AUTOMOBILE SECTOR

1. Introduction:
Pakistan is one of the leading countries in the world having a large number of vehicles. Thus
Auto sector in Pakistan is improving each day and its contributing to the GDP of the country
to an effective extent. The basic idea in this report is to make new vehicles from the spare
parts of used vehicles due to the increasing prices of current vehicles and also the automobile
industry of Pakistan is compared with that of India in the end.

2. Automobiles Industry in Pakistan:

Pakistan is an emerging market for automobiles and automotive parts offers immense business
and investment opportunities. The total contribution of Auto industry to GDP in 2007 is 2.8%
which is likely to increase up to 5.6% in the next 5 years. Total gross sales of automobiles in
Pakistan were Rs.214 billion in 2006-07 or $2.67 billion. The industry paid Rs.63 billion
cumulative taxes in 2007-08 that the government has levied on automobiles.There are 500
auto-parts manufacturers in the country that supply parts to original equipment manufacturers
(PAMA members). Auto sector presently, contributes 16% to the manufacturing sector which
also is expected to increase 25% in the next 7 years, as compared to 6.7 percent during 200102.Vehicles manufacturers directly employ over 192,000 people with a total investment of
over $ 1.5 billion. Currently, there are around 82 vehicles assemblers in the industry
producing passengers cars, light commercial vehicles, trucks, buses, tractors and 2/3 wheelers.
The auto policy is geared up to make an investment of $ 4.09 billion in the next five years
thus, making a target of half a million cars per annum achievable.

3. Contribution to the GDP:

Today the automotive industry annually contributes over Rs 30 billion to
Pakistan's GDP and is also paying approximately Rs 8 billion per year in
the form of taxes and thereby playing a pivotal role in the development
of Pakistan's economy. Presently the auto industry has the capacity to
produce 120,000 cars annually on a double shift basis. Car
manufacturers in Pakistan over the last decade have contributed
considerably towards employment generation. Car manufacturers in
Pakistan and vendors employ around 150,000 to 200,000, people
directly and indirectly. The Original Equipment Manufacturers (OEMs)
have also been instrumental for transfer of technology, value addition

and manpower development. As a consequence of car manufacturing in

Pakistan, a vibrant auto vendor industry has emerged that is now not
only supplying parts to local OEMs like Toyota, Honda, Suzuki, Nissan,
etc, but also exporting internationally.
Auto-part exports are approximately $20 million per annum. Due to the
deletion policy, cars manufactured by OEMs now consist 50% to over
70% local components depending on the model. Over the year vehicles
manufacturing has been among the few industries that has continued to
attract local and foreign investment even when the investment climate in
the country has not been very favorable. The development of the local
car-manufacturing sector is a key element in the industrialization
process. It must be remembered that the import of used cars as opposed
to Complete Knock Down (CKD) parts would cause a major drain on
Pakistan's foreign exchange and work towards retarding the overall
growth of the engineering sector in Pakistan.
The auto manufacturers in Pakistan are playing a significant role in the
exports of the country. From July 2001-March 2002 auto parts exports
have been to the tune of $27 million.. The deletion process is ongoing
and every year a certain set number of locally manufactured car parts are
incorporated. According to the deletion program car makers have to
progressively increase quantum of locally made car parts till the
maximum level is attained. Currently in small cars the deletion level is
almost 75% and in larger cars it is close to 60%. A change in the shape
has impact on the deletion program. A change in shape means an
investment of anywhere from Rs 4-5 billion, which economically is not
a viable proposition keeping in view low demand trend.
Pakistan is an emerging market for automobiles and automotive parts,
offers immense business and investment opportunities. The total
contribution of Auto industry to GDP in 2007 is 2.8% which is likely to
increase up to 5.6% in the next 5 years. Total gross sales of automobiles
in Pakistan were Rs.214 billion or $2.67 billion in 2006-2007. The
industry paid Rs.63 billion cumulative taxes in 2007-2008 that the
government has levied on automobiles. There are 500 auto-parts
manufacturers in the country that supply parts to original equipment
manufacturers (PAMA members). Auto sector presently, contributes
16% to the manufacturing sector which also is expected to increase 25%
in the next 7 years, as compared to 6.7 percent during 2001-02.Vehicles
manufacturers directly employ over 192,000 people with a total
investment of over $ 1.5 billion. Currently, there are around 82 vehicles
assemblers in the industry producing passengers cars, light commercial
vehicles, trucks, buses, tractors and 2/3 wheelers. The auto policy is
geared up to make an investment of $ 4.09 billion in the next five years

