Pakistan Auto Industry

Current Status & Future Potential

Presentation at Lahore School of Economics

March 27th, 2014

 Historical Facts
1959-72 Emergence of Pakistan’s economy at the take-off stage in Karachi
and the conditions of pre-take off stage in Lahore, as per W.W.
Rostow’s economic description of these stages. Bedford Rocket
(GM) truck was under assembly and progressive manufacture in
Karachi, while Vauxhall Victor (GM UK) car and Dodge Dart were
also assembled. Daihatsu Tri-wheeler was also assembled in
Karachi. Tankers, bowsers and trailers were assembled on Volvo and
Mack truck chassis.

1972 Nationalization saw the deterioration of the auto industry of

Pakistan

1980 Reemergence or progressive localization. A new class of automotive

vendors emerged on the national scene and through this the local
tractor was indigenized to the extent of 92 % and the truck and car
sector also saw high level of indigenization..
 Historical Facts
1983 Suzuki Motor Corporation entered into Pakistan

1990 Privatization with Millat Tractor and Al Ghazi tractor

reappearing but industry stagnant thru the next decade.
Toyota, Honda, Hyundai, GM entered. ISDP introduced

2002 Economic reforms and liberal consumer financing

2006-07 Industry touched peak productions

2007 Deletion programs eliminated, Used Cars import opened,

consumer financing reduced high markups
GLOBAL CATEGORIZATION OF THE
TRANSPORT VEHICLES

• LIGHT VEHICLE • HEAVY &

COMMERCIAL
– Car (small/medium/large)
– Pick up (medium/large) – Trucks & Trailers
– Motorcycle (two/three) – Buses (mini / luxury)
– Recreational vehicles – Tractors & other
– Specialized vehicles agricultural machinery
– Construction Equipment
– Utility Vehicles
 WHAT IS A VEHICLE MADE OF
2200 various components - apart from Hardware

FUNCTIONAL / NON FUNCTIONAL

MATERIALS AND PROCESSES
/ COSMETIC COMPONENTS
INVOLVED TO PRODUCE A
TYPICAL AUTOPART / • Trims - Plastic / seats and allied
COMPONENT • Engine Components including oil,
water pumps and gears
• Designing • Suspensions & Axles
• Mold and die manufacturing • Electrical, Electronic and allied
• Forging, Casting and machining • Brake and allied mechanisms
• Sheet metal, fabrication and press • Radiators including cooling and
work heating mechanisms
• Plastic & Rubber, moldings • Air conditioning
• Electrical OR Electronic • Add-on and accessories
• Assembly or sub assembly • Navigation devices including radar
detection

It is estimated that every 1% of a vehicle employs 100 persons if

measured right across its history chain
 PAKISTAN AUTO INDUSTRY - Today (1)
Presence of Global Auto Giants through
Investments / technical collaborations - Assemblers

Suzuki Japan Cars / LCV

Toyota Japan Cars / LCV / SUV
Honda Japan Cars / Motorcycles
Massey Ferguson UK Tractors
Fiat Italy Tractors
FAW China Trucks, Cars, LCV
Yamaha Japan Motorcycles
Hino Japan Trucks / Buses
UD Nissan Japan Trucks / Buses
Isuzu Japan Trucks
Land Rover UK Jeeps
 PAKISTAN AUTO INDUSTRY - Today (2)

Local Assemblers
Master Buses / Trucks
Non-branded versions Making body only
Motorcycle Manufacturers 42 +

Local Parts procurement :-

Cars & HCVs upto 70%.

Tractors 96%.
Motorcycles 96%.
Three Wheelers 80%.

Countries where Auto sector is Exporting

Asian Countries Autoparts, CBU’s- Cars,LCV’s, Tractors

African Countries Autoparts, Tractors
European Union Autoparts
USA Autoparts
PAKISTAN AUTO INDUSTRY – Today (3)
Autoparts makers 2870

Tier one - 670 units.

