THE ROLE OF AUTOMOBILE SECTOR IN THE GROWTH OF PAKISTANS ECONOMY PRESENTED BY MUHAMMAD ATIQUE BILAL JAMIL 28S-608 28S-601

PRESENTED TO MR. GHULAM MUSTAFA SAN INSTITUTE OF MANAGEMENT SCIENCES AFFILIATED WITH RIPHAH INTERNATIONAL UNIVERSITY ISLAMABAD (AUG, 2009)

ACCEPTANCE LETTER It is to certify that I have gone through this project submitted by; MUHAMMAD ATIQUE Bilal Jamil 28S-608 28S-601 In my judgment, this project is up to the standards. _________________________ Subject Coordinator SAN INSTITUTE OF MANAGEMENT SCIENCES AFFILIATED WITH RIPHAH INTERNATIONAL UNIVERSITY ISLAMABAD (AUG, 2009)

TABLE OF CONTENTS 1. Introduction 1.1 1.2 1.3 1.4 1.5 1.6 A Review OF Pakistans Economy.......... S tatement............................... Objectives of the Study................. Significance of the Study............... Research Questions.................... .. Procedure of the Study.................. 1 6 13 13 13 14 14 15 15 16 16 24 31 36 38 38 38 39 39 2. Review of Related Literature 2.1 2.2 2.3 2.4 2.5 2.6 Automobile Segments in P akistan......... Automobile Manufacturers in Pakistan.... History of Pakistans Au to Sector....... Analysis of Automobile Sector........... SWOT Analysis of Pakis tans Auto Sector. Pakistans Auto Sector at present....... 3. Data Collection and Analysis 3.1 Procedure of Data Collection.... ....... 3.1 .1 3.2 3.3 Research Variables............... Population.............................. Sampling............................... .

3.4 Data Analysis........................... 39 40 41 42 46 47 48-49 50 51 40 55 56 59 4. Analysis and Interpretation of Data 4.1 4.2 Graphical Presentation........... ....... Frequencies............................. 4.2.1 4.2.2 4.2.3 4.3 4.4 Frequ ency Tables................. Pie Charts....................... Histogram........ ................ Descriptive Analysis.................... Regression Analysis.................... . 5. SUMMARY, CONCLUSION AND RECOMMENDATIONS 5.1 5.2 5.4 Summary.................. ............... Conclusion.............................. Recommendations........ ................. REFERENCES APPENDIX

CHAPTER I INTRODUCTION Auto market is one of the largest segments in world trade. cutting Changing cost s models, and improving user fuel efficiency, without enhancing comfort compromising quality are the most important challenges of the auto industry in a fast global world. The automotive industry rightly prides itself on being recog nized as the mother of all industries. In its folds it carries many different ki nds of vehicles to provide mobility to people and goods. While they may appear t o be simple machines, their design and manufacturing, have much deeper roots in all the known technologies. of In-depth mechanical, knowledge and skillful application electrical, electronics, chemical and a host of other technologies culminate in achievement and improvement of the manufacturing base of a country, by focusing on a single product the automobile. This then provides an opportunity to produce a large number of goods and servic es for consumption of the entire international community. Use of the word mother for au tomotive industry is therefore the most appropriate description to define the na ture and importance of the industry. 1

In recent years, we have witnessed that the industrialization of South East Asian countries greatly depend on the developmen t of their automotive industry. Similarly, automotive industry acted as a cataly st in the overall growth of the industry in Japan and Korea and the consequent w ell being of their citizens. This project report explains The Role of Automobile Sector in the Growth of Pakis tans Economy. 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 t he next 5 years. Auto sector presently, contributes 20% to the manufacturing sector which also is expected to increase 25% in the next 7 years. The Automobile industry has been an active and growing field in Pakistan for a long time, however not as much established to figure in the prominent list of the top automotive industries. Pakistan has a large range of m otorbikes which are used throughout the whole of the country for terms of transp ortation. In the past, there have been talks about expanding the industry however nothing has been heard till now. Cars are imported to the count ry in large figures from Japan and people buy mostly manual cars rather than aut omatic. 2

Pakistan - The regional business hub Pakistan opportunities has the land of numerous a good unexplored name in the recently earned international market for being a vibrant and progressive developing Pakistan att ract country in a the world. The Government policy of to has adopted liberal investment maximum foreign investment, where foreign investors can hold up to 100% equity in several economic sectors. As a result, t he foreign direct investment in the Country has increased substantially over the past few years, thus differentiating Pakistan from many other countries of the region. Also, the vital indicators of Pakistans economy have s hown extraordinary improvement such as enhanced GDP and GNP, increased foreign e xchange reserves, skyrocketing stock market performance, stable Pakistani curren cy and improved balance of payments. Per capita income has crossed US$ 925 in 20 07. Pakistans each passing economy is gaining by more a strength with year, underpinned buoyant private

sector. The world is witnessing the real GDP of Pakistan maintaining a steady gr owth at one of the fastest rates in the history of the Country and among the hig hest in the economies of the world. The international trade is increasing owing to revolutionary changes in tariff 3

structures, domestic consumer better international both The at the relations industrial exchange and as growing well as are demands, levels. foreign reserves maintained at a respectable level. Major investments are underway sector, in Eng ineering and & Automobile manufacturing infrastructure, developing ports communication telecommunication, information technologies, newer sources of energy and power generation to meet the increasing demands. The current pace of development in Pakistan is no miracle but is the result of a de dicated and continuous effort by the Government for of Pakistan through implementing policies deregulation, liberalization and privatization. Pakistans automotive industry is continuing in a slump which began to in the prev ious financial published year and according BMIs recently Pakistan Automotives Report, the industrys performance this year will be even worse. In FY 08, which ended in June 2008, total vehicle sales fell by 6.2%. The down turn ha s been carried over into FY09, with sales for the first half of the year (July t o December 2008) down by 48%year-on-year (y-o-y) to 52,927 units for cars and li

ght commercial vehicles (LCVs), while compared with November, sales for December were down 55%. These results concur with BMIs forecast for a drop in sales of ca rs and LCVs to around 4