Contribution of Indian auto sector to its GDP:

The Indian automobile sector is more secure than the Pakistanis and its strong economic
condition of the Indian economy,it contribution in Indian GDP is more than that of Pakistan.
According to the statistical division of india,the automobile sector contributes about 10% to
Indian GDP.
It is almost double the number,what the Pakistani automobile sector contributes to its GDP.

4. Production (P) and Sales (S) of Vehicles of Paksitan automobile sector:

5. VISION 2013: The Future of Pakistan Auto Industry

Product
Cars (nos.)
2 wheelers
Investment (Billion)
Contribution to GDP (%)
Contribution to manufacturing
sector (%)
Direct Employment
Gross sales turn over (Billion)

2007-8
164,710
1.06 million
98
2.8
16

VISION 2013
500,000
1.7 million
225
5.6
25

192,000
214

500,000
600

6. Automobile Industry and the Allied industries:

The automobile industry has also strengthened many associated
industries and allied industries. It has not only provided jobs to a
large number of people but has also contributed significantly to the
national exchequer. The most prominent allied industries are as
follows.
1-CNG (compressed natural gas stations)
2-workshops
3-tyre shops
4-Automobile parts shops

7. Decline and sales revenue:

Unfortunately, the recent downward trend in auto sales (cars + LCVs) continued as auto sales
stood at 27,034 units for July-September 2008, showing a decline of 44 percent year-on-year,
the data released by Pakistan Automobiles Manufacturers Association (PAMA) shows. (Link)
Automobile grew from 2001-2007, the industry and the government of Pakistan fixed a target
of over half million units production by the year 2011-12 that now seems out of reach. The
industry slightly fell short to achieve the targeted productions in 2006-07 when 1,95,688 cars
were manufactured against a target of 2,26,620 units. However, there was some growth in
production that year. In 2007-08 the production declined to 1,87,634 units against a projected
target of 2,66,543 units. In the current fiscal year they said the production is expected to
decline to 1,50,107 units that are half the projected target of 3,13,486 units.
Despite an additional levy of 5 per cent excise duty, the revenues from automobile sector
would decline by over 25 per cent this year due to declining demand. The industry paid Rs.63
billion cumulative taxes that the government has levied on automobiles. This year, despite
additional duty the sector would hardly contribute Rs50 billion in the national exchequer.

8. Automobile Manufacturers and Vendors concerns:

Automobile manufacturers and auto-parts vendors have warned the government that despite
an additional levy of 5 per cent excise duty, the revenues from automobile sector would
decline by over 25 per cent this year due to declining demand.
The Pakistan Association of Auto Parts and Accessories Manufacturers (PAAPAM) and
Pakistan Automobile Manufacturers Association (PAMA) in a joint presentation have
suggested various steps that should be taken by the government to arrest the slowdown in
sales. The two associations appealed to the government to withdraw the 5 per cent excise duty
on cars and impose a ban on import of used parts instead of allowing their import after
imposing 30 per cent redemption duty.
They asked the government to place stringent checks on auto-parts imported commercially or
as semi knock out kits. They proposed the introduction of non-tariff measures to curb the
import of parts that are being manufactured in Pakistan. They pointed out that the 50 per cent
duty has failed to stop the import of these parts as the import prices are easily manipulated by
the importers. Moreover, import under SRO 63 attracting 50 per cent duty should not be
allowed under FBRs CARE system. They have also appealed for special incentives for the
auto sector including lower mark-up on loans and a waiver of 35 per cent L/C margin.
The two associations pointed out that investment in the automobile sector has frozen at Rs98
billion and is expected to remain at the same level by 2011-12.

