Automotive industry in Pakistan started in 1950 and has gone through different phases1950’s (Private sector).1960’s (Private sector). 1970’s (Nationalization). 1980’s onward (Privatization & entry of private sector).

Segment wise Automobile Manufacturing Units

Cars 7 L.C.Vs 7 Jeeps 2 Truck and Bus 5 Tractor 4 Motor cycle 42

Vendors (400 approx)

Industry operates under franchise and technical cooperation agreement with:

Japan Europe Korea China

The automobile sector has been registering high growth for the last four or five years due to the country's business friendly policies along with lower tariff rates, persistent growth in GDP, and per capita income.

Globally considered as the mother of all industries, the auto industry in Pakistan is fast evolving as a robust industry. Some sub-sectors of this fast growing industry, like motorcycle production, have already achieved economies of scale.

The level of motorisation has also been gradually rising over the years. In 1998-99, it was three cars per 1000 persons, which has significantly increased to 11 cars per 1000 persons in 2005-06.

The indigenous production of motorcycles increased by 25 per cent during 2005-06, reaching to an all-time high of 520,124 as compared to 106,797 units in 1996-97, which accounts for around 380 per cent increase in motorcycle production during the last nine years.

The production of trucks as well as that of buses has also posted sufficient increase during the last 10 years. Some 2,994 units of trucks were being produced in the country in 1995-96 which, over the years, have increased to 4,518 units, showing a rise of 51 per cent. In the case of buses, the rise in production is more pronounced as compared to that of trucks as their production augmented by around 74 per cent during the last decade or so.

It may be mentioned that Central Board of Revenue (CBR) has suggested levying 6% withholding tax on purchase of new cars with an objective to broaden the tax net. However, the imposition of withholding tax on purchase of new cars is not likely as this will ultimately increase the prices and encourage imports of cars.

The industry however is likely to have a neutral impact on the automobile sector. Implementation of Tariff Based System (TBS) and auto industry investment policy are few of the

measures that are expected in the upcoming budget.

The industry has achieved a phenomenal growth of 50.2 percent in FY04 and increased competition has led to the introduction of innovative products as well as a decline in financing costs. Compared with Pakistan, India has a strong engineering base and has successfully created a sizable capacity for production of vehicles. It enjoys a clear edge over Pakistan in the automobile sector. Indian auto companies are highly cost competitive due to appropriate levels of automation and low cost automation and have achieved a high level of productivity by embracing Japanese concepts and best practices. India is already the second largest two wheeler manufacturer, second largest tractor manufacturer, and fifth largest commercial vehicle manufacturer in the world and has the fourth largest car market in Asia. The automobile industry in India is now gradually evolving to replicate those of developed countries. Pakistan can import automotive components and spare parts from India at a lower price as presently these items are being imported from the Far East at higher prices. On the other hand, India is expected to benefit from free trade due to its low raw material, electric and labor costs.

Introduction

The automotive industry rightly prides itself on being recognized as the “mother of all industries.” In its folds it carries many different kinds of vehicles to provide mobility to people and goods. While they may appear to be simple machines, their design and manufacturing have much deeper roots in all the known technologies. In-depth knowledge and skillful application of mechanical, 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 services for consumption of the entire international community. Use of the word “mother” for automotive industry is therefore the most appropriate description to define the nature and importance of the industry.

In recent years, we have witnessed that the industrialization of South East Asian countries greatly depend on the development of their automotive industry. Similarly, automotive industry acted as a catalyst in the overall growth of the industry in Japan and Korea and the consequent well being of their citizens.

It is indeed heartening that the mother has once again smiled at Pakistan. Fortunately the last 3 years have witnessed phenomenal growth in the industry in terms of technological advancements and production/sales volumes with the local contents rising as high as 90%. The industry is already employing 120,000 people, contributing more than 12 billion rupees to GDP,

contributing more than Rs. 30 billion to the national exchequer in terms of duties and taxes, attracted investment worth Rs. 52 billion including a substantial foreign investment. Today the customers have choice to pick from a wide range of products including motorcycles, trucks, buses and cars of premier Japanese and Korean brands at internationally competitive prices which has only become possible due to local contents and availability of highly productive and inexpensive human resources.

An automobile has over 2000 components and parts out of which the assemblers usually concentrate on the manufacturing of small but critical parts while the remaining parts are supplied by the vendors and the subcontractors.

In Pakistan the automobile components manufacturing industry consists of mainly units producing original components for assembly under deletion program and units producing reconditioned and original components for local use.

These units are in three types which include the original equipment manufacturers, independent manufacturers and the ancillary industry producing small parts and non-automotive items.

There are more than 800 vendors in the country with a total investment of over eight billion rupees; they are engaged in the manufacturing of original components for the assembly operation under the deletion program as well as producing reconditioned and original components for sale in the local market.

They manufacture and supply the local car assemblers with auto parts such as pistons, engine valves, gaskets, camshafts, shock-absorbers, struts, steering mechanism, cylinder head, wheel hubs, brake drums, wheels, bumpers, instruments and instrument panels, gears of all types, radiators, cylinder liners, blinkers, lights, doors and door locks as well as auto air conditioners.

Critics said that the local vendor industry though still in the process of development could not achieve the deletion targets by producing low quality components which are not acceptable by the local assemblers, it is said that the Pakistan Association of Automotive Parts & Accessories which represents the auto parts manufacturers have not in a way been fully able to contribute its share to the development of the sector.The vendors on their part however put the blame on the policy makers and partly on the assemblers who have not been encouraging the local vendors as such.

On the other hand it is said that the foreign car principals have no justification for their complaints because of the level of their participation in the local vendor industry. Hino trucks it was pointed out have started manufacturing wheel drums locally while Suzuki is still complaining about the quality of silencer it received from the local vendors.

In the world trade, Auto Sector is one of the largest segments. It is the major driver of economic growth and business activities. It puts multiplier impacts on the economy. Day-in, day-out around 200,000 vehicles roll off the world’s assembly lines with car as the dominant segment of the industry.