112,000 units in FY09. We expect the total market to contract by over32%, with t he worst damage done in the car and bus segments, which we forecast to fall by 4 5% each. Measures are being considered to arrest the industrys Committee domestic decline. (ECC) is Pakistans to consider has Economic a tax cut Co-ordination of 10% by for the carmakers, which been suggested Ministry of Industries and Production. However, the plan is not without its oppo sition, as the Federal Board of Revenue is reportedly against supporting individ ual sectors as this would prompt other industries to seek help. Moreover, with just five carmakers producing locally, the automotive industry is relatively small. On the other hand, the ind ustry is also largely selfsufficient as the majority of its output is sold within Pakistan; this reduces t he countrys reliance on imports and raises issues such as the protection of local jobs and the industrys contribution to the overall economy. The poor state of the industry is reflected in BMIs Business Environment Rating f or the automotive industry in Asia Pacific, where Pakistan is in last place on a score of 42.4 out of a possible 100. The market is held back by low production growth potential and an average rating for sales growth. However, as a signatory to the Trade Related Intellectual Property Rights Agreement 5

(TRIPS) under the auspices of the World Trade Organization, the countrys regulatory environment scores well. A number of free t rade agreements also contribute to this criterion, although forming FTAs with no n-Asian countries would improve this rating further. Despite low marks for burea ucracy and corruption, the market does score well for its long-term economic risk and policy continuity. With just a handful of manufacturers, narrow. Pakistans car competitive landscape remains Japanese manufacturers control most of the countrys passenger car production and sales. Fi gures for FY08 show that Suzukibrand models represented 62% of total Pakistani p assenger car production and 51.7% of sales. Toyota is gaining, however, as its C orolla became the countrys best-selling model in the first half of FY09. 1.1 A short review of Pakistans economy The economy of Pakistan is the 26th largest economy in the world in terms of pur chasing power, and the 47th largest in absolute dollar terms. Pakistans economy mainly encompasses textiles, chemicals, food processing, agriculture and other i ndustries. In 2005, it was the third fastest growing economy in Asia. 6

The economy has suffered in the past from decades of internal political disputes , a fast growing population, mixed levels of foreign investment, and a costly, o ngoing confrontation approved investment with neighboring policies, access India . However, by IMFgovernment and bolstered to global foreign have renewed markets, generated solid macroeconomic recovery the last decade. Substantial macroeconomi c reforms since 2000, most notably at privatizing the banking sector have helped the economy. GDP growth, spurred by gains in the industrial and service sectors, remained in the 6-8% range in 2004-06. Due to Economic Reforms of the Year 2000 by the Musha rraf government. In 2005, the World Bank named Pakistan the top reformer in its region and in the top 10 reformers globally. Pakistans then Prime Minister Shau kat Aziz stated Pakistan grew at a rate of 8.4% making it the 2nd Fastest Growing Economy in the World, after China, in the same year. However, this assertion is dispute d by figures from other authorized sources. Inflation remains the biggest threat to the economy, jumping to more than 9% in 2005 before easing to 7.9% in 2006. prices 25.0%. In 2008, following in the surg e has in global as petrol high as inflation The Pakistan bank is reached central pursuing tighter monetary 7

policy while trying to preserve growth. Foreign exchange reserves are bolstered by steady worker remittances, but a growing current account deficit - driven by a widening trade gap as import growth outstrips export expansion could draw down reserves and dampen GDP growth in the medium term. Since the beginning of 2008, Pakistans economic outlook has taken stagnation. Security concerns stemming from the nations role in the War on Terror have created great instability and led to a decline in FDI from a height of approximately $8bn to $3.5bn for the current fiscal massive Com bined year. Concurrently, flight the insurgency Pakistan to has the the forced G ulf. dual capital with from high global commodity prices, impact has shocked Pakistans economy, with gaping trade deficits, high inflatio n and a crash in the value of the Rupee, which has fallen from 60-1 USD to over 80-1 USD in a few months. 8

Economic Comparison of Pakistan 1999 ~ 2008 Indicator GDP GDP Purchasing Power 1999 $ 75 billion 2007 $ 160 billion 2008 $ 170 billion $ 270 billion Parity (PPP) GDP per Capita Income Revenue collection Foreign rese rves Exports Textile Exports $ 450 Rs. 305 billion $ 700 million $ 7.5 billion $ 5.5 billion $ 475.5 billion $ 504.3 billion $ 925 Rs. 708 billion $ 16.4 billion $ 18.5 billion $ 11.2 billion $ 75 billion at 14,000 points $ 8.4 billion 26% of GDP 24% 53% Rs. 520 billion $1085 Rs. 990 billion $ 10 billion $ 19.22 billion $ 56 billion at 9,000 points $ 5.19 billion Rs. 549.7 billion KHI stock exchange (100- $ 5 billion at 700 Index) Foreign Direct Investment Deb t servicing Poverty level Literacy rate Development programs points $ 1 billion 65% of GDP 34% 45% Rs. 80 billion 9

Major economic sectors Pakistans major economic sectors are as follows; 1. Agriculture 2. Industry Automobile Industry CNG Industry Cement Industry IT I ndustry Textile Industry

3. Service Communication Aviation Wholesale and retail trade Finance and Insu ce Ownership and dwellings Public administration and defense Social, community a nd personal services Electricity Exports Pakistans exports increased 100% from $7.5 billion in 1999 to stand at $18 bill ion in the financial year 2007-2008. Pakistan exports rice, furniture, cotton, 10

fiber, cement, tiles, marble, textiles, clothing, leather goods, balls), sports goods (renowned for footballs/soccer appliances, surgical instruments, electrical software, carpets, and rugs, ice cream, livestock meat, chicken, powdered milk, wheat, seafood (especially food and items, other tanks, shrimp/prawns), Pakistani vegetables, Suzuki processed (to assembled defense Afghanistan countries), equipment (submarines, radars), salt, marble, onyx, engineering goods, and many other items. Pakistan n ow is being very well recognized for producing and exporting cements in Asia and Mid-East. Imports Pakistans imports stood at $30.54 billion in the financial year 2006-2007, up b y 8.22 percent from last years largest products. imports import Other of $28.58 billion. is Pakistans and single category imports petroleum petroleum machinery, computers, include: trucks, industrial construction machinery, automobiles, computer parts, medicines, pharmaceutical products, food items, civilian aircraf t, defense equipment, iron, steel, toys, electronics, and other consumer items. 11