Tier two - 900 units.
Tier three - 1300 units.
Employment:-
Direct 400,000 skilled workers
Indirect 2 million
Total 2.4 million
Investment: Rs.280 billion
Revenue to national exchequer: Rs 124 billion
Import substitution: US$ 2.8 billion
Exports: US$ 700+ million
 Employment
90% of All Employment is Generated by Parts Makers

OEMs, 40,000

Vendors, 360,0
00

Category Jun-13

Total Direct Employment 400,000

Indirect Employment (1:8 - refer AIDP) 3,200,000
 STRENGTH of Pakistani Auto parts Makers

Sub contracting opportunities exist locally and globally as technologies used for
Auto parts manufacturing can also be used to make components for defense,
textile, gardening, consumer electronics and almost any other industry

– Extremely Highly Value added Business

– An established and well organized sector that is already working with world class OEM’s like
TOYOTA, HONDA, SUZUKI, MAZDA, HYUNDAI, NISSAN.
– Awareness of good management practices, costing, technology and marketing expertise.
– Investment in Plant and machinery is being made as required by the local OEM’s.
– In-depth knowledge of Parts Manufacturing attained already by the potential export company.
– Technologies Sheet metal, Forgings, Castings Machining, Rubber, Assemblies available
– Product quality is good and acceptable
– Existence of a competitive pricing edge over competitive countries.
– Willingness to work with low volume orders. In fact the industry is tuned to low volume
production runs that automatically is the necessity of Developed countries aftermarket.
– For the Tractor components worldwide only three/four manufacturers exist. Tractor parts
being produced in Pakistan have an automatic world wide acceptability unlike car parts. A
focused marketing has to be developed for this sector which has huge potential
 What items are we manufacturing
and exporting ?
• Part Of The Auto Vehicle , Rubber • Hub and Fire Wheel
• Tractors Agricultural • Saddles
• Part Of Agircultural Tractors • Parts of Cycles
• Bodies For Vechicle, Care, Wagons • Part/Accessory of Oth Veh.N.S
• Bodies For Veh Motor, Tractors • Seat Of Kind For Motor Vehicle
• Gear Boxes • Filters
• Silencers and Exhaust Pipes • Forged Machined Parts
• Parts & Accessories of Tractor • Heat Treated Steel Components
• Parts & Accessories Of Motor Vehicl • Axle, Brake Discs
• Part/Accessory of Motor Cycles • Molds (Steels)
• Wheel Rims and Spokes • Expansion Tanks
• Gear Box Shafts • Bottles / Tanks& Moldings
• Timing Gears / Transmission • Engine Valves
• Tractors Wheels Rims • Motor Cycles-Capacity Upto 50 cc
• Pistons/ Cylinder Liners • Motor Cycles-Capacity 50 cc-250 cc
• Radiators Cop Assy • Motor Cycles- / Scooter- CKd Condi
• Hand Brakes • Bicycles
 Interesting Facts …

Pakistan is part of the group of 40 Automobile

Producing Countries in the world

"Without a capital goods industry the developing

countries......cannot emerge from dependence.“
This will in fact be accentuated by industrialization.“
(UNIDO REPORT ON " GLOBAL STUDY ON THE CAPITAL GOODS INDUSTRY" PUBLISHED IN
SEPTEMBER 1981)

Pakistan graduated to EURO-II compliance in July 2013

 38 Policy interventions to an agreed AIDP
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
- RD on localized parts
increased for assemblers (SRO-
693):
a) Auto Rickshaw from 17.5% - Procedural and administrative changes in
to 30% - New Entrant Policy to SRO-655 & SRO-656.
include a manufacturer - Policy change for New Entrants of 100cc
AIDP - AIDP Launched 5 years tariff plan approved CNG Buses Duty Reduced 10% to 0% - Reduction in duties for OEMs producing 100,000 vehicles
(SRO-656) + No RD on localized parts
and above motorcycle, No RD on
localized parts for 5 years.
'- Policy change for New Entrants of motorcycles
with new technology, Localization level allowed
a) Auto Rickshaw from 32.5% for 3 years under SRO-693 at min. 25% in first year and 15% for the
to 20% subsequent four years.
b) Trailers from 15% to 5%
d) Concesionary duty on tyres
in SRO-656.

- 25% reduction in duties for CBU Hybrid

Electric Vehicle (HEV).

USED - Age of used cars

increased to 10 years - Age of used vehicles
- Age reduced to 3 years & 36%
depreciation - Depreciation rate for
motorcars reduced to 1% from
- Increased age limit from
3 to 5 years and
- Depreciation revised to 60% - CGO 13/2012 restricting 5 years to 1st
for cars and 50% for other Jan of the year, subsequent to the year of
with depreciation @ reduced to 5 years depreciation increased to

VEHICLES 2%. Max upto 50%

- Fixed duty / tax rates on old and used
cars/jeeps increased by 10%.
2% (max. upto 50%)
60%
vehicles. manufacture, till date of B/L.

