Automobile Industry in Pakistan; Are you paying for Substandard Cars?

Automobile Industry Pakistan

Coax, Squash and Squeeze; three words that define the Pakistan’s Automobile Industry very well. After spending supercilious 0.7 million rupees on a “new” car like Mehran, a very basic version of the globally retired second generation Suzuki Alto 1984–1988, the buyer gets defective handbrake, wobbly doors, inferior rubbers and dried up bushes.

They just don’t stop here, ill-fitted window glasses and that even without mud flaps, seat covers, speakers, cassette/FM player, alloy rims and standard tires make a mockery of the unfortunate buyer. But this royal treatment with the customer is not limited to Pak Suzuki Motors Ltd, Toyota Indus, and Honda Atlas are super followers of the present custom as well.

KIA Sportage, Classic, Spectra and Ceres, Hyundai Excel, Shahzore and Santro, Chevrolet Optra, Nissan, Revo, Mazda, Subaru and many other famous brands have wrapped up and left the business in Pakistan. Thanks to the 3-Monopolists who use all means to ensure that new entrants are kicked out. Pakistan’s automotive industry, not capable of manufacturing any engine of a car is highly dependent on import. Suzuki, Honda, and Toyota spend heavily on research and development abroad, but nothing in this country for the purpose.

The real problem every new entrant faces in Pakistan is the financial strength of their local partners. None of them has ever installed manufacturing plant here, but the focus was on selling their imported automobiles. The big-3 having, sound financial strength, local advantage, and official-nexus shattered the business dreams of all the aspirants who tried to get their share from the market.

In 1955, General Motors USA set up its Chevrolet assembly plant in Karachi. The plant was first of its kind in Asia which started local selling and export as well, but in the Ayub’s dictatorship era, his sons made the business impossible for General Motors to an extent that the company sold the plant to them at a through away price of Rs. 5.6 million.

The name was then changed to Gandhara Motors which facilitated the new buyers to sell each and every part of the plant to external buyers who were interested in GM technology, and the rest was disposed of in the local scrap market. With this greed, the “royal family” in Pakistan earned 4 times the price they had invested in buying the plant. With that example set, the long story of greed and thirst of our “local partners” still continues.

In our last month article on “From a Market to Monopoly” it was explained it detail that how the government is “creating” monopolies in the telecom sector on the expense of its people, the situation is more pitiful in the automobile sector. The Big-3 (Suzuki, Toyota & Honda) are selling cars of a standard that is acceptable nowhere in the world.

On environmental and carbon emission standard, the world today is at Euro-6 while our “Big-3” at Euro II. This is an obsolete standard issued in 1996 for passenger cars. Since then Euro III (2000), Euro 4 (2005), Euro 5 (2009) and Euro 6 (2014) have been launched, but because of deep snoozing and planned facilitation of monopoly, our authorities have never uttered a single word in this regard.

KIA Sportage, Classic, Spectra and Ceres, Hyundai Excel, Shahzore and Santro, Chevrolet Optra, Nissan, Revo, Mazda, Subaru and many other famous brands have wrapped up and left the business in Pakistan.

The nitrogen oxide (NOx), carbon monoxide (CO), hydrocarbons (THC and NMHC) and particulate matter (PM) emission quantity in Euro II is 5 times higher than Euro 6, the latest standard. And about safety standards like FMVSS (101-500), JASIC, JNCAP or Euro NCAP; who cares in Pakistan?

Without airbags and necessary safety features, the Big-3 are selling all cars on one notion, “God will save us.” Big-3 can easily find a good place in Japanese, American or European jails if such cars are produced and sold there. Thanks to vigilant government, Engineering Development Board, Competition Commission and Ministry of Trade that we are no more than world junk site in this regard.

But a ray of hope has recently emerged; “Automotive Development Policy (ADP) 2016-21”. As per the Economic Coordination Committee of the Cabinet (ECC), it has formulated the policy to facilitate higher volumes of vehicle production, attract investment, ensure enhanced competition and offer high-quality automobiles in line with emerging opportunities within the country and region. The policy has been launched with a mid-term policy review mechanism to achieve car production of over 350,000 by the year 2021.

The major aim of the policy, however, is to attract new investment in the industry by lowering the entry threshold for new investment. New investment in ADP-16 is defined as, “installation of new and independent automotive assembly and manufacturing facilities by an investor for the production of vehicles of “make” not already being manufactured in Pakistan.” The policy offers all benefits to those investors who fall into the category of “make” and not “assembled.”  

One-Off Duty-Free import of machinery and plant has been allowed for assembly and manufacturing setting-up facility. 100 completely build units (CBUs) of vehicles with same variants can be imported on 50% existing duty for initial marketing after the groundbreaking of the project. New investors are also entitled to import non-localized parts of their newly marketed vehicles at 10% customs duty compared to prevailing 32.5% for 5 years.

They can also import localized parts at 25% customs duty instead of present 50% for 5 years. After this period, a single duty rate will apply or all new and current stakeholders. The policy will only facilitate new investors who invest in the automobile manufacturing category within next 7 years. 

For the revival of the sick unit, non-localized parts can be imported at 10% and localized at 25% duty for 3 years. To facilitate the new investors, Engineering Development Board (EDB) has advised the aspirants to submit a detailed business plan and relevant documents to it so that the Ministry of Industries on the recommendation of EDB may decide if they fall in the relevant category or not.

However, the policy is vague about safety standards. The formulators forgot that the major problem in the automobile industry of Pakistan is not the less number of cars being produced but that their prices do not match their variations and specifications. Their exterior and interior build are inferior and safety features absent.