Structure of Production Share of Various Sectors in GDP Sector Goods (1+2+3+4+5) 1. Agriculture 2. Mining 3. Manufacturing 4. Constructi on 5. Energy Distribution Services (6+7+8+9+10+11) 6. Transportation & Comm. 7. Trade 8. Finance & Insurance 9. Ownership of Dwellings 10. Public Admin. & Defen se 11. Other Services 2000-01 2001-02 2002-03 2003-04 2004-05 48.2 25.1 1.3 15.9 2.4 3.4 51.8 11.7 18.1 3.1 3.2 6.3 9.4 47.3 24.4 1.4 16.1 2.4 3.0 52.7 11.5 18. 0 3.6 3.2 6.5 9.9 47.1 24.2 1.5 16.4 2.4 2.5 52.9 11.5 18.2 3.3 3.2 6.7 10.0 47. 4 23.3 1.5 17.6 2.1 2.9 52.6 11.4 18.5 3.3 3.1 6.5 9.9 47.6 23.1 1.4 18.3 2.0 2. 7 52.4 11.1 19.1 3.7 2.9 6.0 9.6 Note: GDP is estimated at constant factor cost. Figures are in percentage. Sourc e: Economic Survey of Pakistan 2005 12

1.2 Statement The study was aimed at to explore the role of Pakistans Automobile sector in the growth of Pakistans economy (GDP). 1.3 Objectives of the study Following were the objectives of the study: I. To explore the effects of Automobile manufacturing on GDP II. To describe the share of Auto sector in GDP III. To explore the reasons behind the downfall in this sector IV. To describe the strategies to be adapted for the continuous grow th of this sector 1.4 Significance of the study I. It will help us to know the importance of Auto sector in the growth of countrys economy II. It will help our Govt. to keep this sector in the continuous growth III. It will help the Govt. to revise there poli cies regarding the continuous development of Auto sector 13

1.5 Research questions I. What is the role of Auto sector in the growth of countrys economy? II. Why thi s sector is facing hurdles in its growth? III. How to remove those hurdles? IV. What should be the role of the Govt. in the growth of this sector? 1.6 Procedure of the study The population of the study was Automobile Industry of Pakistan. Data was gather ed of last 14 years (1995 ~ 2008). After gathering the secondary data, we organi zed, analyzed results. and interpreted the data and concluded the 14

CHAPTER 2 REVIEW OF RELATED LITERATURE This related to chapter the deals with the literature of review It Automobile Industry Pakistan. includes past and present situations of automobile sector in the region. Literat ure review provides an excellent starting point for researchers to do research i n a new way. 2.1 Automobile segments in Pakistan In Pakistan, there are following automobile segments: Cars and Light Commercial Vehicles (LCVs) Two and Three Wheelers Tractors Trucks , Buses etc The industry operates under franchise and technical cooperation agreements with Japanese, European and Korean manufacturers. 15

2.2 Automobile manufacturers in Pakistan Al-Ghazi Tractors Ltd. Adam Motors Ltd. Dewan Farooque Motors Ghandhara Industri es Ghandhara Nissan Ghani Automobile Industries Hinopak Motors Honda Atlas Cars (Pak) Ltd. Atlas Honda Ltd Indus Motors Company Suzuki Nexus Automotive Pak Suzu ki Motor 2.3 History of Pakistans auto sector Beginning of auto sector Pakistan is basically an agrarian economy since its independence. In 1947, agric ulture contributed more than 62% towards GDP whereas contribution of manufacturi ng sector toward GDP was only 7%. Pakistan inherited only 5% of the large scale ind ustrial facilities of British India. At that time Pakistan hardly had any industrial 16

base and was without any institutional, basic financial or energy resources. Besides, infrastructural facilities, technical skill and other pre-requisites for development automobile capabilities were also lacking. plants for There were were any neither any assembly nor this industrial the available sector. However, development of this industrial sector started soon after the independence. Peace in the country and development planning by government resulted in increased eco nomic growth that sequentially laid the foundation of industry. First serious effort by government to develop the industry and engineering secto r in particularly was observed in 1950 when a six-year plan (First Development Plan) was drafted the t he to guide government For auto the investment industry, in to developing overcome infrastructure. initial difficulties, government, besides developing infrastructural facilities established the Pakistan Industria

l Development Corporation (PIDC) in 1950. The main objective of PIDC was to play the pioneering role of establishing such industries which the private enterprise was unable to undertake either because they were technologically complex, needed la rge capital or were less profitable. These steps results in growth of the indust rial sector resulting 56.62 % growth of the manufacturing sector from 1949-1955. 17

The first phase of automotive assembling in Pakistan started in 1950 with Bed Fo rd truck followed by Ford Prefect, Ford Cortina and Dodge Dart. The indigenized parts in these vehicles did not exceed 20% with only exception of Bed Ford truck s with a deletion level of 80%. By the end of 70s practically all automobile assembling in Pakistan ceased. The 2nd phase of Automobile assembly started in 1983 with the introduction of FX 800cc Suzuki Car. In 1989 Pak. Suzuki changed the Model of FX 800cc with Mehran 800cc. Pak Suzuki thereafter In 1992 Introduced Khyber 1000cc and 1300cc Margal la but the indigenization levels from 1983 to 1995 were not significant (i.e. Me hran 30%, Khyber 20%, and Margalla, 15%). In 1993, Indus Motor Company Ltd. Karachi introduced Toyota Corolla. Honda Atlas cars (Pak) Ltd. Lahore introduced Honda Civic having 1300cc engine capacity in 1994. Indus Motor, Dewan Farooq Motors and Pak Suzuki introduced smaller Cars i.e. Cuore, Cultus and San tro of engine capacities 850cc, 1000cc respectively in 2000. This was known as era of competitiveness. Up to 1995, the deletion cell of Ministry of Industries and Production deletion (MOIP) programs. was formulating industry and monitoring the The specific deletion 18

programs were for formulated cars, to specify local content and requirements tractors etc. motorcycles. Buses, trucks The deletion policy finalized in 1996 has the following features: Industry Specific Deletion program No roll back from achieved Deletion Levels Ev en handled Tariff Protection at all levels of processing The deletion levels were finalized by the sub-committees for cars, LCVs, by moto rcycles and tractors of EDB etc., on the constituted indigenization committee basis of technology levels prevalent in the engineering industry program of Paki stan. books The were Industry published specific and deletion (ISDP) distributed amongst the stakeholders, which resulted in a significant improvement in indigen ization. Period of progressive manufacturing Potentials products of industry new and high demand the of the attracted entrants whereas existing players started producing in mass quantities. This mass production that started

in 1964 resulted in the first ever period of progressive manufacturing in the hi story 19

