The economy and automobile industry of Pakistan

INTRODUCTION

Pakistan, an impecunious and underdeveloped country, has suffered from decades of internal political disputes, low altitude of foreign investment, and a costly ongoing confrontatation with adjacent India. Pakistan is adjoining with Arabian Sea, India in East, Iran and Afganistan in the west and north borders linked with China. Pakistan has been sanctified with natural gas resourses, land and limited petroleum. Accoding to the CIA world fact book 2010, the population of the country is almost reaching 174 millions. Total area is 803940 sq km in which 778720 sq km is land and the rest is water. The total roadways in Pakistan are 11978 km in which 4300 km are paved and 7678 km are unpaved).

Economic overview:

The government has made considerable macroeconomics reforms since 2001, have generated solid macroeconomic recovery in the years of 2004-07. Poverty levels has decreased by 10% since 2001 and Islamabad has steadily raised development spending in recent years, including a 52% real increase in the budget allocation for development in fiscal year 2007.GDP growth spurred by gains in the industrial and service sectors but growth has fallen in 2008-09 due to heavy electricity short fall and employment rose in this years. Inflation rate is increasing day by day, jumping from 7.7% in 2007 to 20.8% in 2008, and 14.2% in 2009. In addition, the Pakistani rupee has depreciated since 2007 because of the political and economic instability.

The economic development of Pakistan is strongly supported by a good and well planned infrastructure especially by city governments. City government of major cities such as Karachi and Lahore are planning to make highways, motorways, expressways, overhead bridges, and other roadways to cope up with the increasing population demand.

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Fiscal year 2008-09 has been a difficult year for Pakistani’s economy. Several political and economic events, both on domestic and external front, occurred unexpectedly. These events include: distributed political conditions, and unstable law and order situation, supply shocks, soaring oil, food and commodity prices; softening of external demand. these events have adversely affected the key macroeconomic fundamentals of Pakistan during the fiscal year 2008-09.The most important aspects, however, has been the nonresponsive stance on accounts of political expediency in addressing domestic and external challenges during most part of the fiscal year, further accentuating macroeconomics difficulties. Pakistan economic growth faced a serious problem in fiscal year 2009 because of the consumer credit market, slow progress of public sector, inflation, security threat, and instability in the state and energy crisis. Additionally, no attention was given to the agriculture sector. The only good thing was the increase in remittances by 22%. Agriculture sector has also shown good results because of weather. Live stock and poultry also add to GDP as there was no viral disease this year. Industrial sector do not enter into the boom because of Shortages of energy and power. Because of security reasons the graph of investment does not take any upward move. In 2009, a Total investment in Pakistan is 18.1% of GDP. There is a marginal improvement in health and educational sectors.

Pakistan has to face many challenges in future, it includes: expanding investment in education, healthcare, and electricity production, and reducing dependence on foreign donors. Political stability require in order to cope up with these economic challenges

Automobile Revolution:

Automobile comes via the French Language, from the Greek language by combining auto [self] with mobilis (moving); meaning a vehicle that move itself, rather than being pulled or pushed by a separate animal or another vehicle. Alternative name car is believed to originate from the Latin word carrus or carrum (wheeled vehicle) or the Middle English word carre (cart) from Old North French.

From the invention of wheel about 300 BC ago, it was considered to be a great achievement of mankind in terms of mobility. But after the revolutionary invention of steam engine in 18th century, it completely turns around the life style of mankind .The combination of ‘wheel’ and ‘engine’ transform the hand and animal carried carriages into automobile.

Since the 18th century till to date, humans have used their intelligence, cleverness, and creativity to make comfortable, fastest, safest, and luxurious automobile.

Automobile Industry in Pakistan:

The Automobile industry has been a dynamic and growing industry in Pakistan for a long time, however not as much established to come in the noticeable list of the top automobile industries. Production volume has been increased in automobile industry but transfer or technology remains low. Most cars in the country run on CNG (compressed natural gas) which is more affordable than petrol in the country. Pakistan has the second highest number of CNG-powered vehicles in the world with more than 1.55 million cars and passenger buses, constituting 24% of total vehicles in Pakistan.

