R&D left far below than other parts of the world. A

(Indicative targets keeping in view that the tariff based system to be put in place at an appropriate time to ensure promotion of indigenization in line with our international commitments. )

periodical picture of customs tariff on the imports of automobile is given below (Table 6).

Table 6: Rates of Customs Duty on Imports of Automobile

Period

Cars

Buses

Tractors

1981-82

70 - 350

50

20

1991-92

100 - 435

80

10 - 20

2000-01

100 - 250

20

30

2002-03

75 - 200

20

30

2003-04

75 - 150

20

30

2004-05

50 - 100

20

10 - 30

2005-06

50 - 75

20

10 - 30

Source: Respective Customs Tariffs, CBR, Islamabad

It is evident from the above table that the undue protection remained in place in the past. The tariff rate of automobile sector remains as one of the outliers in the tariff structure of Pakistan.

Revenue Receipts

The automobile industry is contributing favorably to the exchequer in the form of taxes, especially indirect taxes. Nonetheless, the industry, as a whole, has contributed Rs. 3.8 billion in Income Tax collection during 2004-05, which was only about 2% of the total direct tax receipts. Given the rather meager amount of direct taxes, there is a need to have a detailed and in-depth review of the automotive sector so that a consistent relationship between production, sales and profitability could be developed for accurate assessment of tax liabilities. The following Table 7 highlights the income tax collection from some of the major players in the automobile industry.

In terms of indirect taxes, the automobile industry has generated significant amount of taxes in the shape of sales tax and customs duties. This has been due to substantial increase in the imports of

completely built, completely knocked down and semi-knocked down (CBU, CKD, SKD) Cars and auto parts. It is worth emphasizing that the collections of indirect taxes from the automobile sector should not be regarded as the taxes paid by the industry, as the burden of these taxes is passed on to the consumers - the typical forward shifting of indirect taxes. Nonetheless, the significance of the industry as primary generator of economic activity and taxes cannot be denied.

Table 7: Collection of Income Tax from Major Automobile Industries

Rs. in Million

Table 7: Collection of Income Tax from Major Automobile Industries

Rs. in Million

Name of Company

2001-02

2002-03

2003-04

2004-05

Pakistan Suzuki Company Limited

365.4

471.2

1426.9

845.6

VPL Ltd

265.1

526.0

657.3

788.6

Indus Motor Company

219.1

477.7

1058.2

725.2

Atlas Honda Ltd.

160.7

308.1

265.1

207.0

Hinopak Motors Ltd.

47.4

63.2

44.2

126.0

Millat Tractors

249.2

175.4

204.3

170.2

Al-Ghazi Tractors Ltd.

309.8

470.1

306.3

597.9

Sub-Total

1616.7

2491.7

3962.3

3460.5

Share (%) in Total Income Tax of Auto Industry

81.9

86.1

87.6

90.0

Source: PRAL, Islamabad

The overall collection of taxes from the automobile sector during the past four years is given below in Table 8.

Table 8: Collection of Federal Taxes from Automobile Industry

(Rs. Million)

Tax Head

2001-02

2002-03

2003-04

2004-05

Sales Tax

5,579

8,871

11,432

17,429

Customs Duty

5,528

9,370

12,826

23,585

Withholding Tax

278

564

870

1,515

Income Tax

1,973

2,893

4,521

3,846

Total

13,658

21,698

29,649

46,375

Notwithstanding the significant increase in manufacturing of various products during 1960's, the auto-manufacturing was badly hurt in 1970's due to government policy of nationalizing the industries in Pakistan. For instance, despite achieving accelerated indigenization of about 80% in the manufacturing of Bedford trucks by 1972, the assembling units almost ceased its operation during the remaining period of decade. However, from 1980 onward, especially after the privatization of automobile industrial units, a new phase of the industry started with the collaboration of local companies and foreign manufacturers in the form of joint ventures. Major joint ventures include:

i) Pak Suzuki Motor Co. with Suzuki, Japan for manufacturing Cars, Van, Jeep, Pick-up;

ii) Indus Motor Co. and Toyota & Daihatsu, Japan to manufacture Corolla & Cuore Cars.

iii) Atlas Honda Ltd with Honda Japan to manufacture Honda Cars/Motorcycle

iv) Gandhara Nissan Ltd with Nissan Japan for the production of Cars & Trucks; and

v) Dewan Farooq Motors with Kia and Hundai, Korea for manufacturing of Cars and LCVs.

The industry in Pakistan is divided into five major categories that include: Cars/ LCVs; Tractors; Buses/ Trucks; Motorcycles and three wheelers; and Vendor industry. Currently the industry consists of 67 industrial units, involved in the assembly and manufacturing business and providing sizeable employment opportunities. During the past few years, the industry has registered a magnificent growth ranging from 28% to 58%. The Car/ LCV manufacturing is placed at the center due to its major contribution in the overall value addition by the automobile sector. There are 15 manufacturing units involved in the manufacturing of cars/LCVs providing employment to about

19

6 Source: Engineering Development Board, Islamabad

6000 persons, with an investment of Rs. 21 billion.6 Six units are engaged in the manufacturing of tractors; two-wheelers and three-wheelers industry consist of 39 units, and for manufacturing of Buses and Trucks there are five units. All these units of automobile sector are working as a hub for vendor industry in the country spread over around 1000 units. Although, lack of automation at different levels of economy and full documentation restricts the ability to estimate the contribution of the auto sector in terms of value addition, employment, and foreign exchange savings, notwithstanding the availability of various claims, suffice is to state that the contribution is substantial and quite visible in the economy.

Capacity and Production:

The automobile sector has shown an impressive growth during the past few years (Table 1). The major factors that have contributed in this upsurge are better performance of the economy, increase in the purchasing power of the general public, continued growth in the home remittances, and easy access to the financial assistance through attractive car financing schemes. With increasing of inflation and escalation in borrowing rates, the financial assistance for purchase of cars is still available and thriving. This phenomenon may be attributed to availability of excess liquidity in the financial Sector. The higher than production demand has resulted in long queue of customers waiting for delivery of cars for a period of 4 to 8 months despite making the full payments at the time of booking. The car dealers and speculators have invested heavily on booking of variety of cars models in advance and have developed a chain of delivery from the manufacturers. It has further increased the pressure of demand. Thus, a quick delivery requires payment of 'premium', which is fast declining due to the import of cars under the latest regime change.

20

Table 1: Capacity and Production of Auto-Industry during Last 4 Years

Product

Capacity (Latest)

2001-02

2002-03

2003-04

2004-05

Cars

Production

153,000

40,088

62,073

98,461

126,403

Sales

41,838

61,955

97,620

127,309

Trucks

Production

24,550

1,134

1,929

2,022

3,345

Sales

1,208

1,883

1,868

3,345

Busses

Production

4,800

1,086

1,296

1,380

1,762

Sales

1,065

1,332

1,363

1,605

LCVs

Production

30,000

9,055

12,548

14,896

25,177

Sales

9,033

12,383

14,933

25,056

SUV

Production

513

820

802

414

Sales

503

814

698

425

Tractors

Production

50,000

23,801

26,240

35,770

43,200

Sales

24,001

26,832

35,900

43,578

Motorcycle

Production

807,000

120,627

165,105

303,383

416,189

Sales

120,113

161,863

301,746

417,066

Source: Engineering Development Board, Islamabad