Evolution of Automobile Industry in Pakistan

Automotive industry in Pakistan started in 1950 and has gone through different phases of progress as summarized below:-PERIOD MANUFACTURING OPERATIONS VEHICLES COMPANY1950’s

(Private sector).SKD Assembly. Bedford trucks/buses. General Motors.1960’s

(Private sector).SKD/CKD Assembly

Indigenization in :- i) Bedford trucks /

buses - 40% approx.

ii) Cars - 20%.Bedford trucks/buses, Ford Combi vans,

Vauxhall, Ford Prefect, Ford Cortina and Dodge Dart cars.Gandhara Industries Ltd. (formerly General Motors).1970’s

(Nationalization).SKD/CKD Assembly

Indigenization process accelerated and achieved 80% deletion in Bedford trucks/buses by 1976.Bedford Trucks/ Buses, cars (upto 1972). PACO1980’s onward

(Privatization & entry of private sector).Progressive manufacturing of cars under Deletion Programme. Suzuki, Toyota, Honda, Hyundai, Santro, Kia, Cuore, Revo and Chevrolet cars. PACO, Pak Suzuki Motors, Indus Motors, Honda Atlas Cars and Dewan Farooq Motors, Adam Motors, Nexus Auto

Segment wise Automobile Manufacturing Units

• Cars 7

• L.C.Vs 7

• Jeeps 2

• Truck and Bus 5

• Tractor 4

• Motor cycle 42

• Vendors (400 approx)

Operational Environment

Industry operates under franchise and technical cooperation agreement with:

§ Japan

§ Europe

§ Korea

§ China

Production

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Source: PAMA

The two segments of the industry namely; car and two wheelers have shown remarkable growth over the last five years. The growth in domestic market of cars has risen from 40,601 in 2001-02 to 126,817 in 2004-05, which is expected to cross 150,000 units during 2005-06. This growth is attributed mainly by car financing schemes, improved liquidity position of certain class as a result of economic growth indicators and other monetary measures.

The motorcycles have also shown marvellous growth due to new entrants. The new entrants with fair competition have brought about the availability of cheaper vehicles in the domestic market.

Vendor Industry

The industry has the potential for development of entire engineering sector. Development of vendor industries in return assures transfer of technologies in nearly all spheres of engineering, specifically, metallurgy, plastics and glass.

Technology exists for major engine, suspension and transmission components but due to limited market, prospective entrepreneurs shy away from investment. Over 400 vendors are engaged in the production of auto parts locally including tyres, sheet metal parts, mirrors, gaskets, engine valve, camshaft, oil pump gears, pistons, radiators, seats, dashboard, and axles.

The Beginning of the Pakistan Automobile Industry

Pakistan is basically an agrarian economy since its independence. In 1947, agriculture contributed more than 62% towards GDP whereas contribution of manufacturing sector toward GDP was only 7%. Pakistan inherited only 5% of the large scale industrial facilities of British India. At that time Pakistan hardly had any industrial base and was without any institutional, financial or energy resources. Besides, basic infrastructural facilities, technical skill and other pre-requisites for development were also lacking. There were neither any automobile assembly

plants nor were any industrial capabilities available for this sector. However, the development of this industrial sector started soon after the independence. Peace in the country and development planning by government resulted in increased economic growth that sequentially laid the foundation of industry.

First serious effort by government to develop the industry and engineering sector in particularly was observed in 1950 when a six-year plan (First Development Plan) was drafted to guide government investment in developing the infrastructure. For auto industry, to overcome the initial difficulties, the government, besides developing infrastructural facilities established the Pakistan Industrial 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 large capital or were less profitable. These steps results in growth of the industrial sector resulting 56.62 % growth of the manufacturing sector from 1949-1955.

Investment in the automobile industry in Pakistan started in the mid-50's when Kandawalla Industries established its units for assembling buses and trucks, the company's name was later changed to Naya Daur Motors.

National Motors took the indigenization when it came out in the 60's and was said to have reached above 80% deletion of the Bedford lorries and trucks before it closed down.

Kandawalla Motors on its part came up with 'Nishan' , a jeep copied on the pattern of Willeys Jeep of USA by the Pakistan Army, it was said that the project was successful but was killed before the commercial production could begin. It may worth mentioning here that the same blueprint is said to still be in use in Iran till today but under their own brand name.Second Period 1964-72

Period of Progressive Manufacturing

Potentials of industry and high demand of the products attracted new entrants whereas the 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 history of Pakistan. The idea of progressive manufacturing was first mooted by the Ghandhara 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 small steps. According to the planning then done 100% local manufacturing was to be achieved in seven to ten 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 technology, self-reliance or economy. For example, as against the targets set of manufacturing 100% of local contents in maximum 10 years actually achieved deletion in eighteen years is 45.78% for trucks

& buses, 43.17% for trucks & buses engines, 16.50% for 4x4 jeeps and zero percent for cars. Furthermore, no new units for manufacturing passenger cars, 4x4 vehicles, LCVs, buses and trucks were established under this concept, but still few new units for producing tractors, jeeps and specialized vehicle were established. New units established were Atlas Honda, Khawaja Autos, Rana Tractors, Jaffar Industries, and Bela Engineers. A more market oriented approached was observed by Honda motorcycles and Vespa scooters during this period, as they introduced light motorcycles for the first time in a market dominated by heavy motor bikes like BSA, Triumph and Lamberetta scooters.Third Period 1973-87

Nationalization of Industries

Following the progressive manufacturing period, nationalization of industries under Economic Reforms order had a profound impact on automobile industry in Pakistan. In early 1972 under Martial Law Regulation, the Government took over the control of 32 industrial 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 Government were included iron and steel, heavy engineering, heavy chemicals, assembly and manufacturers of motor vehicles.TABLE 1: NATIONALIZED UNITSASSEMBLER RENAMED ASSEMBLER RENAMEDWazir Ali Engg. Sind Engg. Hyesons Mack TrucksAli Autos Awami Autos Rana Tractors Millat TractorsHaroon Ind/Karachi Auto Republic Motors Jaffer Trailer DevpGhandhara National Motors Ghandhara National MotorsKandawala Ind. Naya Daur Ali Autos Awami Autos

Initially, the management of these industries was taken over by the government, but in August 1973, the President promulgated the Economic Reforms (Amendment) Ordinance after which the Federal Government acquired majority ownership of shares of these industrial units. After nationalization, these units were renamed (see table 2), their functions were redefined and Pakistan Automobile Corporation (PACO) was created in 1973 as a holding corporation under the administrative control of the Federal Ministry of Production.