of Pakistan. The idea of progressive manufacturing was first mooted by the Ghand hara Industries and Mack Trucks. The idea was to start local manufacturing with simple and non-functional parts and to add more and more complicated parts in sm all steps. According to the planning then done 100% local manufacturing was to b e achieved in 7 - 10 years. Unfortunately, this period does not last long as the projects undertaken proved to be over ambitious that eventually fail. Clearly the concept of progressive manufacturing has not added much to technolog y, self-reliance or economy. For example, as against the targets set of manufact uring 100% of local contents in maximum 10 years actually achieved deletion in 18 years is 45.78% for trucks & buses, 43.17% for trucks & buses engines, 16.50% for 4x4 jeeps units LCVs, and for zero percent for cars. F urthermore, cars, 4x4 no new manufacturing and trucks passenger were vehicles, this buses established under concept, but still few new units for producing tractors, jeeps and specialized v ehicle were established. New units established were Atlas Honda, Khawaja Autos, Rana Tractors, Jaffar Industries, and Bela Engineers. A more market oriented and appr oach Vespa was observed this by Honda as motorcycles scooters during period, they introduced light motorcycles for the first time in a 20

market dominated by heavy motor bikes like BSA, Triumph and Lamberetta scooters. Nationalization of Industries Following nationalization the of progressive industries manufacturing under Econ omic period, Reforms order had a profound impact on automobile industry in Pakistan. In early 1972 un der Martial Law Regulation, the Government took over the control of 32 industria l units, including eight automobile plants, under the officially appointed Board of Industrial Management with the Minister for Production as its Chairman. Out of the units taken over by the Gove rnment were included iron and steel, heavy engineering, heavy chemicals, assembly and manufacturers of motor v ehicles. Initially, the management of these industries was taken over by the government, but in August 1973, the President Ordinance promulgated after which the the Econ omic Federal Reforms (Amendment) acquired Government majority ownership of shares of these industrial units. After nationalization, t hese units were renamed, their functions Corporation corporation were (PACO) und er redefined was the and in Pakistan 1973 as Automobile a holding of the created administrative control Federal Ministry of Production. 21

Formation of PACO In order to manage the automobile units and to advise the Government (in developing policy guidelines for growth and developmen t of auto industry), Pakistan Automobile Corporation (PACO) was formed in 1973 u nder the administrative control of the Federal Ministry of Production. It was a major public industrial conglomerate of 15 companies includ ing four joint ventures. For the first time in Pakistan emphasis was given to de velop the nationalized units under took local manufacturing facilities and the development of parts in an organized manner and the system of standardization, regulations and monitoring was established. This requires the industry to assemble from Complete Knock Down (CKD) and then go on to manufactur e components and to achieve a local content of 75% over a five year period. A nu mber of small and large industrial unorganized units that were mostly functionin g into a more in the sector were canalized formal pattern of production management under the PACO control. The direction for achie ving quality standards as laid down by the "Principals" was also established. The MOI was entrusted the respons ibility of allowing any waiver for non-performance, and was applicable if CBR al so concurred. 22

Privatization of Industries The policy of de-nationalizing public sector units was adopted once the change i n government took place. Privatization brings in foreign companies. This results in a number of joint ventures. Due to these ventures, Pakistan auto industry en ters into assembly/progressive manufacture of passenger cars, commercial vehicle s and motorcycles. Once the new management of cars and motorcycle assemblers took over the control they entered into joint ventures wit h foreign companies mostly Japanese, for further development. Most important joint venture that took place was of Atlas with Honda and Indus Motor with Toyota. The process of privatization is still on and fortunately every government has adopted the policy of privatization and opening of the markets for foreign investors. Although, process is on but still many object that this process is no t crystal clear and has many short comings. 23

2.4 Analysis of automobile sector The growth automobile the last sector four has or been five registering years al ong due to high the for countrys business friendly policies with lower tariff rates, persistent growth in GDP, and per capita income. Globally the cons idered auto as the in mother of is all fast industries, industry Pakistan evolving as a robust industry. Some sub-sectors of this fast growing industry, l ike motorcycle production, have already achieved economies of scale. The tremendous rise in automobile production has resulted from increased domestic demand, giving a healthy impetus 150,000 to the industrial output and generating over direct employment opportunities besides contributing substantially in duties and tax revenues to the national exchequer. Since 2001-02, the automobile market has grown by over 40 per cent per annum and if an average growth of 30 pe r cent is maintained during the coming years, the countrys auto market will cro

ss the milestone of 500,000 units by the year 2010. During the financial year 20 05-06, the sale of locally assembly cars posted an impressive growth of 22 per c ent, rising to 155,514 units as against 127,309 units during the previous year. To ease the pressure on rising demand and 24

to curb the evolving culture of premium on the factory price, some 40,000 vehicl es were also imported during the said period. The increase in demand for automobiles can be traced to rising income and levels , auto creation financing of by new job opportunities liberal financial institutions. As a result, on an average, some 13,000 vehicles are assembled and marketed every month. The country has also started importing vehicles. The result is a quantum jump in car registrations, primarily due to bank leases. In the capital city of Islamabad a lone, some 2000 vehicles are registered every month. While all this is leading t he motorization of the country, it cant be ignored that this influx of new vehi cles has made the existing road infrastructure insufficient, giving rise to the need to improve and widen the national roads network. And yet, this will lead to the creation of more jobs thereby accelerating the pace of economic activities in the country. Meanwhile, auto financing and other such schemes have given rise to lucrative consumer banking. Though the main objective of cons umer financing is to solve some of the immediate or short-term problems of the c ustomers, it is resulting, at the macro level, in giving a push to large-scale m anufacturing, creating new jobs and 25

positively impacting the GDP growth. When the government undertook restructuring of the economy, it was expected that bulk of excess liquidity available in the market post 9/11 would go towards the development of the corporate sector. However, this did not happen, while the banks they faced start ed a dilemma diverting of excess liquidity. towards Therefore, the more their funds lucrative consumer financing. One hopes that the cycle of rise in demand and supply in the auto sector would have a healthy effect on the national economy as a whole, ensuring continuity in its growth. It has already led to the growth of a strong auto-parts manufacturing/ vending industry, which is not only meeting the demand of the local assemblers in a sizeable number of auto-parts, but also competing in the international market for a share in the global auto-parts marke t. Pakistan Association of Automotive Parts Accessories Manufacturers (PAAPAM) was formed in 1988 to represent and to provide technical and management cooperation to its members. PAAPAM, with its almost a decade old history, has attained a level of an indispensable and extremely effective link b etween the policy-making echelons at government and the whole entity of its member firms. The Association achieved recognition form the 26

