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Nine plants were in operation when the industry was nationalised in 1972 and Pakistan
Automobile Corporation (PACO) set up. It was only after 1979 that PACO was finally able to
implement its programmes to develop the automobile industry. To meet local requirements,
PACO launched the Suzuki Project, which started production in 1984. In 1991, Suzuki was
manufacturing 40,846 cars per annum and the deletion rate achieved was above 50 per
cent. For transportation of smaller loads, PACO units started the assembly of Suzuki, Isuzu
and Mazda pickups, coasters, jeeps and vans. To meet the demand for heavier trucks and
buses, Isuzu and Hino production was undertaken at National Motors and Republic Motors.
Later Hinopak Motors was incorporated in the private sector.

In 1987, Ghandara Nissan Diesel Ltd., a joint venture company of Ghandara Nissan (Pvt) Limited, Nissan of Japan
and Toyo Menka Kaisha of Japan started commercial production. The company manufactures Nissan trucks and
buses in Pakistan and is about to introduce passenger cars soon. In 1990, Indus Motor Company (IMC) began
operations with a 20,000 unit capacity plant to manufacture Toyota cars in Pakistan. In 1992, under the privatisation
programme, many PACO units were privatised. Since then, the government policies in respect to the automobile
manufacturing industry remain inconsistent, its efforts to control the budget deficit have also slowed down
development activities resulting in a reduction of economic activities. The economic slump still prevails, sales tax
and other budgetary measures over the last years have proved to be unfavourable for the local auto industry.

Lack of Long-Term Policies

Notwithstanding various attempts by the Automobile industry to recommend a long term industry friendly policy to
encourage local production and indigenisation, the government continues to burden this industry by increasing
tariffs, sales tax from 15 to 18 per cent and additional Commercial Vehicle Tax (CVT). Mr. Javaid Iqbal Ahmed,
Director of Honda Atlas Cars (Pakistan), said in a recent interview that an increase of three per cent in sales tax, 2 to
15 per cent additional CVT and eight per cent customs duty will result in lowering the government revenues by Rs.5
billion. Besides that, the production cost of the units would go up, resulting in a further price increase. The
compound effect of these taxes is so high on the price of the products that either it will result in a drop in the volume
of sales or will soak up the profit margins of these units.

International Scenario

The Japanese, Europeans and Americans are pouring billions into Asian assembly plants and parts factories. They
are counting on politically connected local partners, setting up dealerships, conducting market research and creating
promotional campaigns.

Vehicle sales in Asia are expected to surpass the volumes in North America and Europe by the year 2005, when they
are projected to hit nearly 19 million a year. By conservative estimates, Asians will buy seven to eight per cent more
vehicles each year, well into the next decade versus two to three per cent more per annum for North American and
Europeans.

The overall Asian market, will eventually be the world's largest. But gaining any economies of scale in
manufacturing will be tough as virtually every country in the region uses local content quotas, import duties and a
thicket of regulations to bar the sale of most imported automobiles. Nearly every Asian government is using its
leverage to get the industry's players to hire local workers and build cars with locally made parts.

Pakistan, a Potential Market

Pakistan, with a total population of approximately 130 million, with 35 per cent living in urban areas is a market
with tremendous potential. However, the level of economic development is still low at six per cent and GDP per
capita is about the same level as India and China. The people of Pakistan are without any good urban transportation
facilities. The increasing population of Pakistan has expanded the cities and increased distances. Travelling and
transportation poses a major problem, to the extent that survival without a car is very difficult. There are about four
million vehicles on the road as of today with an annual market growth rate of eight per cent. Unfortunately, this
annual growth rate does not benefit the local industry but remains stagnant as a result of the Afghan Transit Trade
and smuggling.

First Time Buyers, a Major Segment

Among the growing market, there exists a major segment of "first time buyers" who were either motorcyclists or
pedestrians and switched to motor car due to bad weather conditions, poor traffic and lack of public transport. They
form, by far the biggest target market of Asia with an annual income between Rs.150,000-180,000 in Pakistan. They
are either fresh graduates, single or recently married at residing a good 30 to 40 kms. away from their place of work.
Such a buyer considers buying his first car, but finds it difficult to pay cash up front. Subsequently, an analysis
indicated that there exists an unknown consumer in Pakistan whose money, status, business and income are
unaccountable and they purchase vehicles targeted towards first time buyers and economy users as a
second/additional family car.

Pakistan has the right target market and potential to match new product development, innovation and global
strategies of the world automakers for Asian markets. The need in Pakistan is to take a positive step towards creating
a long-term industry friendly policy to encourage local production. Joint ventures are taking place between
Pakistani, Korean and Singaporean companies to undertake urban planning and handle traffic problems. The
government approach in the construction of a network of highways will provide an impetus to local production.

Marketing Professionals

Pakistan possesses skilled marketing professionals in this industry who are both capable and experienced in
managing their units even in adverse economic conditions. IMC, a high capacity unit, running on very high fixed
costs, sustained efforts in adopting a cost leadership strategy and internalising Toyota's guiding principles, thereby
producing quality cars. When comparing the Corolla production standards with those of 11 manufacturers of Corolla
in the world, Toyota Japan rated Pakistan quite high. Marketing professionals at the IMC, beside their strategy of
cost leadership were still able to introduce new developments/products and were successful in maintaining volumes
and retaining the confidence of the market.

 

 



COPYRIGHT 1997 Economic and Industrial Publications

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