FORMATION OF PACO

In order to manage the automobile units and to advise the Government (in developing policy guidelines for growth and development of auto industry), Pakistan Automobile Corporation (PACO) was formed in 1973 under the administrative control of the Federal Ministry of

Production. It was a major public industrial conglomerate of 15 companies including four joint ventures. For the first time in Pakistan emphasis was given to develop 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 manufacture components and to achieve a local content of 75% over a five year period. A number of small and large industrial units that were mostly functioning in the unorganized sector were channelised into a more formal pattern of production management under the PACO control. The direction for achieving quality standards as laid down by the "Principals" was also established. The MOI was entrusted the responsibility of allowing any waiver for non-performance, and was applicable if CBR also concurred.

PERFORMANCE UNDER GOVERNMENT CONTROL

According to the government resources, the nationalized industries made progress on a wide front. In 1973-74, large scale manufacturing sector achieved a growth rate of 7% as compared to 11.8% achieved in 1972-73. The performance of automobile and farm equipment group was the best with production recording an increase of 78.6%, followed by chemicals (30%) and steel and engineering (15.1%).

It can be observed that number of units in almost all areas of automobiles developed in this phase. The distinctive feature of after nationalization period is the assembly of Suzuki range of vehicles (Cars, P/up, Vans & Jeeps) and Isuzu Trucks & Buses in the public sector. Awami Autos signed a Joint Venture Agreement with Suzuki Motor Co. of Japan and a new company by the Name of Pak Suzuki Motor Co. Ltd was established in 1982 to produce Suzuki range of vehicles at the existing facilities of Awami Autos. PACO also established two units in the public sector namely Baluchistan Wheels and Bolan castings.

The performance of PIDC was also excellent under the nationalization reform and it also contributed towards the progressive manufacturing. The performance of PIDC can be evaluated from the fact that by the end of December 1973, PIDC was successful in completing 62 projects at a capital cost of Rs 1,242.6 million.

In March 1974, 16 industrial projects were transferred to the respective 12 corporations set up by the Federal Government. Including in these projects were Pakistan Machine Tool Factory, Heavy Mechanical Complex and Heavy Foundry and Forge Projects. Subsequently, the remaining 10 projects under the PIDC’s control were also transferred to the Mineral Development Corporation. During 1972-73, the PIDC- managed projects and companies produce goods worth Rs. 470.5 million as against Rs. 446.6 million in 1971-72.Fourth Period 1987-95

Privatization of Industries

The policy of de-nationalizing public sector units was adopted once the change in government took place. Privatization brings in foreign companies. This results in a number of joint ventures. Due to these ventures, Pakistan auto industry enters into assembly/progressive manufacture of passenger cars, commercial vehicles and motorcycles. Once the new management of cars and motorcycle assemblers took over the control they entered into joint ventures with foreign companies mostly Japanese, for further development. Most important joint venture that took place was of Atlas with Honda and Indus Motor with Toyota.

Similarly, Naya Daur which after discontinuation of AMC-Jeep franchise had, become a mere vendor to Pak Suzuki (assembling Suzuki Jeeps) was sold to Tawakal group. Under the Government de-nationalization policy Naya Daur entered into Joint Venture with Kia Motors of Korea and started assembling Kia Ceres Pickups and Kia Pride Cars.

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 not crystal clear and has many short comings

NEW MANAGEMENTIndus Motor Co Toyota/Habib Pak Suzuki Motors Co. Suzuki Motors JapanHonda Atlas Honda/Sharazi Naya Daur Motors Tawakal Group

Analysis Of The Automobile Industry

The automobile sector has been registering high growth for the last four or five years due to the country's business friendly policies along with lower tariff rates, persistent growth in GDP, and

per capita income.

Globally considered as the mother of all industries, the auto industry in Pakistan is fast evolving as a robust industry. Some sub-sectors of this fast growing industry, like motorcycle production, have already achieved economies of scale.

The tremendous rise in automobile production has resulted from increased domestic demand, giving a healthy impetus to the industrial output and generating over 150,000 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 per cent is maintained during the coming years, the country's auto market will cross the milestone of 500,000 units by the year 2010.

During the financial year 2005-06, the sale of locally assembly cars posted an impressive growth of 22 per cent, rising to 155,514 units as against 127,309 units during the previous year.

To ease the pressure on rising demand and to curb the evolving culture of premium on the factory price, some 40,000 vehicles were also imported during the said period.

Pakistan has made its debut in the vehicle export market by exporting its first batch of Land Rover Defenders to Sri Lanka. M/s Sigma Motors - the sole distributor and assembler of Land Rovers in the country - holds the distinction of being the first exporter of these diesel engine vehicles.

Since starting assembly operations in May 2002, Sigma motors have assembled over 3,000 Land Rover Defenders, which are in use all over the country. Now, the company is geared to assemble 2,000 vehicles per annum. In addition to looking after the needs of fleet customers, the company is also pursuing export opportunities in the regional countries.

Being an icon of automobile industry, the Land Rover Defender is presently being used in over 150 countries around the world because of its simplicity of design and sturdiness.

As far as the production of cars in the country is concerned, against 30,131 cars in 1995-96, production stood at 160,642 units in 2005-06, showing an increase of 430 per cent during the last 10 years. The local carmakers are expected to roll out 200,000 cars during the current year, while the country has an annual production target of 500,000 to achieve by the year 2010.

As a result of this demand driven growth in the production of cars in the country, all automobile units are now either running on double shift basis or intend to go into double shifts.

The level of motorisation has also been gradually rising over the years. In 1998-99, it was three cars per 1000 persons, which has significantly increased to 11 cars per 1000 persons in 2005-06.

For a developing country like Pakistan, such rapid motorisation is a sure indicator of accelerated growth in the industrial sector in general and the auto sector in particular.

Notwithstanding a manifold increase in car production during the last few years, the country still stands relatively low in terms of motorisation when compared globally and even to its neighbours like Iran, which has a ratio of 23 cars per 1000 persons. Naturally, the demand for cars in the country is still a lot greater than their supply.