Government represented of in the many Pakistan Government in and 1999 semi and today is as government well as Private Institutions by its members. PAAPAM is the member of the Federal of Pakistan Chamber of Commerce & Industry (FPCCI). With a registered membershi p base of over top line tier of one over 278 1200 members and general has manufacturers base companies, PAAPAM under its wings manufacturing companies making parts for Pakistan, Cars, Motorcy cle, Tractors, Trucks and Buses assemblers. billion. Investments in place now ex ceed US$ 1.5 Buyer power In Pakistan automobile market, the buyer power is limited. It is only effective with no powerful lobbying group. This has tended to lead the government to favor other side then consider their aspect on issues. The recent changes in liberalization were made after a lot of protests by people and that too after a period of 3 years of consisting paying almost premiums of 10% prior to import liberalization. Now with more choice with models, premium affecting the b uyers is limited to certain models out of which maximum premium is of Rs. 60,000 is on Corolla XLI. In our analysis the major reason for lack of buyer power is lack of consumer groups in our country. As 27

our country is still progressing, hopefully in the future with the development o f consumer groups in the country will lead to similar formations in the automobi le sector. Supplier power The power of manufacturing companies is immense in our country. All companies ha ve their CKD kits imported from abroad through their parent companies. This situation offers little room for local suppliers. Another aspect which might hav e been useful to supplier is the deletion program. The government has not been a ble to implement it due to lobbying power of the manufacturing companies. As a r esult suppliers tend to toe the line of the manufacturers. This scenario is pres ent in all segments of the auto industry in Pakistan. Factors stopping growth Heavily reliance on imported Completely Knocked Down (CKD) Kits. Ineffective implementation and monitoring of the deletion program has resulted in lesser deletion in the car industry as compared to 84 per cent in Tractors and an average 50 per cent in Bus and Truck manufact uring. 28

 Tariffs of 35% for import of CKD by the OEMs and commercial importers have eliminated the attraction for deletion. Lack of spare parts market for vendors as they are bound to sell parts to the assemblers only. Delays in inspection and approval of parts by the parent company. A part developed locally has to be sent to Japan or Korea for ap proval. Small size of the market resulting in under capacity utilization. The ve nding industry, which comprises 400 units, is operating at just 30 per cent of i ts capacity. Indifferent attitude of the assemblers i.e. a component developed for one assembler is not accepted by others. Major policies after year 2005 1. Tariff Based Systems (TBS) 2. Auto Industry Development Program (AIDP) July 1st 2006, the deletion programs for the Automotive Sector have been replaced by the Tariff Based System (TBS). The delet ion programs have gradually been phased out under The TBS the is WTO the regime outcome to of become a long TRIMs drawn compliant.

consultative dialogue between all stakeholders including 29

OEMs and Vendors, belonging to different sub-sectors of the Automobile Industry. The TBS had been developed with the following overriding objectives; Preservation & promotion of technologies that have been developed in the country Protection to the present job structure in the auto sector Promote job creation Protect the existing & planned investment by the OEMs & Ven dors Promote new investment Expand the consumer base to create economies of scale The basic framework of Tariff Based System is as under; Imports in CKD condition adequate would be allowed only to and assemblers having assembly facilities registered as such by the concerned Federal Government Agency. Parts / component s indigenized by June 2004 have been placed at higher rate of Customs Duty. Part s not indigenized would be allowed at CKD rate of Custom Duty. 30

Introduction of Statutory Regulatory Order (SRO); SRO 656 (I) / 2006 dated June 22. 2006 (For OEMs) SRO 693 (I) / 2006 dated July 1. 2006 (For OEMs) SRO 655(1) / 2006 dated June 22, 2006 (For Vendors) 2.5 SWOT analysis of Pakistans auto sector Strengths Demand for cars In Pakistan context there are 9 cars in 1000 persons which is one of the lowest in the emerging economies which itself speaks of high potential of growth in the auto sector and more so in the car production. Rising per capita income with ch anging demographic distribution and an anticipated influx of 30 to 40 million yo ung people in the economically active workforce in the next few years provides a stimulus to the industry to expand and grow. Resale of local assembled cars Resale of locally assembled cars is better due to availability of spare parts an d after sales services and warranty. Used imported cars have been selling below their cost at the show rooms for the last six months but 31

consumers are not inclined to buy because of their low re-sale value and problem s in parts availability. Quality of local cars Initially when the import of cars was liberalized, the quality of local assemble d cars was unsatisfactory. Therefore, the people of high-income level group star ted buying imported cars and the sales of the local assembled cars started decre asing. In that the situation, quality of local their assemblers started enhancing vehicles so we can say that the quality of local cars is becoming the strength o f the auto industry. Weaknesses WTODeletion program The World Trade for Organization the (WTO) of has the rejected deletion Pakistans request extension program, which enabled it to lay down the condition of the local content require ment (LCR). Under LCR, the automobile and other engineering industry was required to use locally manufactur ed parts and accessories in terms of governments deletion policy. WTOs decisio n for not extending its deletion program / LCR condition has varied impact on Pa kistans vendor industry, automobile assemblers, car users and the government as well. 32

Input cost In Pakistan as the inflation is increasing so as the input costs and for manufac turers 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 th at and by wastage the year of resources. auto It is estimated 2012, industry consumption of electricity will cross 500 - 600 MW from around 250 - 300 MW, as of now. Protection level Before the TBS was introduced the auto industry was well protected by the govern ment but now as the import of CKD and CBU is liberalized, the protection level t o industry by the government is decreased. Lack of skilled manpower for modern machinery In Pakistan conventional machines are not able to meet the precision manufacturi ng and the available labor is not familiar with modern technology it caused by l ack of coordination and linkages with the Govt. / Semi Govt. Supporting Bodies a nd Technical Training Institutes. 33

Scarcity of raw material especially steel Through previous years, the world prices are rising and causing costly inputs an d Pakistan has faced scarcity of iron and steel. Therefore, the manufacturers ar e facing difficulties in producing cars with low prices. Opportunities Import German technology and skills EDB supply wanted network, vendor to build a Pakistan-German opportunities to get to the to automotive Pakistani from providing automotive German enterprises and benefit know-how technology and improve of quality, productivity, products. developing marketing value-added Foreign investment and setup production facilities China (CNHDTCJ) National one of Heavy the Duty Truck heavy Corporation duty truck largest manufacturers in China, has shown interest for investment in the automobile sect or of Pakistan. The study is required to attract players from Germany as well as from other countries to star t business with the Pakistani counterpart.

