Abstract
Pakistan’s automotive industry is continuing in a slump which began in
the previous financial year and
according to BMI’s recently
published Pakistan Automotives Report, the industry’s performance this
year
will be even worse. In FY08, which ended in June 2008, total vehicle
sales fell by 6.2%. The downturn
carried over into FY09, with sales for
the first half of the year (July to December 2008) down by 48%
year-on-year (y-o-y) to 52,927 units for cars and light commercial vehicles
(LCVs), while compared with
November, sales for December were down 55%.
These results concur with BMI’s forecast for a drop in
sales of cars
and LCVs to around 112,000 units in FY09. We expect the total market to
contract by over
32%, with the worst damage done in the car and bus
segments, which we forecast to fall by 45% each.
Measures are being
considered to arrest the industry’s decline. Pakistan’s Economic
Co-ordination
Committee (ECC) is to consider a tax cut of 10% for domestic
carmakers, which has been suggested by
the Ministry of Industries and
Production. However, the plan is not without its opposition, as the
Federal
Board of Revenue is reportedly against supporting individual
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 industry is also largely
self-sufficient as the majority of its output
is sold within Pakistan;
this reduces the country’s reliance on imports and raises issues such as
the
protection of local jobs and the industry’s contribution to the
overall economy.
The poor state of the industry is reflected in
BMI’s Business Environment Rating for 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 (TRIPS) under the
auspices of
the World Trade Organisation, the country’s regulatory
environment scores well. A number of free trade
agreements also contribute
to this criterion, although forming 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 policy
continuity.
With just a handful of manufacturers, Pakistan’s
competitive landscape remains narrow. Japanese car
manufacturers control
most of the country’s passenger car production and sales. Figures for
FY08 show
that Suzuki-brand models represented 62% of total Pakistani
passenger car production and 51.7% of
sales. Toyota is gaining, however,
as its Corolla became the country’s best-selling model in the first
half
of FY09.
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