9. Key players in Automobile industry:

a) Honda Atlas Cars Pakistan Ltd:
Honda Atlas Cars Pakistan Limited is a joint venture between Honda Motor Company Limited
Japan, and the Atlas Group of Companies, Pakistan. The company was incorporated on
November 1992 and joint venture agreement was signed on August 1993. The ground
breaking ceremony was held on April 17, 1993 and within a record time of 11 months,
construction and erection of machinery was completed. The first car rolled off the assembly
line on May 26, 1994. Official inauguration was done by President of Pakistan, SardarFarooq
Ahmad Khan Leghari. Mr Kawamoto, President of Honda Motor Company Limited Japan
was also present to grace the occasion. The company is listed on Karachi, Lahore and
Islamabad Stock Exchanges. In July 1994, car bookings started at six dealerships in Karachi,
Lahore, and Islamabad. Since then the Dealerships Network has expanded and now the
company has sixteen 3S (Sales, Service and Spare Parts) and thirty 2S (Service and Spare

Parts) Pitstops network in all major cities of Pakistan. Since the commencement of production
in 1994, the company has produced and sold more than 150,000 cars till Oct, 2008. All
dealerships are constructed in accordance with the standards defined by Honda World over.

b) Indus Motor Company

Indus Motor Company (IMC) is a joint venture between the House of Habib, Toyota Motor
Corporation Japan (TMC), Daihatsu Motor Company Ltdvehicles in Pakistan through its
dealership network. The company was incorporated in Pakistan as a public limited company
in December 1989 and started commercial production in May 1993. The shares of company
are quoted on the stock exchanges of Pakistan. Toyota Motor Corporation and Toyota Tsusho
Corporation have 25 % stake in the company equity. IMCs production facilities are located at
Port Bin Qasim Industrial Zone near Karachi in an area measuring over 105 acres. Indus
Motor companys plant is the only manufacturing site in the world where both Toyota and
Daihatsu brands are being manufactured. IMCs Product line includes 6 variants of the newly
introduced Toyota Corolla, Toyota Hilux Single Cabin 42 and 4 versions of Daihatsu Cuore.
Toyota Tsusho Corporation Japan (TTC) for assembling, progressive manufacturing and
marketing of Toyota vehicles in Pakistan since July 01, 1990. IMC is engaged in sole
distributorship of Toyota.

c) Pak Suzuki Motor Company:

Pak Suzuki Motor Company Ltd (PSMCL), established as a joint venture between Suzuki
Motor Corporation of Japan (SMC) and Pakistan Automobile Corporation (PACO) Govt. of
Pakistan in 1983. Started commercial operations with production (S.O.P.) of Suzuki FX in
1984.In 1992, started production of MARGALLA at new Plant.In 1997, started production of
1300cc BALENO replacing Margalla.In 2001, launched the CNG version of MEHRAN,
RAVI and BOLAN. By 2005 capacity expansion up to 80,000 vehicles per year were
completed. In 2006, capacity expansion up to 120,000 vehicles per year was completed and
production of 1300cc/1600cc car LIANA and BALENO commenced. In 2007, the
third phases of capacity expansion up to 150,000 vehicles per year were completed.
Amalgamation of Suzuki Motorcycle Pakistan Ltd into Pak Suzuki Motor Company Ltd took
place and new land of 120 acres was acquired for further expansion adjacent to current plant.
In 2008, the company started exporting Suzuki LIANA to Bangladesh. Pak Suzuki acquired a
land of 25.22 acres at Lahore for setting up PDI centre, Spare Parts Ware-house, Regional
Office and other related facilities.