Similarly, the indigenous production of motorcycles increased by 25 per cent during 2005-06, reaching to an all-time high of 520,124 as compared to 106,797 units in 1996-97, which accounts for around 380 per cent increase in motorcycle production during the last nine years.

Pakistan aims at producing 700,000 units of motorcycles during the year 2006-07. Since it has achieved autarky in the production of motorcycles, the country has started exporting the units over and above its national requirements to overseas markets.

The production of trucks as well as that of buses has also posted sufficient increase during the last 10 years. Some 2,994 units of trucks were being produced in the country in 1995-96 which, over the years, have increased to 4,518 units, showing a rise of 51 per cent. In the case of buses, the rise in production is more pronounced as compared to that of trucks as their production augmented by around 74 per cent during the last decade or so.

The increase in demand for automobiles can be traced to rising income levels, creation of new job opportunities and liberal auto financing by 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 alone, some 2000 vehicles are registered every month.

While all this is leading the motorisation of the country, it can't be ignored that this influx of new vehicles 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.

Presently, over five million registered vehicles are plying on the country's roads, measuring 0.8 million kilometers. Some 457 motorways have already been constructed in the country, while more highways are planned to be built in different parts of the country with Rs527 billion (US$ 878.3 million) in the next eight years.

The road construction spree would further bolster economic activities, creating new jobs and

more opportunities for gainful employment all over the country.

Meanwhile, auto financing and other such schemes have given rise to lucrative consumer banking. Though the main objective of consumer financing is to solve some of the immediate or short-term problems of the customers, it is resulting, at the macro level, in giving a push to large-scale manufacturing, creating new jobs and 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 faced a dilemma of excess liquidity. Therefore, they started diverting their funds towards the more lucrative consumer financing.

Now, as a matter of policy, most commercial banks are aggressively focusing on consumer financing, through attractive packages, because it offers them a better rate of return as compared to the corporate sector. The average lending rate on consumer financing is around 16 per cent as compared to 9 - 11 per cent on corporate lending.

As a result of this spurt in auto, real estate and IT sectors, almost all banks have registered windfall profits. For example, the National Bank of Pakistan has declared a net profit of Rs12.7 billion (US$ 212 million) and Muslim Commercial Bank Rs8.9 billion (US$ 148 million) for the year 2005, showing an increase of 104 per cent and 251 per cent respectively over their previous year's profits. The performance of other banks is equally impressive. United Bank Limited has declared a net profit of 62 per cent, Faysal Bank 75 per cent, The Bank of Punjab 72 per cent, Union Bank 110 per cent, Metropolitan Bank 80 per cent, Bank Al-Habib 171 per cent and so on and so forth.

Swelling bank profits have enabled them to offer attractive salary packages to their functionaries. A better salary structure would naturally enable the employees to spend more on items like vehicles, which would further push up the domestic demand for automobiles and, in turn, impact their local production as well.

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 fairly 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 market.

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 between the policy-making echelons at government and the whole entity of its member firms.

The Association achieved recognition form the Government of the Pakistan in 1999 and today is represented in many Government and semi government as well as Private Institutions by its members. PAAPAM is the member of the Federal of Pakistan Chamber of Commerce & Industry (FPCCI).

With a registered membership base of over top line tier one 278 members and general manufacturers base of over 1200 companies, PAAPAM has under its wings manufacturing companies making parts for Pakistan’s Cars, Motorcycle, Tractors, Trucks and Buses assemblers. Investments in place now exceed US$ 1.5 billion.

PRODUCTION (P) & SALE (S) OF VEHICLE FROM 1995 ONWARD

CAR 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-071300-1600cc (2000cc Diesel) Upto-Oct.'06Honda (Civic) P 4,666 3,922 4,071 3,928 4,744 5,824 4,615 4,610 5,998 12,359 12,274 1,639S ~ ~ ~ 3,794 4,871 4,873 4,625 4,637 6,097 12,352 11,998 1,951Honda (City) P ~ ~ ~ ~ ~ ~ 3,386 3,786 7,417 11,771 17,606 3,615S ~ ~ ~ ~ ~ ~ 3,382 3,749 7,271 11,714 16,136 3,878Suzuki (Baleno) P ~ ~ ~ 2,412 2,904 1,251 1,240 2,608 4,153 5,965 2,939 0S ~ ~ ~ 2,045 2,883 1,484 1,188 2,588 4,062 5,879 3,173 0Suzuki (Liana) P ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 5,370 4,352S ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 4,571 2,458Toyota (Corolla) P 4,731 5,164 5,651 8,369 8,705 8,486 5,763 12,861 20,525 23,007 31,094 11,162S ~ ~ ~ 8,268 8,778 8,116 6,151 12,867 20,321 23,002 30,527 11,439Nissan (Sunny) P ~ 599 933 481 83 319 81 51 26 0 0 0S ~ ~ ~ 546 95 310 113 69 25 1 0 0Kia (Classic NGV) P ~ ~ ~ ~ ~ ~ ~ 459 188 465 0 0S ~ ~ ~ ~ ~ ~ ~ 687 81 546 0 0Kia (Spectra) P ~ ~ ~ ~ 890 1,784 2,091 384 73 1 0 0S ~ ~ ~ ~ 825 1,375 2,287 434 127 7 0 01000ccSuzuki (Khyber/ Cultus) P 5,720 6,280 5,019 6,991 4,635 6,290 5,441 8,097 10,810 15,591 21,342 8,200S ~ ~ ~ 6,768 4,824 6,027 5,637 7,927 10,795 15,611 21,390 7,913Suzuki (Alto) P ~ ~ ~ ~ ~ 4,489 2,816 4,775 7,196 11,411 17,513 6,560