Customers are dissatisfied about the marginal utility. The value of money is very high than what they get in return. The policy although discusses the issue of standards in detail but must clear the benchmarks and standards that it expects from new investors to incorporate in their production. So by this, we may open a new window of substandard vehicles in Pakistani market.

Toyota xli

It describes that the process of amendment in Motor Vehicle Rules, 1969 is difficult. The policy states, “This will require extensive and duplicated efforts by each province for studying the global practice, modification of existing rules, coordination among the provinces and the federal government, development of procedures and standards for testing and evaluation, etc.”. Formulators plan to adopt and implement appropriate UN regulations step-by-step and participate in WP-29’s IWTA (International Whole Vehicle Type Approval) and Global Technical Regulations (GTRs).

Such vague language and deferment of safety and manufacturing standards to further planning and promises would only lead to nothing. The policy should not only issue necessary manufacturing and safety standards for current manufacturers but also set higher benchmarks for new investors so that their plants and facilities soon to be installed in the country could be highly satisfactory, and a possibility of export could be sought in this sector. The whole language of Regulatory Mechanism for Quality, Safety, and Environmental Standards section of ADP-16 is based on “shall” and “will” which is disappointing and heartening.

Ahmad Nawaz Khan Tareen, President Consumer Court Lawyers Association, KPK terms it as grave negligence. “We are being ripped-off. India has Ford, Hyundai, Honda, Tata, Renault, Maruti Suzuki and whatnot. They are selling a substandard Toyota Corolla XLI (1.3L) at a price tag of $16,114 which is an awfully cropped-off edition of Corolla Europe and that even without power airbags, power windows, immobilizer and cruise control, etc. Customers have no choice.

In USA Toyota Camry is being sold for $22,205 and here they are charging $115,281 for the same car. People in our neighboring country India have the choice to buy from 146 different models; competition is tough in the automobile industry and prices are reasonable. We have 8 local assembled and 7 imported cars of Big-3. When their models are fired from the world, they launch them here. Can you tell me the difference between 2016 Mehran and 1986 Mehran?” Ahmad ended with a tough question.

There are total 21 companies in India producing cars while 6 sports/luxury/exotic brands are also importing their cars for high-end customers. Almost every international brand has launched a special edition for Indian buyers like Honda Amaze, Renault kiwi, Suzuki Dezire, Toyota Etios editions & much more. Their prices match the Indian automobile market, and their prices are similar in India and elsewhere in the world. Toyota Camry, for example, is being sold at a price of  INR 16 lac while in Pakistan it is being sold at INR 57 lac if compared in Indian currency.

Big-3 is already vocal in telling the government to revise the ADP-16 as per their whims and interests. In a recent bargaining move, Suzuki said that it had concerns over the ADP-16 and that it may damage the current investment in the Pakistan’s Automobile sector by existing players. A recent press release on the company website says, “If the incentives and benefits promised to new investors should be given to the existing players too, then we are ready for $460m investment in Pakistan.”

But that is not the only option we have. Thanks to ADP-16 that the major world manufacturers have taken practical steps to enter in the Pakistan’s Automobile Market. German giants BMV and Audi AG and French Renault are ready to jump in. Renault is investing $100 million to restart the plant set up by Ghandhara Nissan Motors in Karachi. It intends to reach a production capacity of 50,000 vehicles in two phases

Local partners including Yunus Brothers – KIA Motors and Dewan Farooque Motors have also applied to resume the production at their closed units. National Logistic Cell (NLC) is inking a partnership with MAN Truck & Bus AG; Volkswagen-owned sub-branch and several Chinese companies are also taking an interest in the establishment of the manufacturing plants in Sindh.

Nishat Group is in communication with Korean manufacturer Hyundai, another focus of this possible joint venture is an investment in Agri-Autos. Regal Automobiles Indus Ltd and TM Habib Rafiq Ltd are finalizing collaboration with Chinese automobile manufacturers PDF S Motors and Jean Van Dong respectively.

In the trucking sector, Dysin is working with leading Chinese truck makers Sinotruk truck and Ghandara Industries is in the process of collaborating with Dongfeng trucks. Volvo is also planning to market its power in the industry while Dongfeng, the world’s largest heavy truck producer has also started initial operation here.

The Big-3 (Suzuki, Toyota & Honda) are selling cars of a standard that is acceptable nowhere in the world. On environmental and carbon emission standard, the world today is at Euro-6 while our “Big-3” at Euro II

In Tires market, Kuli brothers are mixing the business interests of Ghandhara Nissan Limited (GNL) with General Tyre and Rubber (GTR). This joint investment of Rs. 500 million by GNL will give her 27.8% of the GTR shares to maintain a common directorship.

Under ADP-16, the government is also inking a Free Trade Agreement (FTA) with Thailand for the manufacturing of auto parts. Experts think that this will hurt the local auto parts industry that has hardly achieved a marginal stability in the recent years.

But is our road infrastructure ready to handle that many new vehicles?  Megacities with a current number of vehicles are suffering from hours of traffic standstills every day. Due to a huge number of vehicles on our limited capacity roads, blocked roads and unattended traffic diversions are commonly seen.

Although efforts being made but still mega cities like Karachi have no mass transit system and people are now habitual of leaving cars at home by preferring travel on motorbikes because of no way out. Motorcycle rickshaws, mini buses, and taxis are adding fuel to the fire.  

Currently, car penetration in Pakistan is 13 vehicles per thousand persons. This is way below than the 55pc regional benchmark. A country where according to a survey 60 pc of the buyers prefer to buy used cars, potential, future and business opportunities for new investors in the automobile industry are still vague.

Can we capture the moment?

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