CCP's study sends auto sector into a state of shock

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The country's auto sector is in a state of shock following a study of Competition Commission of Pakistan (CCP) especially on quality, localisation and pricing of locally assembled cars.

Director Marketing Division Indus, Ali Asghar Jamali on Monday in an interaction with journalists said that the local auto assemblers were making all out efforts to provide durable cars.

However, answers to questions such as why the auto assemblers failed to achieve localisation as per agreement with the Engineering Development Board (EDB), on money and "why imported cars are better than locally assembled cars," were not found to be satisfactory. "We have not received CCP study officially that's why I cannot answer to the questions raised with regards to quality of cars," he added.

When Jamali was informed that a similar report was being unveiled by the National Tariff Commission (NTC), a subsidiary of Commerce Ministry, as local auto sector had not provided required data for analysis, he replied that data had been provided. Answering a question, he said there were differences on some parts of new Auto Industry Development Plan (AIDP), which would be resolved very soon.

Replying to another question regarding links between the incumbent CEO EDB and Indus Motors, he said that long time ago, he used to work with a subsidiary of Indus Motors. Quoting sources, he, in a written statement, said that local auto sector had obtained the study and was preparing their comments. He said local auto industry was still optimistic about a turnaround, if the government promised prudent policies and provided enabling environment, "which is necessary in capital intensive engineering industries."

Jamali said that a consistent, long-term and prudent auto policy would not only help the existing industry to expand, but would also attract foreign investment both at OEM and vendor industry levels.

He said that OEMs and many of the vendors had pulled their investment plans in recent past when the import of used cars of up to 5 years were allowed, as nowhere in the world did car manufacturing countries allow used cars import because it denied a level-playing field and it was unfair for the consumer on quality, price and after sales service.

To a question that although Indus Motors earned Rs 4.2 billion profit in 2011-12, the prices for consumers had not been reduced or parts of international standard fixed in the cars, he said that prices were quite reasonable.

In reply to a question, he said that Indus Motors was not charging 'own money' from consumers, but acknowledged that there were issues in the delivery of some specific colour cars. He said that models made in Pakistan met global quality standard; however some luxury specs were added, depending on regional and country to country specification/requirement.

He said policymakers must understand that after rapid growth in 2003-06, the original equipment manufacturers and the auto part manufacturers enhanced their capacities significantly. "Today the industry is sitting on car production capacity of 300,000 units per year, in fact production crossed the level of 250,000 cars in 2007-08 and was well on way to touch half a million units by 2013 had the government policies and demand during that period were positive," he added.

Jamali regretted that due to various adverse factors the car production was down to only half of the installed capacity. He said a number of auto part manufacturing units had been closed down while two multinational car manufacturers had also been forced to wind up.

In order to further localise the auto parts used in locally manufactured cars and reduce the prices, he said the auto sector needed a consistent long-term policy that provided the local industry a breathing space and shelter from unethical competition," he said, adding that these objectives could not be achieved overnight.

However, he was optimistic about the growth, especially after the age-limit of imported used cars had been restricted to three years. "It was a good decision for both the local industry and the government as government was losing a lot of revenue and foreign exchange, as market share of locally-made cars was decreasing, which contributes twice as much to the national economy than the used cars," he added.

He said the double digit inflation, devaluation of Pak rupee, increase in power and gas charges, high bank mark-up and increase in other operational cost coupled with low volumes called for an increase in car rates instead of going for reduction but the local manufacturers were trying their level best to keep the prices as low as possible. He said that the factual position is that the prices of the locally manufactured car brands were lower than the prices of similar brands made in the region and other countries.

Courtesy: Business Recorder

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