S ~ ~ ~ ~ ~ 4,187 3,072 4,701 7,148 11,431 16,823 6,789Hyundai (Santro Plus) P ~ ~ ~ ~ 599 3,937 1,667 3,114 7,902 6,101 8,604 590S ~ ~ ~ ~ 378 3,454 2,245 3,135 6,922 7,009 7,031 1,332800ccDaihatsu (Cuore) P ~ ~ ~ ~ 1,353 3,304 2,845 4,580 6,468 8,525 7,883 4,221S ~ ~ ~ ~ 1,382 3,052 3,174 4,579 6,339 8,592 7,883 4,190Suzuki (Mehran) P 8,986 13,482 14,936 16,501 8,548 3,889 10,143 16,748 27,705 31,207 35,433 11,121S ~ ~ ~ 15,841 7,838 5,169 9,964 16,582 27,432 31,165 35,982 10,757Suzuki (Margalla) P 6,028 3,174 3,074 ~ ~ ~ ~ ~ ~ ~ ~ ~S ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~TOTAL CARS: P 30,131 32,621 33,684 38,682 32,461 39,573 40,088 62,073 98,461 126,403 160,058 51,460S ~ ~ ~ 37,262 31,874 38,047 41,838 61,955 96,620 127,309 155,514 50,707

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07TRUCK Upto-Oct'06Hino P 1,533 1,164 240 261 489 294 618 792 1,020 1,196 1,499 773S ~ ~ ~ 278 455 309 626 758 948 1,262 1,449 601Nissan P 383 795 483 251 174 198 206 627 898 1,306 1,652 186S ~ ~ ~ 259 193 198 204 614 845 1,326 1,478 258Dong Feng P 789 696 784 486 250 420 310 510 104 23 4 2S ~ ~ ~ 430 318 351 378 511 75 27 16 2Master P ~ ~ ~ ~ ~ ~ ~ ~ ~ 551 466 171S ~ ~ ~ ~ ~ ~ ~ ~ ~ 565 464 141Isuzu P 165 79 59 N.A. N.A. N.A. N.A. N.A. N.A. 128 897 366S ~ ~ ~ ~ ~ ~ ~ ~ ~ 165 866 353Volvo P ~ 4 112 85 0 0 0 0 0 0 0 0S ~ ~ ~ 4 56 67 0 0 0 0 0 69Transmobile (Yasoob) P 124 179 5 ~ ~ ~ ~ ~ ~ ~ ~ ~S ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~TOTAL TRUCKS: P 2,994 2,917 1,683 1,083 913 912 1,134 1,929 2,022 3,204 4,518 1,498S ~ ~ ~ 971 1,022 925 1,208 1,883 1,868 3,345 4,273 1,424

BUSHino P 186 206 186 258 534 444 630 756 1,195 1,392 668 264S ~ ~ ~ 223 501 455 560 795 1,187 1,293 649 309Nissan P 50 79 108 266 146 102 36 60 96 120 48 12S ~ ~ ~ 252 162 102 36 36 107 93 79 12Dong Feng P 154 70 220 600 780 780 420 480 89 110 40 4

S ~ ~ ~ 585 699 827 469 501 69 131 47 12Master P ~ ~ ~ ~ ~ ~ ~ ~ ~ 21 6 1S ~ ~ ~ ~ ~ ~ ~ ~ ~ 23 10 1Isuzu P 84 101 77 N.A. N.A. N.A. N.A. N.A. N.A. 119 63 26S ~ ~ ~ ~ ~ ~ ~ ~ ~ 65 142 17TOTAL BUSES: P 474 456 591 1,124 1,460 1,326 1,086 1,296 1,380 1,762 825 307S ~ ~ ~ 1,060 1,362 1,384 1,065 1,332 1,363 1,605 927 351

LCV 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07(4X4) Upto-Oct'06Suzuki Jeep (Potohar) P 2,274 792 657 622 380 459 564 374 807 1,120 1,290 484S ~ ~ ~ 615 464 432 506 465 807 1,107 1,298 475Sigma (Defender) P ~ ~ ~ ~ ~ ~ ~ ~ ~ 444 1,182 384S ~ ~ ~ ~ ~ ~ ~ ~ ~ 407 1,222 374VANSuzuki (Bolan) P 3,288 4,411 4,992 4,245 2,871 1,983 2,591 4,359 5,201 7,319 10,429 4,088S ~ ~ ~ 4,075 3,037 2,263 2,540 4,360 5,228 7,241 10,451 4,070PICK-UPSuzuki (Ravi) P 1,743 2,376 2,620 2,034 1,066 778 1,482 1,701 2,085 3,310 5,418 2,695S ~ ~ ~ 1,952 1,121 854 1,472 1,710 2,087 3,286 5,416 2,684Toyota (Hilux) P 939 2,177 2,223 1,800 1,185 1,411 1,697 3,045 2,229 3,394 2,575 0S ~ ~ ~ 1,799 1,223 1,360 1,741 2,861 2,399 3,389 2,551 30Dong Feng P ~ ~ ~ ~ ~ ~ ~ ~ 304 21 24 3S ~ ~ ~ ~ ~ ~ ~ ~ 209 86 33 7Hyundai (Shehzore) P ~ ~ ~ ~ 1,534 2,793 2,721 3,069 4,270 8,022 9,368 2,067S ~ ~ ~ ~ 1,429 2,827 2,774 2,987 4,203 8,012 9,234 2,149Master P ~ ~ ~ ~ ~ ~ ~ ~ ~ 1,547 1,767 435S ~ ~ ~ ~ ~ ~ ~ ~ ~ 1,528 1,717 397TOTAL LCVs: P 8,244 9,756 10,492 8,701 7,036 7,424 9,055 12,548 14,896 25,177 32,053 10,156S ~ ~ ~ 8,441 7,274 7,736 9,033 12,383 14,933 25,056 31,922 10,186

(2000cc 4WD)Kia (Sportage) P ~ ~ ~ ~ ~ ~ 513 820 802 414 0 0S ~ ~ ~ ~ ~ ~ 503 814 698 425 0 0TOTAL SUV: P ~ ~ ~ ~ ~ ~ 513 820 802 414 0 0S ~ ~ ~ ~ ~ ~ 503 814 698 425 0 0

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

FARM TRACTOR Upto-Oct'06Fiat (New Holland) P 6,503 4,939 6,288 12,198 18,373 16,265 9,138 12,114 16,637 20,840 24,574 8,495S ~ ~ ~ 12,272 7,038 15,876 9,371 12,617 16,888 21,163 24,649 8,433Millat (Massey P 9,590 5,478 7,856 14,446 6,186 15,370 14,663 14,126 19,133 22,360 24,313 6,742Ferguson) S ~ ~ ~ 15,142 16,163 15,245 14,630 14,215 19,012 22,415 24,153 6,545TOTAL FARM P 16,093 10,417 14,144 26,644 24,559 31,635 23,801 26,240 35,770 43,200 48,887 15,237TRACTORS: S ~ ~ ~ 27,414 23,201 31,121 24,001 26,832 35,900 43,578 48,802 14,978

