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Thriving auto sector may lure foreign investment to Pakistan

Domestic car production in FY-15 recorded the highest growth compared to the five-year average of 5.3 per cent.

Pakistan's automobile production jumped 31 per cent in 2015 - the highest in the last five years - reflecting the rising demand for new cars, tractors and motorcycles assembled in Pakistan, Pakistan Automotive Manufacturers Association (Pama).
Pama said that the domestic car production in FY-15 recorded the highest growth compared to the five-year average of 5.3 per cent. It said as many as 179,953 domestically assembled cars were sold in FY-15 up from 136,888 in FY-14.
Welcoming the trend Finance Minister Ishaq Dar said: "The performance of the auto industry and expanding market should attract more foreign investment in this sector."
Minister for Commerce Ghulam Dastagir Khan is also upbeat about the rising production.
"The larger production should now target on exporting more cars and other vehicles to the neighbouring countries," he said.
Pama said tjat local sale of vehicle including light commercial vehicles (LCVs), vans and jeeps increased on the back of Toyota Corolla's new model and factors like Punjab government's scheme to provide taxis on credit and car financing facilities. The local car financing is also picking up gradually and is currently estimated at 30 per cent versus five per cent a few years ago. It is chiefly due to the lower interest rate. Financial market researcher Tahir Saeed said that the growth in auto sector indicates an increase in per capita income, improved economy.
Add to that a significant rise in the home remittances - to a record $18.454 billion in FY-15 - sent by overseas Pakistanis helped their families in buying new cars as well as importing used cars. The used car imports are currently around 25,000 to 30,000 units annually.
Imports comprise nearly 15 per cent of cars sales in Pakistan. While the volume of sales is growing, the Japanese yen has been weakening against the greenback. It is also positively impacting Pakistani auto sector profits all round and pushing imports. Various models of cars like Suzuki, assembled in Pakistan by Pak-Suzuki, Toyota, assembled by Indus Motors, and Honda, import components and spare parts from Japan.
Pak-Suzuki sales in 2015 rose to a high of 99,879 units - up 27 per cent compared to FY-14. A Pak-Suzuki spokesman estimated: "We hope our sales to rise to 30,000 - 35,000 cars in FY-16 to feed the government's credit-assisted taxi purchase scheme."
Pak-Suzuki hopes to grow 24 per cent in FY-16 to reach a production target of 122,617 cars.
"Our profitability is projected to grow 110 per cent in FY-15 itself, on the back of growth in sales volume," he said.
Indus Motors sold 56,943 cars in 2015 - the highest since the company started assembling Toyota cars in Pakistan.
Toyota's actual annual production capacity is 54,800 cars, which means that it exceeded its capacity limit. Its sale was 67 per cent higher as compared to FY-14.
Honda sales also stayed quite stable. It sold 23,622 cars in FY-15 compared to 23,674 in FY-14. Honda is invested Rs630 million in FY-15 up from Rs173 million in FY-14. Honda's tractor production grew 39 per cent in FY-15 compared to the previous year and produced 46,800 tractors. The government's reduction of sales tax from 16 to 10 per cent helped boost the sales. Tractor production and sales are projected to rise in FY-16 because government of Punjab will subsidise sale of 29,000 tractors and government of Sindh 25,000 tractors.
The just-ended FY-15 also saw Millat Tractors selling 28,711 units - up 36 per cent from FY-14. At the same time Al-Ghazi sold 17,078 tractors - up 47 per cent. Reduced sales tax and growing farmer income led to the rising sales.
However, motorcycle and three-wheeler sales were down from 75,929 in FY-14 to 71,906 in FY-15. But sale of buses and truck was a little higher at 584 units compared to 518 in FY-14.
Views expressed by the author are his own and do not reflect the newspaper's policy.