- Reduction in age limit of used cars from

5 years to 3 years w.e.f. 15/12/12
- Reduction in motorcycle tariff (for a
period of one year):
- Increased duty on Steel - Fully dedicated CNG buses exempted 1) CKD from 15% to 10% (SRO-656)
TARIFF Tubes from 10% to 15%. from duty. 2) Sub-assy from 20% to 15% (SR)-655).
3) Components from 10% to 7.5% (SRO-
- Exemption in duties and taxes on import of
Hybrid Electric Vehicle (HEVs) (SRO499):
=> upto 1200cc 100%
'- Reduced duty on - Increase in duty rates on import of 655)

DUTY Aluminum Alloy from 5% to

0%
cars/jeeps above 1800cc from 90% to
100% + RD 50% = 150%.
4) Localized Parts RD from 32.5% to
28.75% (SRO-693)
5) CBU / CKD from 65% to 57.5% (Tariff)
=> From 1201cc to 1800cc
=> From 1801cc to 2500cc
50%
25%

- GST reduced to 16% from

'- GST increased to 16% from 15% '- GST increased to 17% - GST increased to 17% from 16%
17%.
from 16%

SALES - Increased rate of Sales Tax

from 15% to 20% on
specified raw materials.
- Exemption of Sales Tax on
Tractors, CNG Buses, HCVs,
- Reduction in the higher GST rates on
specified raw materials from 22% &
- 2% additional GST on sales to unregistered
person.
CNG Kits, etc. withdrawn.

TAX (Aluminum Alloy LM6 in AIL

case)
- Sales Tax 10% on franchise/
royalty payments & against
19.5% to 16% '- Locally produced Auto Parts have put under
Third Schedule, retail sales price is required to be
printed on the packing of the material (value
excluding GST and GST be printed).
services by SRB. W.e.f 1-7-11

- Advance tax @5% of the

gross amount payable for - The scope of advance tax
the purchase of motor - WHT of Rs. 7,500 to Rs. 50,000 on Cars collection on purchase of new
vehicles to be collected by with respect to engine size at the locally manufactured - WHT on import of input materials for - Income tax first year allowance on plant and
car manufacturer at the time registration stage motorcars/jeep is extended to Industrial concern increased from 3% to machinery reduced from 50% to 25%
WHT of sale.
- WHT 5% on commercial and 1% on
all type of motor vehicles.
'- WHT on commercial
5% w.e.f. 26/02/13 to make it
standardized for both industrial & '- WHT on commercial imports increased from 5%
- For manufacturers a manufacturer was made uniform at 2% - WHT on imports increased to commercial importers. to 5.50%
imports increased from 4%
uniform adjustable for all. 4% from 2%
to 5%
withholding tax on imports
@ 1%
- FED 5% on technical Fees - FED exempted on franchise - FED increased from 5% to 10% on - 5% FED removed - SED of 2.5% imposed
& Royalty SRO 561/2006 service vide SRO 185/2008 franchise (except auto parts) subsequently withdrawn
dated 5-6-2006 dated 28-2-2008 - Levy 16% FED on services after 3.5 months

FED/SED (auto parts only)

- SED @1% imposed on

- FED @ 5% has been levied on import as
well as locally manufactured cars having
engine capacity exceeding 850cc.
provided by the port and
terminal operators including
warfage in respect of imports.
- 10% FED levied on vehicles of 1800cc or above.

imports.

- Corporate Tax rate for the Year 2013-14 is

reduced from 35% to 34%.
- Ban on import of CNG
OTHERS - Duty free import of vehicles
allowed for disabled person
Cylinders & Conversion Kits to - Euro II introduction in petrol cars only.
be used in vehicles
Tax rates on registration of motor vehicles have
been revised to range Rs 10,000 ~150,000 from Rs
16,875 ~50,000
 Interventions and its impact
• Liberalization of Used Vehicle Import Policy in 2005 & in
2011. This led to:
• Import of a total of 230,000 Used Vehicles
• Loss of 230000 employment
• Closure of 5 Plants in last 8 years & Reduction in
Choices available to Customers:
• Hyundai - Dewan
• Nissan - Ghandhara
• Chevrolet - Nexus
• Revo – Adam
• Mazda – Sind Engg.
• Capacity is 350,000 Vehicles vs Production of 145,000 Units
last year
• Loss of Confidence to Invest by Existing
Assemblers & Parts Manufacturers. All
Investments Plans were scrapped or put on hold