MOTORCYCLEHonda P ~ 68,637 63,463 59,639 59,357 78,397 90,111 115,924 190,679 287,271 360,561 105,000S ~ ~ ~ 61,536 58,579 78,062 90,027 117,201 190,424 287,172 360,110 105,471Yamaha P ~ 38,160 25,040 23,435 23,448 22,999 22,444 27,427 50,407 71,560 74,423 17,490S ~ ~ ~ 23,276 23,719 23,222 22,024 27,886 50,435 71,498 74,293 17,783Suzuki P ~ ~ 4,475 4,430 4,154 7,454 8,072 13,610 27,863 26,234 16,954 6,705S ~ ~ ~ 4,738 4,360 7,365 8,062 13,788 27,435 26,002 17,183 6,760Sohrab P ~ ~ ~ ~ ~ ~ ~ 6,801 12,396 12,065 14,804 2,017S ~ ~ ~ ~ ~ ~ ~ 2,403 12,494 12,127 13,943 2,764Sohrab (Triwheeler) P ~ ~ ~ ~ ~ ~ ~ 1,343 3,031 3,258 2,166 615S ~ ~ ~ ~ ~ ~ ~ 585 3,013 3,186 2,218 651Qingqi (Triwheeler) P ~ ~ ~ ~ ~ ~ ~ 10,064 19,007 15,801 17,198 3,054S ~ ~ ~ ~ ~ ~ ~ 10,010 17,855 17,081 15,757 3,149Fateh Hero P ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 34,018 9,430S ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 33,136 9,449TOTAL MOTOR- P ~ 106,797 92,978 87,504 86,959 108,850 120,627 175,169 303,383 416,189 520,124 144,311CYCLES: S ~ ~ ~ 89,550 86,658 108,649 120,113 171,873 301,656 417,066 516,640 146,027

ANNUAL PLANT CAPACITYCARPak Suzuki Motor Co. Ltd. 68,000Indus Motor Co. Ltd. 34,000 *Honda Atlas Cars (Pakistan) Ltd. 30,000Dewan Farooque Motors Ltd. 15,000Ghandhara Nissan Ltd. 6,000

LCV & 4X4Pak Suzuki Motor Co. Ltd. 12,000 (LCV 11,000, 4x4 1,000)Indus Motor Co. Ltd. 8,000Dewam Farooque Motors Ltd. 10,000Sigma Motors (Pvt.) Ltd. 4x4 Land RoverManufactured atGhandhara Nissan Plant.

SUVDewan Farooque Motors Ltd. Not declared

TRUCKHinopak Motors Ltd. 10,000Ghandhara Industries Ltd. 3,000Sind Engineering Ltd. 3,000VPL Limited 500 ****Master Motor Corporation Ltd. 8,050

BUSHinopak Motors Ltd. 2,000Sind Engineering Ltd. 1,000Ghandhara Industries Ltd. 1,800 ***Ghandhara Nissan Ltd. -

TRACTORAl-Ghazi Tractors Ltd. 25,000Millat Tractors Ltd. 25,000

MOTORCYCLEAtlas Honda Ltd. 400,000Dawood Yamaha Ltd. 200,000

Suzuki Motorcycles Pakistan Ltd. 65,000Saigols Qingqi Motors Ltd. 100,000Pakistan Cycle Industrial Cooperative 42,000 **Society Ltd. (Sohrab)

Contribution of Cars and LCV’s to Pakistan’s EconomyDescription Cars LCV’sContribution to GDP Rs. 30 billion Rs. 6 billionRevenue to GOP Rs. 10 billion Rs. 1.5 billionDirect Employment 3000 jobs 1500 jobsInvestment Rs. 10 billion Rs. 2 billionImport Substitution $ 500 million $ 100 millionForeign Exchange Savings $ 200 million $ 70 million

LIST OF LOCALLY ASSEMBLED AUTOMOBILES

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PRICE LIST OF CAR IN PAKISTAN

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LOCALLY ASSEMBLED MOTORCYCLES PRICE LISTS

Your browser may not support display of this image.Porter’s Model Analysis of Pakistan Automobile Industry

Government

The government has always been over protective of the automobile sector. The key behind this argument being that Pakistan’s car market is small and to make any foreign automobile company set up its plant here special set of incentives are needed. Even though this has remained core policy, due to unprecedented increase in demand has made the government rethink its policy.

The most recent example of liberalizing imports in cars has opened up the market for imported cars again. Previously the lobbying power of the manufacturer was so great that duties on imported cars were as high as 300%.

Similar issues can be seen with motorcycle. The availability of more consumer finance has effected the middle income groups too. Government in order to accommodate more these groups has allowed the import of Chinese motorcycle which even at 100 %.

The manufacturers of buses are also facing problems due to misuse of the import laws. After some hue and cry the government has streamlined its policy with the introduction of a pre-determined five-year tariff under the Auto Industry Development Plan (AIDP) to increase production turnover of the auto industry and annual export of parts to $10 billion (Rs600bn) and $650m (Rs39bn) respectively by 2011.

The plan discourages import of used cars through tariff measures and calls for introduction of a computerised registration system on a uniform basis for access across the country.

The annual gross sales turnover of the auto industry, at present, stands at Rs210 billion while export of auto parts are estimated at $35 million. As such, the increase in production turnover is projected to increase by 185 per cent while the exports of auto parts would make quantum jump.

The plan envisages development of two auto-parts vendor clusters near Port Qasim, Karachi and Motorway, Lahore and seeks to reduce the existing monopolistic tendencies of the existing manufacturers by encouraging new entrants.

It seeks to enhance auto-sector’s contribution in GDP to reach 5.6 per cent and the share in manufacturing sector to 25 per cent by 2011. Likewise, the employment level has been projected to increase from 192,000 to 250,000 as direct jobs and from around one million to 2.5 million indirect jobs.

It has proposed a phased reduction of tariff for the high tariff rates of localized items and the tariffs would come down by at least 15 percentage points for the localized components within

five years but still remain higher than CKD (completely knocked down) tariffs for non-localized components.