d) Nexus Automotive

Chevrolets were sold in Pakistan well into the 1970s, after which the automotive regime was
changed and Chevrolet gradually withdrew to its home market in the United States. In 2004,
after an absence of three decades, Chevrolet was re-introduced in Pakistan. Once again, a
global brand with a product line-up suited to developing markets such as Pakistan, Chevrolet
has made a successful return to the country. Working with Nexus Automotive, General
Motors partner in Pakistan , Chevrolet can once again be seen on roads all over the country.
Today, Nexus Automotive assembles the 1000cc Chevrolet Joy at Port Qasim (Sindh), and
imports a broader line-up of cars, including Aveo, Optra, and Colorado (coming soon) from
the General Motors global network.

e) Al-Ghazi Tractors:
Al-Ghazi Tractors Limited (AGTL) was incorporated in 1983. In 1991 the project was offered
for privatization, and acquired by Al-Futtaim Group of Dubai who took over the management
control of AGTL in December 1991. Ever since AGTL is a case study of rollicking corporate
success. 50.02% shares of the company are held by Al-Futtaim Industries Co. LLC and
43.17% shares are held by CNH Global NV, with whom Al-Ghazi Tractors Limited has signed
an Industrial Collaboration Agreement for manufacture of New Holland brand tractors. The
Agreement is valid till April 2016. With expansions carried out in 2005, the plant is now
capable of producing 30,000+ tractors per year in a single shift the most enduring
competitive edge being the quality of our tractors, which are robust
and sturdy and carry a local content as high as 92%. AGTL was the first automobile company
in Pakistan to earn the ISO-9002 Certificate.

f) Dewan Motors:
DewanFarooque Motors Limited has one of the most advanced automobile assembly plants of
South Asia. Located at Dewan City, Sujawal, Thatta, with a total project cost of Rs. 1.8
billion, the plant is built on an area of 42,000 square meters. Selection of the site reflects the
commitment of Dewan Group towards building of a prosperous Pakistan and its contribution
to national wealth. The project has provided direct employment to over 700 personnel. The
plant is the first automobile manufacturing unit in Pakistan to be independently invested by
100% Pakistani investors. The annual capacity of the plant is 10,000 units on a single shift
basis. The groundbreaking ceremony for the plant was held in June 1999, and the first Kia
Classic rolled-out in a record time of six months. Today the modern state-of-the-art plant is
rolling-out cars every day. This is the first and only automobile assembly plant in Pakistan
with state of art robotic equipment. DewanFarooque Motors Limited has technical
collaboration and license agreements with the following Korean companies:
Hyundai Motor Company December 25th 1998
Kia Motors Corporation July 27th 1999
g) Ghandhara Industries:

The Ghandhara Industries Limited is a public limited company quoted on the Stock
Exchanges and registered under the Companies Act, 1913 (now companies Ordinance, 1984).
It was established in Karachi by General Motors Overseas Distribution Corporation U.S.A. in
1963 Lt. Gen. M. Habibullah Khan Khattak acquired these facilities from General Motors and
renamed it Ghandhara Industries Limited. The Government of Pakistan nationalized
Ghandhara Industries Limited in 1972 and renamed it National Motors Limited. In 1992 M/s.
Bibojee Services (Pvt) ltd. acquired it under Privatization Policy of the Government, and
adopted its original name Ghandhara Industries Limited w.e.f. 27-11-1999. The major
business activities of the company comprise of progressive manufacture, assembly and
marketing Isuzu truck and bus chassis and fabrication of Bus and Load bodies. Ghandhara
industries Ltd have a product range of ISUZU medium-duty vehicles (F-Series) & light-duty
Vehicles (N-Seies) in Pakistan.

h) Hino-Pak Motors Ltd:

Hino Motors Japan and Toyota Tsusho Corporation in collaboration with Al-Futtaim Group of
UAE and PACO Pakistan formed Hinopak Motors Limited in 1986. In 1998, Hino Motors
Ltd., and Toyota Tsusho Corporation obtained majority shareholding in the company after
disinvestments by the other two founding sponsors.