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Threats Smuggling of auto parts The auto industry is generally faced by multiplicity of taxes; the presumptive t ax regime has led to increase in prices of imported inputs and the finished good s. Component manufacturers arc struggling to compete with under-invoicing, miss dec laration and smuggling. Import of used parts is still continuing at a large scal e. Smuggling, under-invoicing and dumping of auto parts. Competition from imported cars Auto industry is facing a threat from the import of cars, which is already liber alized. Further, it is said that government will cut about 15% of duties till 20 11. Tariff structure Tariff structure is a big threat for automobile industry. So the government should develop policies to keep the tariffs figures w ithin the range that can play a vital role in the growth of this sector. 35

2.6 Pakistans auto-sector at present Pakistans Auto Sector continues to under-perform as end-FY09 (ending June 30) a pproaches, but as BMI points out, some segments are showing signs of recovery. Although passenger car sales for the first 10 months of the fiscal year are stil l significantly, lower than the same period in FY08. Sales for the last three mo nths achieved month-on-month (m-o-m) growth. However, year-todate sales have bee n impacted by a particularly bad December, when only 2689 cars were sold. In order to further support sales, the Federal Board of Revenue (FBR) has forwarded a proposal to the government recomm ending that it allows imports of cars over 10 years old. It is suggested that br ands with local production facilities have a monopoly, as imports of used cars a re restricted to those of three years old or under. It adds that this gives the manufacturers the opportunity to hike prices, which is adversely influencing the market. There appears to be little advantage for the local manufacturers at pre sent, however, as production remains almost 50% lower than the same period of FY 08. Given the poor prospects in the short term, Pakistan brings up the rear in BMIs Business Environment Ratings for the Asia Pacific auto industry on 42.4 out of a 36

possible 100. Low production growth potential and an average rating for sales growth hold the market back. However, as a signatory to the Trade Related Intellectual Property Rights Agreement (TRIPS) under the ausp ices of the WTO, the countrys regulatory environment scored well. A number of free trade agreements also contribute to this criterion, altho ugh forming free trade agreements (FTAs) with non-Asian countries would improve this rating further. Despite low marks for bureaucracy and corruption, the market does score well for its long-term economic risk and polic y continuity. Japanese manufacturers still control most of Pakistans passenger car production and sales. Figures for FY08 show that Suzuki Motor-brand models represented 62% of total passenger car production and 51.7% of sales. The Suzuki Mehran also won back its place as Pakistans best-selling m odel after losing out to the Toyota Corolla in the previous financial year. The Corolla struck back in the first 10 months of FY09, however, selling 20,626 unit s compared to 11,142 for the Mehran. Honda Motor, which ranks third for car sale s, dominates the motorcycle segment with a market share of 70% in FY08, which ro se to 72.5% for 10M FY09. 37

CHAPTER 3 DATA COLLECTION & ANALYSIS This chapter deals with the methodology and procedures for the collection of data. This descriptive research aimed to find o ut the role of Auto Industry in the growth of Pakistans economy. For our research , we collected secondary data. 3.1 Procedure of secondary data collection We collected secondary data through internet resources. We collected annual automobile manufacturing and annual GDP figures o f last 14 years (1995 ~ 2008) from Pakistan Automotive Manufacturing Association (PAMA) & State Bank of Pakistans websites. 3.1.1 Research Variables In our research, we have defined two variables, one is dependent and the other o ne is independent. 1. Automobile Manufacturing Independent Variable 2. Gross Domestic Product Depen dent Variable 38

3.2 Population Population is the group of people or units under investigation. The population c onsisted of the whole automobile sector of Pakistan. 3.3 Sampling sample is a representative unit of the population you are attempting to say some thing about, and of course the researcher will need to take into account his/her affordability. Our sample is last 14 years (1995 ~ 2008). 3.4 Data analysis After collection of data, it was analyzed and interpreted by using SPSS software. 39

CHAPTER IV ANALYSIS AND INTERPRETATION OF DATA This chapter is concerned with the analysis and interpretation of data. Presentation and analysis of data is the hub and heart o f a research work. It needs immense care and precision from hard to interpret th e and present the data used. gathered toils, researcher have Analysis are performed through SPSS software and these analysis are presented in tabular form in this chapter. Interpretation is also given below of each table. These analysis provide researchers with a clear picture of the effects of autom obile sector on the growth of annual GDP of Pakistan in the last 14 years from 1 995 ~ 2008. 40

4.1 Graphical presentation Graphical presentation is a unique way to present your data. You need to select the appropriate graph type, which can present your data effectively. Here we hav e selected scatter graph to present our data. 8000000 6000000 GDP 4000000 2000000 0 200000 400000 600000 800000 1000000 Manufacturing Note: GDP figures are in Millions and Mfg. figures are in Lakhs. The resulting scatter plot shows that the relationship between variable is nonlinear. As you can 95 ~ 2002) there were ups & downs in GDP figures while show any considerable growth. But from 2002 to onward the variables is showing tremendous growth. But in the hile manufacturing is still increasing. 41 see that in the start (19 manufacturing sector didnt the relationship of both end GDP is falling down w

Here is the above graph has been showed in the line format; Dot/Lines show Means 6000000 GDP 4000000 2000000 200000 400000 600000 800000 Manufacturing 4.2 Frequencies Frequencies simply refer to the number of times various sub-categories of a certain phenomenon occurs, from which the percentage and cumulative percentage of their occurrence can easily produces be calculated . tables The that Frequencies procedure frequency display both the number and percentage of cases for each observed value of a var iable.

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There are many summary measures available for scale variables. Some are as follows; Measures of central tendency It is often useful to describe a series of observations in a data parsimoniously, in a meaningful way, which would enable i ndividuals to get an idea of or a feel for the basic characteristics of the data. There are three measures of central tendency: the mean, the median and the mode. Measures of dispersion These statistics measure the amount of variation or spread in the data. The thre e measurements of dispersion connected with the mean are the range, the variance and the standard deviation. 43

Our results are as follows; Statistics Manufacturing N Mean Median Mode Std. Deviation Minimum Maximum a. Multiple modes exist. The smallest value is shown GDP 14 0 4691643 4846500 1014000a 2048120 1014000 7667000 Valid Missing 14 0 390550.57 238181.50 57936a 283382.636 57936 888067 The Mean: The mean or the average is the measure of central tendency that offers the general picture of the data without unnecessari ly inundating one with each of the observations in a data set. Annual average pr oduction of automobile is 3,90,550 and annual average GDP is 46,91,643. The Median: The median is the central item in a group of observations when they are arrayed in either an ascending or a descending order. The median of manufact uring is 2,38,181.50 and of GDP is 48,46,500. The Mode: In some cases, a set of observations would not lend itself to a meanin gful representation through either the mean or the median, but can be signified by the most frequently occurring phenomenon, which is called the mode. The mode of manufacturing is 57,936a and of GDP is 10,14,000a. 44