As of 2010, Pakistan has not been able to follow any automotive emission or safety standards. Therefore, most cars manufactured and sold in the country are not meeting any international emission standards. Many locally produced cars such as Suzuki Mehran, Suzuki Cultus, Suzuki Ravi, Suzuki Bolan, Diahatsu Cuore, etc are globally obsolete cars from the 1970s or 1980s and no other country is producing these cars except Pakistan.

The automobile industry in Pakistan can be generally classified into following sections:

Cars and Light Commercial Vehicles (LCVs).

Two and Three Wheelers.

Tractors.

Trucks and Buses.

There are just three main passenger car assemblers in the market; PakSuzuki, Indus Motors and Honda Atlas. Paksuzuki has a about absolute monopoly in the small car segment as it faces nearly no competition except the single odd Diahatsu Cuore shaped by Indus Motors. In the Subcompact Sedan segment Toyota Corolla, Honda Civic, Honda City, and the Nissan Sunny are presently the only cars in manufacture process. There are still no locally made SUV, Mid or Full sized sedans available.

List of currently assembled passenger vehicles:-

1. Suzuki Mehran

2. Suzuki Alto

3. Suzuki Cultus

4. Suzuki Ravi

5. Suzuki Bolan

6. Suzuki Liana

7. Toyota Corolla

8. Honda Civic

9. Honda City

10. Nissan Sunny

11. Diahatsu Cuore

The local auto industry is also known to charge too much to legitimate customers by collecting “premium” and selling cars at a higher price than their authorized retail amount.

After 2001, as economy was towards its boom with the market of nearly 160 millions banks started consumer financing to make their customer life easy by providing them luxurious items at feasible rates. Banks started their auto finance operation and it helped auto sector to reach at its peak point. Auto manufacturer were producing cars their maximum level. They were unable to meet the demand of the buyers. The economy was booming at that point, per capita income of the people increased as mentioned above. People have much easier access to new cars due to auto financing, which increased the demand of the cars. This was the major reason of increase in the demand of the car industry. People took benefit from the auto finance schemes introduced by the banks. It provided opportunity to the customer to have a car after paying monthly installment to their respective bank.

History of Pakistan Auto Industry:

After the independence of Pakistan in 1949, General Motors & Sales arranged the facilities for the production of Vauxhall Cars and Bedford trucks and in the same year Ali Automobile manufactured Ford Trucks. After that production of Exide Battery started in 1953.Haroon Industries manufactured Dodge Cars in 1956.Ali Automobiles introduced Ford Angela Cars, Ford Pickups, Ford Combi in the years of 1958, 1959, 1960 respectively. Allwin Engineering introduced precision auto parts in 1961.Wazir Ali Engineering manufactured Lamberate Scooter in 1962 and in the same year Kandawala Industries introduced Jeep CJ 5, 6, 7.in 1963 Hye Sons produced Mack Trucks and at the same time General Tyres &Rubber have started its production in Karachi. Rana Tractors manufactured MF Tractors in 1964 and Vespa Scooter and Rickshaw introduced by Raja Auto Cars.Jaffer Industries introduced specialized vehicle in 1965 and Mannoo Motors. After the nationalization in 1972 Pakistan Automobile Corporation (PACO) formed, after that Wazir Ali Engineering renamed by Sindh Engineering, Ali Autos renamed by Awami Autos, Haroon Industries renamed by Republic Motors, Ghandara Motors renamed by National Motors, Hye Sons renamed by Mack Trucks, Kandawala Industries renamed by Naya Daur Motors, Jaffer Industries renamed by Trailer Development Corporation, Rana Tractor renamed by Millat Tractor. Dawood Yamaha introduced Yamaha Motor Cycle in 1974 and in the same year Beta Engineering started the production of Diesel Engines. In 1976 Suzuki Motor Cycle launched by Sindh Engineering.