As such, the tariff for vendors and manufacturers of parts and components which is currently zero for raw material, five per cent for sub-components and 10 per cent for components would be reduced to zero for all the three categories from next year. The import duty on completely built units (CBU) of cars would not be further lowered to encourage investment in the auto sector, components and manufacturing.

For localized parts of CKD cars, the tariff would reduce from 50 per cent to 45 per cent in 2008-09 and further to 35 per cent in the next two years. The tariff for CKD non-localized parts would be reduced from 35 per cent to 32.5 per cent in 2007-08 and would keep on decline by 2.5 per cent every year to 25 per cent in 2010-11.

The rate for CBU cars up to 1500cc, the tariff would be reduced from 50 per cent to zero next year (2007-08) and to be kept at that level thereafter. For CBU cars between 1500-1800cc, the current rate of 65 per cent would be reduced at the rate of five per cent annually to 50 per cent by 2010-11. For CBU cars exceeding 1800cc, the applicable rate of 75 per cent would be reduced at the rate of five per cent per annum to 50 per cent in 2010-11.

For LCVs, the tariff on CKD kits would be reduced from 20 per cent to 15 per cent at the rate of one per cent every year. However, the tariff for CBU LCVs, the rate would be reduced from 60 per cent to 50 per cent in a phased manner by 2010-11.

For two-wheelers, the tariff on CKD kits would be reduced from existing 30 per cent to 20 per cent in phased manner to 2010-1. Similarly, the tariff on CBU two wheelers would reduce to 60 per cent by 2010-11 from existing rate of 90 per cent.

For localized CKD parts of tractors and heavy commercial vehicles, the existing tariff of 35 per cent has been proposed to be reduced to 25 per cent in 2010-11.

For prime movers (up to 280 HP) the tariff for CKD would be reduced from 10 per cent to five per cent next year and then kept at that level onwards. Similarly, the tariff for CBUs would be reduced to 25 per cent next year and then kept at that level for the next five years. The tariff for prime movers (above 280HP) and would remain unchanged, while it would be reduced for trucks from 10 to five per cent and from 30 to 25 per cent next year.

The government has also proposed to allow the assembly of new entrants through import of 100 per cent CKD kit at the rate of duty applicable to non-indigenised parts. However, they would be asked to provide a commitment to develop and purchase local parts for fitment in the locally assembled cars. Some productive asset investment incentives would also be provided to the vendors and manufacturers.

Buyer Power

In Pakistan automobile market the power of the buyer 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 were made 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 buyers is limited to certain models out of which maximum premium is of Rs 60,000 is on Corolla Xli. Thus the power of buyers in Pakistan our auto sector is does not play a significant part in determining how policy is determined.

In our analysis the major reason for lack of buyer power is lack of consumer groups in our country. As our country is still progress it is hoped that in the future with development of consumer groups in the country will lead to similar formations in the automobile sector.Supplier Power

The power of manufacturing companies is immense in our country. All companies have their CKD kits imported from abroad through their parent companies. This situation offers little room for local suppliers. Another aspect which might have been useful to supplier is the deletion program. The government has not been able to implement it due to lobbying power of the manufacturing companies. As a result supplier tend to toe the line of the manufacturers. This scenario is present in all segments of the auto industry in Pakistan.Threat of New Entrants

In our industry we have become prone to Honda, Toyota and Suzuki even if the public is getting a better imported car in same price range major part of our population will go for same existing local assembled brands.

There is lot of dissonance about imported cars. Consumers tend to assume that they have defects and the dealer is trying to sell them something not worth their money. Imported cars may excellent safety standards but lack of awareness of them is hindrance in the local market. With all this said, imported cars have reduced the premiums on cars.

The upcoming entrants in the cars market who plan to setup assembly plants are Proton and Renault. This is likely to make the competition and reduce prices.

The story is different in motorcycle market. The lower income group which have been offered imported Chinese motorcycles lead them to accept this as the other Japanese brands did not fall in their category. This has lead to prominent brands reducing their prices by Rs 10,000 to Rs 15,000.Rivalry

There is very strong competition in motorcycle industry with many Chinese motor bikes coming into the market. In their response the local manufacturers had to decreased prices by Rs 10,000 to Rs 15,000. There are currently 44 motorcycle assemblers in Pakistan. Today the customers have a choice of wide range of motorcycle of Japanese and Chinese brands at internationally competitive prices which have only become possible due to local contents and availability of highly productive and inexpensive human resources.

The motorcar industry has also seen a drastic change with the import of vehicles being allowed in the recent few years there have been a large number of imported cars flushed into the market which have led to the decrease in on-money prices of the locally assembled car

New firms have also entered the market such as proton and Renault are having talks with the government to enter the market both these company’s have the intention of setting up plants in the country which will increase the local assembled car production

Buses and Trucks in Pakistan

Pakistan has a growing market for vehicles and accessories (including tractors), offering exceptionally good sales opportunities for exporters in the bus and heavy truck segments. The total number of vehicles in Pakistan is over 4.9 million units. Annual demand is estimated at 300,000 units, which is being met from local sources and imports. Total imports are valued at US$300 million. The local production of after market vehicle parts and accessories is estimated at US$850 million. Four hundred vendors that manufacture vehicle parts and accessories support 25 vehicle manufacturing and assembly facilities in Pakistan. Only five of these vehicle manufacturers are engaged in the manufacture/assembly of buses and trucks.

The vehicle industry demonstrated a very impressive growth rate of 46.7 percent during the past fiscal year, mainly due to growth in demand and the availability of consumer credit and low interest rate loans. The local governments encourage franchised companies to introduce more buses on city routes by providing 4 percent loans for bus purchases. The government is also

giving 10 percent rebates of custom duties for the import of public transport vehicles. Recently, the government exempted buses in Completely Knocked Down (CKD) condition from customs duty irrespective of whether they ran on Compressed Natural Gas (CNG) or diesel fuel. Import under this customs duty exemption is channeled through Small and Medium Enterprises Development Authority (SMEDA) and vehicles imported under this scheme cannot be resold or transferred without obtaining permission from SMEDA. The general tariff regime in Pakistan is 20 percent on CKD both buses and trucks; and 60 percent on Completely Built Units (CBU) for trucks and 20 percent on CBU for buses.

