Local Auto Industry Will Need To Evolve In The Face Of Competition
BMI View : With the Pakistan Cabinet Division rejecting proposals to lower the age limit of imported cars, which are making strong inroads into the local market, domestic assemblers will need to improve efficiency in order to remain in business. With the upcoming elections, we see the government balancing a fine tightrope of giving consumers access to affordable cars and making sure businesses stay viable at the same time. We do not expect the government to further increase the age limit on imported vehicles as it would prefer to expose the local auto industry to competition more gradually.
While the recent Customs General Order (CGO) increased the import duty on all imported cars ranging from PKR50,000 to PKR750,000 (depending on the engine capacity of the car), the Cabinet Division of Pakistan recently rejected a proposal to reduce the age limit set for imported used cars from five years to three years. This would have benefitted local assemblers as the recent surge in local car imports has been hurting their sales. At the same time, the Pakistan government intends to stick to its deadline for the removal of a trade barrier negative list with India by December 2012, which would expose the domestic auto component sector to greater competition.
We believe the Pakistan government wants to slowly expose the local auto sector to greater foreign competition in order to make it more competitive. Under the Industry Specific Deletion Plan (ISDP) and Product Specific Deletion Plan, local assemblers were given incentives, such as low tariffs on imports of auto components, while they slowly increased the local content of their parts over time. However, despite a few decades of operations, locally assembled cars are still expensive as local content is still limited. This has made foreign imports of used cars attractive and has allowed them to compete strongly with expensive local cars.
|Nominal Value Of Pakistan Motor Vehicle Imports (USD Millions)|