Saif Nadeem Kawasaki launched Kawasaki Motor Cycle in 1977 and at the same time Suzuki Jeep manufactured by Naya Daur Motors. In 1978 plastic parts introduced by SPEL. Awami motors manufactured Suzuki Pick Ups and Sindh Engineering produced Mazda Trucks in 1980. Production of auto parts also started in Pakistan in the year of 1981 by the Agriauto Industries.Auto Industry accepted the huge positive change by the production of Suzuki cars in 1982.Vendor Development & Technical Cell (VDTC) formed in 1983 and Al-Ghazi Tractor introduced by Fiat Tractors in the same year. in 1986 a new company formed I-e Hinapak Motors limited by the joint venture of PACO,AL-Futtaim,Hino Motors & TTC . In 1987 Ghandara Nissan started the production of Nissan Diesel Trucks. Pakistan Association of Auto Parts and Accessories Manufacturers started its operation in 1988. Privatization started in 1972 and Japan acquired the 40% shares of Pak Suzuki Motor Co. In 1993 Indus Motor started the production of Toyota Corrolla. Boom of auto industry started in 1994 and in this year Pakistan automotive manufacturer association (PAMA) formed, and Honda Atlas manufactured Honda Civic. In the capital city of Pakistan, Engineering Development Board inaugurated the PAP Show in 1995.

Automobile sector:

The automobile sector performs its function under the franchise and technical cooperation agreements with Japanese, European and Korean manufacturers. As the production is based on foreign joint ventures so the international standards are followed in the products.

The quality standards are:

Japan Industrial Standards (JIS).

Society Of Automotive Engineers (USA)

International Standard Organization(ISO)

Automobile industry is among the few industries which are attracting local and foreign investments even the investment climate in the industry is not good. TSociety Of Automotive Engineers, Usa, (SAE).

International Standard Organization(ISO) otal investment in Automobile sector are about 100 billion in year 2007-2008 and contribution to GDP is about 3.5% and contribution of revenue to the Government of Pakistan by the auto sector is approx Rs 65 billion .

CURRENT INVESTMENT, CONTRIBUTION TO GDP, REVENUE TO GOP

DESCRIPTION

2007-2008

Total investment,

RS 100 BILLION

contribution to GDP

3.5%

revenue to GOP

Appox. Rs 65 billion

Graphs:

automobile sector are contributing % in GDP and it is providing

(Iemployment opportunities to people. To cut the cost, changing models, fuelefficiency, enhancing user comforts are the major challenges of auto sector in today’s world.

for this reason there is a requirement for exploring the industrial complementarities in the area for superior quality, favorable overheads, fuel efficiency and striking designs. as a result, the necessity of information swap in the region is more obvious now than ever before for observing the auto industry buoyant and competitive. The goal should not be only to be aware of each other’s comparative advantage but also to discover shared complementarities as well as to erect an premature warning system on the trends in industry and changes in consumer preference to support for the challenges confronting the auto industry. Mutual discussion among the countries of the constituency for that reason assumes the ratio of an enduring necessary for regional capacity-building and preparing the countries to congregate the necessities of the new economy through research, advisory services, information broadcasting and exchange the experiences of countries, in addition to joint ventures and technology tie-ups.

