Pakistan's new auto policy to boost output

Car sales in Pakistan are surging and will get a further boost as the country launches its new Auto Policy 2015-18, which will help it to expand production significantly.
Car sales overshot all records and surged to 151,134 units in FY-15, ended on June 30, from 118,102 units in FY-14, Pakistan Automotive Manufacturers Association (PAMA) said.
To top it all, the car sales spree was another record breaking 44,372 units during July-September - the first quarter of FY-16, PAMA said his weekend. It was a record 60.59 per cent higher as compared to the like quarter of FY-15 when the sale was 27,630 units. The credit for this big boost in Q1 of FY-16 goes to Toyota Corolla which alone sold 13,512 units up from 8,546 units in Q1 FY-15.
In the longer term perspective, the government has been working on a comprehensive plan to expand, modernise and diversify the production plan for the entire range of auto production.
Khawaja Mohammad Asif, Minister for Water and Power, headed the Cabinet's Auto Policy Committee, which took two years to finalise the policy.
The committee consulted all the stake holders, including the existing manufacturers, the potential new entrants, car sales groups, and importers of used cars on behalf of the millions of overseas Pakistanis. Thousands of used cars are annually imported by these Pakistanis as the government-permitted personal baggage for use of their families or for sale.
Key changes have been incorporated in the new Auto Policy. It now lays down: "If the existing players invest in green field production, they will be offered incentives at par witt the new entrants." It will also push the present assemblers to modernise, expand and start production of latest model cars, incorporating new technological innovations. The existing and the new producers will be treated equally in terms of incentives, and provision of bank credit and infrastructure facilities.
The committee has decided to allow closed units to relaunch their models. Closed assembler, for instance  M/s Ghandhara can resume production. Another proposal is to equalise customs duty on Pakistan-manufactured and imported spare parts, and to place at par after five years.
Alongside the improved, pro-car policies incentives incorporated in the new policy, auto sales are going up, driving the industry to move ahead.
Although there has been an increase in car prices, the demand did not go down, industry reports confirm. Beside the larger amount of cash the buyers now have in their own hands, the cheaper bank credit, which is currently down to 6.5 per cent from the earlier 10 per cent over the last one year, encouraged the car sales up by "at lest 10 per cent," industry and banking sources told this writer. Car financing now costs much less because "the interest rate is the lowest in 42 years," Finance Minister Ishaq Dar said.
At the ame time, the government of Punjab, under its Taxi-on-Credit Plan, assisted in the sale of Suzuki Bolan model to 23,582 taxi drivers, compared to the earlier number of 14,088. The Suzuki Ravi model sale rose to 22,815 from 12,419 cars.   
Suzuki's sale f cars other than those meant for use as taxis, also rose. Suzuki Wagon R sale tripled to 5,246 in FY-15 from 1,621 in FY-14. But Suzuki Swift dropped down 3,490 from 5,128. Suzuki Mehran sale slightly rose to 29,886 from 29,509.
But Honda Civic is facing stiff competition from Toyota Corolla's newly launched model. Honda Civic sale was down to 7,806 units in FY-15 from 9,933 in FY-14.
The Industry, market and the financial analysts, going forward, are upbeat about the surge in car production and sales. Topline Securities analyst Muhammad Tahir Saeed said: "Local car assemblers registered an excellent year on year growth of 31 per cent in FY-15 versus just one per cent in FY-14, and a compound annual growth rate (CAGR) of 5.3 per cent during the last five years - FY-11-15." Tahir attributes the higher sales of cars, and of jeeps and light commercial vehicles, to "rising consumer sector dynamics and an increase in car financing due to 42-year low interest rates in the country. Imports of use cars are still hovering around 25,000 to 30,0000 units a year. The imports make around 15 per cent of car sales market in Pakistan."
Tahir and other analysts project "a 13 per cent growth during the current FY-16. The healthy growth in the auto sector reflects increase in the per capita income, improved farmer economics and the overall recovery of the economy." The current foreign currency and trade market situation will also spur auto sector in Pakistan. The growth in production and sales in Pakistan will be helped by weak Japanese Yen against the greenback. "It will positively impact the auto sector profitability," said Tahir.
Who will gain, what? Suzuki is projected to be the biggest gainer in FY-16. A Suzuki spokesman estimates "a growth of 24 per cent to 122,617 units in FY-16."
Indus Motors which manufactures Toyota Corolla sold 56,943 units in FY-15 - the highest in it history in Pakistan, which was even more than its installed capacity of 54,800 indicating a 67 per cent growth over the previous year. "We will push through higher and further," said its spokesman.
 Tractor makers like Fiat, Massey Ferguson, Orient IMT sold 68,000 units in FY-15 - indicating a 39 per cent growth over FY-14 when it was 34 per cent. It primarily owed itself to a reduction in General Sale Tax (GST) from 16 to 10 per cent, as well as higher prices for food and farms products, the farmers have been currently receiving.
The auto sector has been exporting spare parts totalling around $20 million annually. "We wish to enhance auto parts manufacturers' capability through a series of workshops and training with  Bfz.GmbH, a German development organisation to push our exports manifold," said Mumshad Ali, senior vice-president of Pakistan Automotive Parts and Accessories Manufacturers (PAAPAM). He said: "Pakistan auto engineering industry has an export potential of nearly $10 billion annually." If PAAPAM can swing it, it will be a big source of earning foreign exchange, by large number of spare parts manufacturers from Karachi to Hyderabad, and from Faislabad to Rawalpindi-Taxila.
It shows that Pakistan's auto sector is open. It is vibrant and thriving, earning larger profits, and is attractive to all foreign and Pakistani investors and manufacturers.
Views expressed by the author are his own and do not reflect the newspaper's policy.