The government has been engaged in the process of finalising a new auto policy for the past six months but has not been able to come up with a document that could satisfy both the investors and consumers alike.
Pakistan’s market has room for expansion, which is reflected in figures for car sales. The country has only the capacity to produce 15 cars for every 1,000 people against the range of 80 to 750 cars for every 1,000 people in the world market.
This underlines the need to open the market for new entrants and encourage competition to stop the increase in prices and make cars affordable. Millions of people are compelled to rely on motorcycles because of high prices of small cars.
Government officials voice hope that Chinese, South Korean and European companies will pour capital into Pakistan if incentives are offered to them. Chinese auto companies are expected to lead the investors and threaten the Japanese-dominated market as they have even taken over US companies in a host of brands.
Pakistan is ranked 40th among auto-producing countries.
The Engineering Development Board (EDB) has proposed an across-the-board reduction in import duty on localised and non-localised auto parts to woo new players in a bid to break the monopoly of existing ones.
At present, the import duty on localised parts is 50% and on non-localised parts it is 32.5%. The Ministry of Industries is likely to propose 10%, 15% or 20% duty for five years for the new entrants. For the existing automakers, this duty incentive may be provided for one year to push them to introduce new brands and give a wider choice to the consumers.
The government is planning to impose age restriction of five years on the import of concrete mixers, which at present have no limit, resulting in its misuse. “It will encourage new investors to manufacture trucks locally,” an official said.
In the new policy, officials say, consumer financing may be increased for the purchase of tractors as well as cars, trucks and buses. Interest rate is also likely to be cut on financing for the farmers.
Consumer financing has been very low in the country. According to officials, banks are providing only 30% of consumer financing to the farmers. Zarai Taraqiati Bank, which earlier lent money for buying 15,000 to 20,000 tractors annually, is now releasing funds for only 5,000 tractors.
Officials suggest that removal of regulatory duty on the import of cars is being considered. It will spark competition with a reduction in prices of imported vehicles, which are of high quality and conform to international standards.
The regulatory duty had caused a sharp decline in vehicle imports, leaving consumers with no choice but to buy from the domestic industry. In 2013-14, consumers imported only 44 cars in the 1,000cc to 1,300cc category, 3,521 vehicles in the 1,301cc to 1,500cc category and 11 cars in the 1,501cc to 1,600cc category.
However, parts manufacturers are calling for a blanket ban on the import of used cars. On the other hand, the government feels that imports should not be restricted as domestic manufacturers cannot meet all demand and consumers must have a choice.
Officials point out imported cars would have to undergo a maintenance test in Japan after three years, therefore, prices come down by half. Importers, however, are seeking permission for import of up to five-year-old cars.
The government has noticed that not a single car manufacturer has been able to meet the deadline for the deletion programme even after an extension. Moreover, the assemblers are producing vehicles based on obsolete technology.