• Discouragement to Serious New Entrants to

make Long Term Investment in Pakistan Auto
Sector under these circumstances of unfavorable
GoP policy
Annex- A

•Used car Imports

•Amnesty Scheme
Annex- B
Annex-C
Annex-D
 Long Term Investments….on ground.
TOTAL INVESTMENT MADE BY OEM
Over Rs. 230 billion
& Part Makers

Press Shop
Engine Production Line
Plastic Moulding Facilities
Aluminum Die Casting Shop
Pakistan Automobile Industry
A Vision of Future Potential
 Pakistan
A Country with Population Power
1,339
1241

Pakistan has the 6th largest

population on the planet

317 185
249 201

China India USA Indonesia Brazil Pakistan

Population (Millions)
 54% of the total population is
below 30 years in age

99.9 Million Young

Potential Consumers

Young Population of Pakistan

 An Example
Motorcycle Industry
Demand Surge over 10 Years
 0
200
400
600
800
1000
1200
1400
1600
1800

1999-2000

87000
2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006
18 times
Growth:

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011
Motorcycle Production in Pakistan

2011-2012
2000000
 Dream of Every
Motorcycle Driver
Countries of Comparable Population
Pakistan vs Indonesia vs Brazil
Pakistan vs Indonesia vs Brazil
No of Vehicles per 1000 Persons
259
Huge Growth
Potential

79
13

Pakistan Indonesia Brazil

Indonesian Case Study (Vehicles „000)
1,065
Growth: 4 times
or 25% per annum 837
702
600
500 464
408 411
279 299 322 297
1. A national Industrial vision with
the Auto industry in focus
2. Consistency
PAKISTAN NATIONAL AUTO
POLICY 2025
1. Intelligent Long Term manufacturing
based Policy
2. Must have a global outlook
3. No experimental interventions except
corrections
 CONTENTS

1. Rational Tariffs to safeguard current and new investments

immediately and further reduce the same to bring competiveness
2. Ensure consumer interests are looked after
3. Put in Place Pakistan Manufacturing Standards
4. Put in Place Pakistan Emission standards and targets
5. Put in Place Pakistan Auto Safety standards and ensure
implementations
6. Move Pakistan towards international recognition as an “Engineering
Destination” and make our region and the world our market
7. Set production targets of 500000 vehicles within next five years
8. Set production targets of 150000 tractors within next five years to
ensure our food Basket remains intact
9. Set Motorcycle Production target to 4.5 million
 Trade with India
The Pakistan auto sector seeks liberalization but with
necessary mechanisms

India has a list of 850 items on which it applies well laid out
Non-Tariff barriers in which can be categorized as follows :-

• Harsh testing requirement,

• Complex harmonized code classifications,
• Inadequate infrastructure,
• Special labeling requirements
• Import licensing requirements
• Special Customs Procedures
• Biased Internal Government procurements favoring local
products
• Provisions of Export Subsidies to local products
 Preparation of our
Government of Pakistan

Have we setup the Institutional Infrastructure ?

• EDB
• Automobile Standards & Promoting JV & TA’s
• Setting up Testing Laboratories in the country

• PSQCA: Auto Quality Standards

• EPA: Auto Emission Standards
• NTC: Injury Protective Mechanism

Answer : No
Obama 2012 Campaign Slogan
“1.1 Million Auto Jobs Saved”
 The Big Question
In our 67-year History, Pakistan has wasted
numerous Opportunities to Achieve Rapid
Growth

Will we miss-out again on the Great Opportunity to realize

our Unique Potential & Capabilities in the Automobile Sector ?
Pakistan Automobile Industry
Current Status – A Video Presentation

PAAPAM VTS_01_1.VOB
Thank you
Pakistan Auto Parts Show
PAPS 2014 – 6th March 2014
Lahore Expo Centre

Inaugurated by
His Excellency
Mian Muhammad Nawaz Sharif
Honorable Prime Minister of Pakistan
www.paapam.com
www.pama.org.pk
www.paps2014.com