i) Adam Motor Company:

We would do great injustice if we fail to mention, the only large scale effort made by a
Pakistani to achieve what others failed to implement or even envision. Mr.Feroz
Khan, founder of the Adam Motor Company, Ltd. was an automobile assembler based in
Karachi, Pakistan. They were notable for producing the Revo, which was Pakistans first
homegrown company to assemble a decent car. Together with stylerMehmoodHussain, Chief
Engineer N. A. Salmi and two fresh graduates from NED, Khan designed and manufactured
Pakistans first car. In fact, Khan invested in the latest software programs to train his team
using Computer Aided Design (CAD) and Computer Aided Manufacturing (CAM). Khan is
also Chairman and CEO of Omar Jibran Engineering Industries and has twice been Chairman
of Pakistan Association of Automotive Parts and Accessories Manufacturers. All their vehicles
used Made in China components due to lack of a modern manufacturing industry in Pakistan.
Initially Adam Motor was involved in assembling cheap Made in China light trucks, followed
by a Made in China four-wheel drive off-road vehicle. Later they started manufacturing the
Revo. The 800CC version of the Revo costs Rs. 269,000 (about $4,500) and the 1050 model is
Rs. 369,000 (about $6,200). The Revo has also been built in accordance with EU safety
regulations. Mr. Feroz Khan blames the politicians for the companys failure.

Market share of Indian cars companies:

1-Maruti Suzuki 40%

2- Hyundai 25 %
3- TaTa motors 20 %
4-M&M 5 %
5- General motors 4%
6- others 6 %

Market share of Pakistan cars companies:

1- Suzuki 49%
2- Indus motors 38%
3- Honda 13%

10. Major problems faced by the Sector:

a) Input Cost:
In Pakistan as the inflation is increasing so as the input costs and for
manufacturers it is becoming harder to produce at lower cost.
Increasing cost of energy and its unreliable and inconsistent supply
adds up the cost of manufacturing and wastage of resources. It is
estimated that by the year 2012, auto industry consumption
of electricity will cross 500 600 MW from around 250 - 300 MW, as of now.

b) Protection level:
Be f o r e t h e TBS(tariff based system) was i n t r o d u c e d t h e a u t o i n d u s t r y
wa s we l l p r o t e c ted b y t h e government but now as the import
of CKD(cars knocked down) is liberalized the protection level to industry by
government is decreased.

c) Lack of skilled manpower for modern machinery:

In Pakistan conventional machines are not able to meet the precision
manufacturing and the available labor is not familiar with modern
technology it caused by lack of coordination and linkages with
Government/Semi Government Supporting Bodies and Technical Training
Institutes

d) Scarcity of raw material especially steel:

Through previous years the world prices are rising and causing
costly inputs and Paki s tan has lef t with scarce Steel and
I ronleft , so manufacturer s are facing difficulties in producing
cars with low prices

11.Government Policies for development of Auto Industry:

Government of Pakistan had undertaken two major initiatives in the form of National Trade
Corridor Improvement Program (NTCIP) and Auto Industry Development Program (AIDP)
for the development of the automotive industry in Pakistan.
Engineering Development Board (EDB) is actively implementing the AIDP to increase the
GDP contribution of the automotive sector to 5.6%, boost car production capacity to half a
million units as well as attract an investment of US$ 3 billion and reach an auto export target
of US$ 650 million.
Automotive engineering is a driving force of large scale manufacturing, contributing US$ 3.6
billion to the national economy and engaging over 192,000 people in direct employment.
The Auto parts manufacturing is $ 0.96 billion per annum. The demand for auto parts is
highest in the motor cycle industry which is 60%, then is for cars which constitutes to 22%
and the rest 18% is consumed by trucks, buses & tractors. This demand is met by Imports
which caters 22% while the remaining 78% is supplied by the local manufacturers.
Due to the increase in demand for sophisticated machinery, the government has allowed duty
free import of raw material, sub components, components assemblies for manufacturers &
assemblers. Total import bill of machinery stands at $2.195 billion in the current fiscal year of
2007-08 which is 12.77% higher than that of the preceding year.
The impressive growth in the machine tools and automation sector is directly proportional to
the growth of the automotive industry which has become the fastest growing industry of
Pakistan and contributes $3.6 billion annually to the countrys GDP.
The aftermarket for spares has also witnessed immense expansion over the same period, with
imported parts playing an important role in meeting local demand. The spare parts market is
given further impetus by a total vehicle population of approximately 5.4 million
Pakistan has the second highest number of CNG-powered vehicles in the world with more
than 1.55 million cars and passenger buses, constituting 24% of total vehicles in Pakistan with
improved fuel efficiency and conforming to the latest environment regulations.

12.Comparison of Pakistan and Indian Auto industry:

A sample analysis of Indo-Pak economic compatibility has indicated that Pakistan's auto industry
was at disadvantage as compared to India's high tech and robust industry.
According to the analysis, big market, non-tariff barriers and high duties on import and strong
vending industry played a major role in making India a strong player in auto sector and after
protection of decades through tariff and non tariff it is today a gainer in auto world.

A consistent and decade-long protection made it possible India's industry is not only meeting the
local demand but also taking sizeable share from the international auto market.
The analysis added that Pakistan's relatively new auto industry has shown tremendous progress
during the last few years and it could do even better in the coming years, but the last year switch
over for cut in duty to introduce a liberal import approach put it on the back foot.
Pak auto industry showed fast growth during the last few years and contributed significantly to
the national exchequer. The official figures showed that the CBR collected huge revenue from
this sector during the last few years and its share in total annual revenue collection was showing
upward trend.
It is also providing job to hundred of thousands families, besides keeping over 350 related
industries on the move.
The analysis mentioned that India's market size and strong economy were providing big
advantage to its auto industry and making it even more stronger with each passing day for
providing potential to dominate over other countries when ever it gets a chance.
The analysis indicated that India is a market of 1065 million people against 152.53 million of
Pakistan and its auto industry enjoys full backing of large scale hi-tech engineering and
indigenized technical manpower. Whereas, Pakistan's case is different altogether, its industry is
weak and newly born and victim of quickly changing government policies.
The local industry has shown tremendous increase in the last few years and is going for massive
capacity enhancement. The manufacturers of the popular cars have come up with investment
plan to increase their capacity to meet the buyers' requirement.
The local cars production in 2011 stood at around 250,000 units and the manufacturers are
confident to take this number to over 350,000 by December 2013.
The analysis indicated that Indian auto industry was enjoying protection in different forms and
delivering good to the industrial growth of that country but Pakistan's case was reverse as its
newly grown industry was facing hard time for many reasons such as small market size,
inconsistent government polices and high bank's interest rates on cars leasing.
The low banks return on car leasing was a major reason of great demand of cars during the last
one and half years. But with quick increase in banks interest rates this factor may not play a role
in the future.
The local industry's progress is dependent on necessary protection at least for the next few years.

It becomes imperative when a strong competitor like India goes all out to protect its industry.

13.Conclusion:
Therefore we can conclude that the automobile sector has
revolutionized the life of common people. The automobiles are now the
part and parcel of our lives without which its nearly impossible to
survive. This sector has contributed to the national exchequer as well as
increased the economic activities as well in the form of providing jobs to
the people as we have discusses earlier and also gave rise to other
allied industries. However the automobile sector of Pakistan is lacking
behind the automobile sector of the developed world in terms of the
reliability of its products , competitive prices , safety concerns etc.
Moreover the current energy crises has also hampered this industry as
well . Due to this factor the government also losses its considerable
chunk of revenue which it would have otherwise collected.