Standard Deviation: The standard deviation offers an index of the spread of a distribution or the variability in the data. It can als o be defined as how much value has been increased or decreased by the mean. It i s a very commonly used measure of dispersion and is simply the square root of th e variance. The standard deviation of manufacturing is 283382.63 and of GDP is 2 0,48,120. Minimum & Maximum: The minimum production of automobile is 57,936 and the maximu m is 8,88,067. Same as the minimum value of GDP is 10,14,000 and the maximum is 76,67,000. 45

4.2.1 Frequency tables Frequency tables are shown below; Manufacturing Frequency 1 1 1 1 1 1 1 1 1 1 1 1 1 1 14 Percent 7.1 7.1 7.1 7.1 7 .1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 100.0 Valid Percent 7.1 7.1 7.1 7.1 7.1 7 .1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 100.0 Cumulative Percent 7.1 14.3 21.4 28.6 3 5.7 42.9 50.0 57.1 64.3 71.4 78.6 85.7 92.9 100.0 Valid 57936 153388 153572 162964 163738 189720 196294 280069 456610 616360 656771 7257 54 766465 888067 Total GDP Frequency 1 1 1 1 1 1 1 1 1 1 1 1 1 1 14 Percent 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 100.0 Valid Percent 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 100.0 Cumulative Percent 7.1 14.3 21.4 28.6 35.7 42.9 5 0.0 57.1 64.3 71.4 78.6 85.7 92.9 100.0 Valid 1014000 1982000 2550000 3224000 3660000 4260000 4846000 4847000 4963000 6000000 6381000 6920000 7369000 7667000 Total 46

4.2.2 Pie charts Here the frequencies have been presented in the form of Pie Chart; Manufacturing 57936 153388 153572 162964 163738 189720 196294 280069 456610 616360 656771 7257 54 766465 888067 GDP 1014000 1982000 2550000 3224000 3660000 4260000 4846000 4847000 4963000 6000000 6381000 6920000 7369000 7667000 47

4.2.3 Histogram Here data has been presented in the form of Histogram. Manufacturing 6 Frequency 4 2 Mean =390550.57 Std. Dev. =283382.636 N =14 0 0 200000 400000 600000 800000 1000000 Manufacturing The above showed histogram is normal but skewed to the right side. Though during this period there is some increase in manufacturing but growth of this sector i s still declining. This is known as Decreasing Return. 48

GDP 4 3 Frequency 2 1 Mean =4691642.86 Std. Dev. =2048119.648 N =14 0 2000000 4000000 6000000 8000000 GDP The above showed histogram is normal and equal skewed to both the sides. There are two multi-collinear points, thats why the his togram didnt show a column. During this period of 14 years GDP growth is normal. 49

4.3 Descriptive analysis Descriptive analysis of our data are as follows; Descriptive Statistics N Manufacturing GDP Valid N (listwise) 14 14 14 Range 830 131 6653000 Minimum 57936 1014000 Maximum 888067 7667000 Mean 390550.57 4691643 Std. Deviation 283382.636 2048119.648 Variance 8E+010 4E+012 N represents the number of years, from which the data has been gathered. Range ref ers to the extreme values in a set of observations. Manufacturing range figure is 8,30,131 and of GDP is 66,53,000. Th e minimum production of automobile is 57,936 and the maximum is 8,88,067. Same a s the minimum value of GDP is 10,14,000 and the maximum is 76,67,000. The mean o r Annual average production of automobile is 3,90,550 and annual average GDP is 46,91,643. Standard Deviation is that, how much value has been increased or decr eased with by the mean. The standard deviation of manufacturing is 283382.63 and of GDP is 20,48,120. Variance is the absolute change in the values by the mean. Manufacturing variance is 8E+010 and GDP variance is 4E+012. 50

4.4 Regression Analysis The goal of regression analysis is to determine the values of parameters for a f unction that cause the function to best fit a set of data observations that you provide. In regression analysis we examine the effect of one variable (Independent) on the other one (D ependent). The resulting scatter plot shows a nonlinear relationship between both the variables. As you can see that in the start the au tomobile sector was in crises and GDP figures were in ups & downs state but in t he middle the sector showed reasonable growth. And at the end the automobile sec tor is still growing while GDP has fallen down. An appropriate model for this ki nd of pattern is the asymptotic regression model. The asymptotic When regression b2<0, and model b3<0, has it form gives y=b1+b2eb3x. b1>0, Mistcherlichs model of the "law of diminishing returns". This model initially i ncreases quickly with increasing values of x, but then the gains slow and finall y taper off just below the value b1. Choosing starting values The Nonlinear Regression procedure requires that you supply starting values for the parameters in the model. 51

This seems a daunting task at first, but becomes easier with some familiarity wi th the model. b1 represents the upper asymptote for GDP. Looking at the chart, even the larges t sales values fall just short of 80, so thats a reasonable starting value. b2 is the difference between the value of y when x=0 and the upper asymptote. A rea sonable starting value is the minimum value of y minus b1. Looking at the chart, say thats about 7-80=-73. b3 can be roughly initially estimated by the negativ e of the slope between two "well separated" points on the plot. Looking at the c hart there are a few points about x=2, y=10, and about x=6, y=36. The slope betw een these points is 74 20 = 13.5 thus a rough initial estimate for 62 b3 is -13.5. Our results are as follows; Parameter Estimates 95% Confidence Interval Lower Bound Upper Bound 3381906.890 6001378.824 -73.000 -73.000 -13.500 -13.500 Parameter b1 b2 b3 Estimate 4691643 -73.000 -13.500 Std. Error 595068.1 .000 .000 The parameter estimates table summarizes the modelestimated value of each parame ter. Parameters in a 52

nonlinear regression model usually do not have the same interpretation as linear regression coefficients, and often vary from model to model. b1 (Intercept) = 4691643 shows that, this level of GDP does not depend on automobile manufacturing. If automobile manufacturing will be zero in some period, then GDP standard will be like this. Std. Error = 595068.1 is small with respect to the value of the estim ate. So it suggests that we can be confident in the estimate. Confidence interva l shows the variation of the points from the line of interception. Lower bound s hows that how much points are below the intercept line. Upper bound shows that h ow much points are over the intercept line. b2 (Coefficient possible Its of GDP) is the GDP difference when is there between is no and the maximum GDP and manufacturing. confidence standard is equal error to zero of interval the value estimate, so there is no uncertainty. b3 (Exponent of GDP) controls the rate at which the maximum is reached, the so-called "rate constant". Like b2, there is n o uncertainty in the estimate. 53

