The auto sector

The automobile industry in any country is considered a vibrant sector. Normally referred to as the mother of all industries, the auto sector tends to be the backbone of the economy and steers the overall economic growth trajectory to a broader and sustainable path. Interestingly, countries with considerably small population than Pakistan have emerged as global leaders in the auto sector. Globally, governments give immense importance to the auto industry because of its forward and backward linkages in economy, employment generation and innovation rate, etc. In the German Chancellor’s words, one in seven jobs in Germany belongs to the automotive sector. Large auto markets such as the US and China gain stimulus packages to retain their economic momentum.

In Asia, Malaysia is a shining example. With a population of nearly 31.5 million, as compared to Pakistan’s 200 million, the country has a robust automobile sector. This has transformed this small country from a mere auto assembler into a car manufacturing economy. The production of motor vehicles in Malaysia in 2017 was almost 0.5 million units. It is good news that Malaysia and Pakistan have entered a joint venture and Malaysia’s Proton cars will soon be manufactured in Pakistan.

In Indonesia, which is facing similar challenges as Pakistan, the automotive industry has grown almost three-folds to around one million in the last 15 years, because the Indonesian government has provided a conducive environment for growth.

The pace of innovation and consistent technology upgradation in the global auto sector keeps it well ahead in technological terms. Pakistan’s auto sector is no exception. Besides keeping up with modern developments, the sector follows internationally-acclaimed best practices to offer automobiles that cater to people’s needs. The auto sector serves many socio-economic segments of the Pakistani population.

Pakistan’s automobile policy 2016-21 offers tax incentives to new entrants in order to help them establish manufacturing units in Pakistan. Many international auto manufacturers have taken advantage of this policy and brands such as Renault, Hyundai, KIA and Volkswagen are entering the Pakistan market. There are also a number of Chinese automakers who are now showing interest to set up manufacturing units in Pakistan such as Changan, Ka Hanteng Motors, FAW (already started operations), JAC Motors, LIFAN and JW Forland, etc.

As auto-manufacturing conditions in Pakistan stand today, with every generation, the sedans produced in Pakistan have been reshaped, redesigned and re-engineered for enhanced performance and improved quality and safety standards, by employing latest manufacturing methods and technology. Due to rapid urbanization, long distance challenges and lack of access to public transport, these cars have fulfilled the necessity for family transportation in middle-income segments.

Pak Suzuki’s Mehran is the oldest product being sold in 2019. It is localized and is so far the most affordable car for the low income group. Beside its local content ratio and affordability, Suzuki is changing its entire shape in 2019. The market expects that the new Alto will have equipped with better specifications to compete with its Chinese competitors in the Pakistan market.

In contrast to general perception of the auto industry of no change in models or upgrades since its launch in Pakistan in the 1990s, Corolla has witnessed a complete overhaul in terms of its design and body shape that has changed four times since 1993. This is in addition to scores of minor model changes that have taken place and the advanced features introduced in every model.

In 1993, the Corolla was not 4-Star Euro NCAP-compliant and did not meet Euro emission standards. It did not have an airbag and immobilizer. It had a single-cam manual FI type engine, an ELR 2-point seat belt, a copper type radiator and a mechanical power steering set. The ’93 Corolla provides basic mobility solutions to middle income group. The 2019 Corolla is 4-Star Euro NCAP-compliant, meets Euro II-equivalent emission standards and has a dual-cam EFI engine, an ELR 3-point seat belt, a light-weight aluminum type radiator, a fully-electronic power steering set, an airbag, an immobilizer, larger wheel size, sophisticated injection and moulded door trim. It also has some advanced safety features.

The localization level in Corolla in 1993 was 30 percent. The current model has over 60 percent localized parts. This approach has helped local auto industry increase its technical knowhow and has provided employment to thousands.

Another general perception in Pakistan is that cars assembled locally by Toyota, Honda and Suzuki have become gradually expensive without any value addition. It has become a popular myth that prices of locally produced cars are going up. The situation is quite the opposite. The prices of cars have not increased but have been adjusted according to the depreciation of the Pakistani rupee against the dollar. Prices have, in fact, been reduced by the manufacturers but it seems as if they have increased since the PKR is depreciating in relation to the US dollar and the customer is paying more in rupee terms.

The first Toyota Corolla to roll out from IMC was the 5th generation model that became an immediate success. Since then, it has gone through a process of evolution with new models in 1993-2002, 2003-2007 and 2008-2013 and 2014 till today. In 1993, the price of Toyota Corolla was PKR 530,000 and rupee-dollar parity was PKR 27 equalizing its RSP $19,630. The current Corolla price is $14,812 (Rs 2,044,000 at forex of 139). This shows that the net price of the Corolla has witnessed a consistent decline in dollar terms. All of this was possible due to import substitution through substantial localization and technology transfer in Pakistan. The rupee devaluation not only impacts OEMs’ direct import but also raw material import by suppliers as their input cost also increases and contribute in vehicle RSP increases.

In Pakistan, OEMs such as Toyota, Honda and Suzuki, offer their employees a complete career path and regularly send their engineers, workers and vendors to Japan for advanced training and professional certification. Managing a base of 400 suppliers, the existing local supplier network reflects its 3-decade long localization efforts with steady technology and knowledge transfer to Pakistan’s developing economy.

When it comes to Honda, it constantly upgrades and adds models to its offerings. Both Civic and City models of Honda have gone through several shape changes and specification upgrades.

While both imported and local products with superior turbo engines face challenges due to the limited availability of fuel with zero Mn content and high octane fuels, it is important that Pakistan’s auto industry be patronized. It has seen considerable growth and is at par with auto industries in industrialized countries. Through localization, the auto industry has promoted the overall industrial development of the country’s industrial base. Now a long-term solution is required to stabilize the Pakistani rupee and stop its fall against the dollar. The auto sector must be assisted in reducing its exorbitant import bill because of rupee depreciation as this is affecting the auto sector’s cost-competitiveness and negatively affecting the buyer’s purchasing power.

(The writer is a communications expert and can be reached at jayeye49@gmail.com. The views expressed in this article are not necessarily those of the newspaper) 

Copyright Business Recorder, 2019