Manufacturing units has been increased because of the growth in auto sector. Present production capacity of cars had increased from 80,000 cars in 2001-2002 to 250,000 units in 2010. the production of car in the country during the .car sales has been decreased to eight percent in 2007-2008 and further declined to 47 percent in 2008-2009 but automobile industry started to flourish again in 2010 but still not achieved the level of its peak year i.e.2006-07.car sales decreases because of the increase in sales prices. Prices increased due to the rise in raw material prices and depreciation in Pakistani currency. Pakistani rupee lost it value against Japanese Yen by 11 per cent during April 2009 to April 2010 and five percent against the US dollar. Government is trying to convince the car makers to lower the car prices by the change in import policy. But the government has failed to compel the car makers to reduce their prices,as they are in a position to import major high tech parts The government has failed to force carmakers to bring down prices. As the major engine and high-tech parts are still in the import lists for assembly which due to yen and rupee disturbing parity gives a reason to car assemblers to increase prices. Customers are expecting some kind of penalty from the government for local car makers. recent flood also hit the sales of cars but figures shows the mixed trends in car sales as some car makers dropped their sales while other showed the upward trend in car sales. But auto industry needs a long process to recover the slump of this industry due to the low credit availability, slower GDP growth rates and rigid liquidity. Pakistan produced a sum of 218,300 vehicles in fiscal year 2009/10 (July to end June), up 32.2% as of the fiscal year 2008/09 in which Pakistan produced 165,158 vehicles , in relation to facts from the Pakistan Automotive Manufacturers Association (PAMA). The 2009/10 manufacturing number is all-encompassing of 121,647 passenger cars, 3,425 trucks (category 1), 628 buses, 4,053 trucks (category 2), 1,172 jeeps, 15,768 pick-ups and 71,607 tractors. in the meantime, sales of new vehicles in 2009/10 reported 221,720 units, all-encompassing of 123,957 passenger cars, 3,620 trucks (category 1), 657 buses, 4,277 trucks (category 2), 1,201 jeeps, 16,496 pickups and 71,512 tractors. The total 2009/10 sales represented an increase of 36% year-on-year (y-o-y).

though despite the fact that the vehicle sales and production figures in 2009/10 may have appeared notable in percentage y-o-y terms, they were less notable when viewed adjacent to historical facts (and a very low 2008/09 base). Political chaos in Pakistan, in tandem with the global economic slump, delivered a twice whammy to car sales and production in the country above FY08/09. Sales of new vehicles in Pakistan fell 34% y-o-y during that fiscal year. The 163,479 new vehicles sold in Pakistan in 2008/09 compared very adversely with the 247,160 in fiscal year 2007/08 – and, obviously, the 2009/10 total sales figure remained significantly underneath the 2007/08 base. in the meantime production of new vehicles in FY2008/09 was down 33% y-o-y, from the 247,036 units produced in FY2007/08. The same as with sales, the year 2007/08 leftovers a soaring watermark for vehicle production in Pakistan’s car industry, as total production in 2009/10 remained almost 12% less the level of two years previous.

The production and sales facts up until now in 2010 mainly reveal the forecasts we completed for both variables last quarter. In the first six months of the calendar year, Pakistan produced an aggregate of 67,673 passenger cars (our full-year forecast is for output of 119,512 passenger cars). Sales of new passenger cars, in the meantime, registered 68,788 units in H110, compared with our full-year projection of 117,428. though an imitation of the H110 sales and production performance across H210 would effect in our present full year forecasts for both variables being surpassed, sales (and therefore production) thrust is expected to sluggish in the coming months, due to the government rising General Sales Tax (GST) from 16% to 17% in the budget. As a result, new car sales in July fell 31.6% month-on-month (m-o-m), to 9,796 units, from 14,320 units in June (consumers had swift to inclusive purchases towards the closing stages of H110, in expectancy of the increase in GST).

Auto Industry Development Plan:

Engineering Development Board (EDP) has developed an Auto Industry Development Plan (AIDP) to facilitate and encourage investment, domestic competition, enhance competitiveness and stimulate innovation through technology acquisition, human resource development, capacity expansion, auto cluster development etc. AIDP provides the targets and goals for a clear road map for the next five years. The plan also envisages the establishment of an auto industry skills development company (AISDC).Besides providing incentives against the newly installed productive assets to stimulate investments in the production capacities of auto parts manufacturing. AIDP provides for the establishments of two auto clusters, one each at Lahore and Karachi, land for which has already been acquired. AIDP also provides for auto industry investment policy(AIIP) framework to facilitate investors toward manufacturing of vehicles in the country.