ANOVA Source Regression Residual Uncorrected Total Corrected Total Sum of Square s 3.1E+014 5.5E+013 3.6E+014 5.5E+013 a df 3 11 14 13 Mean Squares 1.0E+014 5.0E+012 Dependent variable: GDP a. R squared = 1 - (Residual Sum of Squares) / (Correcte d Sum of Squares) = .000. The ANOVA table provides a breakdown of the sum of squares, a measure of variabi lity in the dependent variable, for this model. The Regression row displays information about the variation accounted for by your model. The Residual row displays information abo ut the variation that is not accounted for by your model. The Uncorrected Total represe nts the entire variability in the dependent variable. Corrected Total is adjuste d to only reflect variability about "average" GDP. df represents the degree of free dom which means that the x number of values are free to vary. 1% means 1 of freedom . 54

CHAPTER V SUMMARY, CONCLUSION AND RECOMMENDATIONS 5.1 Summary The Automobile topic of the research sector was in The the role growth of of Manufacturing Pakistans economy. The major objectives of the research were to explore the major reasons behind the downfall in this sector. Its significance is for Pakistans Gov t. to adopt such policies that can contribute in the growth of this sector. In t he second chapter, the researcher reviewed the related literature regarding the automobile sector of Pakistan. In this connection different related terms have been defined and discussed in detai l. In the third chapter data collection procedure has been described, research variables, population and sample have been defined. In the f orth chapter, the data was analyzed with the help of SPSS software, in terms of frequencies and percentages. Descriptive and regression analysis have been added in the report with their explanation. In the fifth chapter, the conclusion was drawn and recommendations were given on the basis of results and conclusion. 55

5.2 Conclusion Based on the results of the study, the following conclusion is drawn: In the light of our research we can say that the automobile sector is a very imp ortant element as far as the countrys economical growth is concerned. The local a utomobile industry has experienced impediment and decline in its different segments as compared to earlier where the industry obse rved tremendous high growth in terms of production and sales. After a significant growth spurt in 2002-2006, th e auto sector in Pakistan is feeling the pain of economic slow-down. The industry is continuing financial in year. a slump Pakistan which is began an in the previous for emerging market automobiles and automotive parts offers immense business and investment opportun ities. The total contribution of Auto industry to GDP in 2007 was 2.8%. Automobile grew from 2001-2007, fixed a t he industry of and the half government million of Pakistan target over units production by the year 2011-12 that now seems out of reach. The most recent statistical data issued by Pakistan Automotive arrival of Manufa cturers the imported Association vehicles explains rising that the and interest 56

rates situation has decelerated the over manufacturing all sales figures of the automobile industry which is considered as a large scale-manufacturing sector of economy. The vast import of used cars has affected demand of locally manufacture d automobiles. The only way forward for the assemblers is either by expansion in their production capacity along with brand extension or through inclusion of updated a nd better quality vehicles in their trading portfolio. However in todays fast glo balizing world changing models, improving fuel efficiency, cutting costs and enh ancing user comfort without compromising on quality industry. are the most impor tant challenges trends, of the the auto Following international industry in Pakistan is also quickly evolving and may soon begin materialize the dream of achieving economies of scale. On the contrary the Pakistani auto market has grown up around 30 percent in the last 10 years. Almost all major automobile units in Pakistan either are running on double shifts or planning to go into double shifts to meet the growing demand . This phenomenal growth in demand is amazing especially in the face of increase d financial charges by the that leasing over 70 or bank financing. of the It may be mentioned percent cars enrooted either through leasing or bank financing in Pakistan. 57

However, Government of Pakistan had undertaken two major initiatives in the form of National Trade Corridor Improvement Program (NTCIP) and Auto Industry Develo pment Program (AIDP) for the development of the automotive industry in Pakistan. Engineering Development Board (EDB) is actively implementi ng the AIDP to increase the GDP contribution engineering of is the a automotive force US$ 3.6 sector. of Automotive scale to the in driving large manufacturing, national contributing and billion 192,000 economy engaging over people direct employment. 58

5.3 Recommendations From feels the conclusion to give of the the study the researcher and obliged following suggestions recommendations. A consistent policy should be declared by the Government every 7-10 years in order to make the local manufacturer more focused and more certain. The current deletion policy should be maintained and official ly announced to lessen the uncertainty created by the WTO agreement. The duty on parts should be increased from 35 percent to 45 per cent to create a gap betwee n CKD which is also 35 per cent. Deletion level should be increased specially of high tech and major engineering parts. Market expansion measures should be take n which will definitely benefit the industry, government and general public in t erms of employment and price. Volume of production should be increased in order to achieve the economies of scale. Localization should be increased and investme nts should be made to increase localization. Financing scheme in options such as leasing and car finance collaboration with banks and financial 59

institutions should be extended on a wider basis so as to increase the purchasin g capacity of the buyers. The car manufacturers should also encourage the use of CNG as an alternative to fuel in order to stimulate the demand of the cars desp ite the rise in fuel prices. The government should also keep a close watch on ne w entrants so as to prevent Foreign Firms from dumping there vehicles to the Pak istan market. In short, Pakistan is geographically an ideally located region for the foreign manufacturers to invest in this market, aiming i. e. regard, to supply Middle the to East, Govt. of the domestic and and CIS regional states. markets In this African Pakistan should formulate conducive and investment friendly policies for foreign investors to an d it will joint Govt. also encourage with define towards local their such the manufacturers foreign policies implement The ventures should counterparts. which can efficiently contribute economical growth of the country. 60

REFERENCES Economy of Pakistan (2009) the Retrieved July, 2009 from of http://Wikipedia, Pakistan free encyclopedia/Economy History of Automobile Industry in Pakistan Retrieved July, 2009 from http://PakWheels.com Automotive Report Market Q3 Research 2009 Reports Pakistan 2009 Autos from Retrieved July, http://just-auto.com

PAMA - Pakistan Automotive Manufacturers Association / Production & Sales.mht Re trieved July, 2009 61

APPENDIX Annual Automobile Mfg. & GDP Figures Automobile Mfg. Sr. No Year (Ind-Var) GDP (Rs) (Dep-Var) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 57,936 1,62,964 1,53,572 1,63,738 1,53,388 1,89,720 1,96,294 2,80,069 4,56,610 6 ,16,360 7,66,465 7,25,754 8,88,067 6,56,771 49,63,000 48,47,000 10,14,000 25,50,000 36,60,000 42,60,000 19,82,000 32,24,000 48,46,000 73,69,000 76,67,000 69,20,000 63,81,000 60,00,000 62