Buses using Compressed Natural Gas (CNG) are particularly in demand, as the government applies the National Environmental Quality Standards related to air, water, and noise pollution to the vehicle industry. CNG is an indigenous smoke-free, and relatively clean fuel. Recently, the government has made tremendous progress in promoting CNG usage by setting up filling stations, converting petrol-run vehicles, and providing incentives to entrepreneurs. As a result, more than 265,000 vehicles have already been converted to CNG and the clean fuel has gained instant popularity. Pakistan is reported to rank third among the CNG users in the world.

Companies engaged in manufacturing and assembling buses and trucks should consider entering this market. For companies interested in selling vehicles in Pakistan, the best strategy is either to find a local partner to act as the sole distributor/agent or to register and establish a representative office in Pakistan. Pakistan has a sophisticated and regulated banking industry with both state-owned and private banks offering a full range of financial services including trade financing.

MARKET CHARACTERISTICS

STATISTICAL DATA

Market Size (U.S. Dollars, in Millions)FY-2000/01 FY-2001/02 FY-2002/03 Projected Avg. Annual Growth rate for following 2 YearsImport Market 200 220 300 30%Local Production 500 700 850 20%Exports 30 25 30 5%Total Market 670 895 1120 25-30%Imports from US 2.2 2.5 3.5 5%Exchange Rate 1US$=Pak Rupees 55 57 58

Source: Imports, Exports, Production: Federal Bureau of Statistics, Trade Sources and estimates

OVERVIEW (TRENDS AND HIGHLIGHTS)

Pakistan offers a promising market for vehicles and accessories, with good sales opportunities for exporters in some segments of the industry. The total market has expanded from U.S.$670 million in FY-2001 to U.S.$ 1.2 billion in FY-2003 and is expected to grow by 25-30 percent annually over the next two years. Available data indicates that the U.S. import share grew from 2.2 percent in 2001 to 3.5 percent in FY-2003. Other major suppliers were Japan, South Korea, Italy, and China. Production figures of vehicles are as follows:

Vehicle Production in UnitsDescription Installed Capacity

(per annum)Production

2000-2001Production 2001-2002 Production

2002-2003Motorcycles 340,000 108,500 120,627 165,105Cars 106,000 39,573 40,601 62,073*LCVs 28,000 7,424 9,055 12,548Trucks 12,500 912 1,134 1,929Buses 1,900 1,326 1,086 1,296Tractors 33,000 31,955 23,801 26,240Total 521,400 189,689 196,304 269,191

Source: Pakistan Automotive Manufacturers Association

*Light Commercial Vehicles

Vehicle Export and Import: Pakistan does not qualify as a major exporter of vehicles. Its exports are limited to tractors and a few thousand motorcycles. However, the export of vehicle parts is registering continuous growth over the last few years. The local manufacturer of original equipment manufacture (OEM) parts has encouraged Pakistani vendors to enter the export market. Vehicle-part exports were approximately US$30 million in FY-2003. Exporting destinations including Europe, Australia, Indonesia, Japan, Sri Lanka, Iran, and the Gulf States has enhanced the credibility of Pakistan vehicle parts manufacturers.

Import of CKD (Completely Knocked Down) and CBU (Completely Built Units) Vehicles for FY-2000, FY-2001 and FY-2002

Commodities1999-2000 2000-2001 2001-2002Quantity

(Number)Value

(Thousands of US$)Quantity

(Number)Value

(Thousands of US$)Quantity

(Number)Value

(Thousands of US$)CKD 39,044 174,277 16,251 175,657 20,204 189,177CBU 4,753 35,067 1,716 18,013 2,120 24,632Total: 43,797 209,344 67,967 193,670 23,409 213,809

Source: Ministry of Commerce, Pakistan

The total number of vehicles in Pakistan is over 4.9 million. An annual demand is estimated at 300,000 units, which is being met from local sources and imports. Import total around US$300 million. The local production of after market vehicle parts and accessories is estimated at US$ 850 million. There are 25-vehicle manufacturing and assembly facilities in Pakistan that are supported by 400 manufacturers of vehicle parts and accessories. The vehicle industry demonstrated a very impressive growth rate of 46.7 percent during the past fiscal year, mainly due to surging demand and the availability of consumer credit and low interest rate loans.

The government initially plans to import about 2,000 dedicated Compressed Natural Gas (CNG) buses annually. Private sector has already taken initiative and would shortly operate a fleet of 300 CNG buses in Karachi. Currently, there are about 100,000 diesel-run buses plying on the roads, which need to be converted to the CNG in FY-2005-06. Various countries have shown interest in extending economic and technical assistance for the conversion of these buses to CNG in major cities. Pakistan continues to depend on the imported CNG conversion kits.

The Pakistan Environmental Protection Council and its related provincial agencies have been established to implement the national environmental control policies. The government has applied the National Environmental Quality Standards related to air, water, and noise pollution to the vehicle industry. Air pollution in Karachi and Lahore at present is reported to be 20 times more hazardous than the World Health Organization's standards, and continues to rise. The government is promoting environmentally sound technologies and the use of alternate fuels for vehicles, and encouraging the use of better quality of fuel and improved maintenance of the vehicles. CNG is an indigenous, smoke-free, and relatively clean fuel. Recently, the government has made tremendous progress in promoting CNG usage by setting up filling stations, converting petrol-run vehicles, and providing incentives to entrepreneurs to switch to CNG run vehicles. As a result, more than 265,000 vehicles have already been converted to CNG. Pakistan has 32 trillion cubic feet of proven natural gas reserves and potential reserves of 200 trillion cubic feet. It currently produces 2,236 million cubic feet per year.

Vehicle assemblers in Pakistan have responded by marketing dedicated CNG cars and buses that have gained instant popularity. Thus, Pakistan is reported to rank third among the CNG users in the world. The network of the CNG buses is to be extended to other cities, including Islamabad, in the next phase of the government’s plan.Number of Registered Vehicles in PakistanDescription

FY-1997 FY-1998 FY-1999 FY-2000 FY-2001 July-Dec

FY-2002*Motor Cars, Jeeps & Station Wagons

1,068,116

1,085,969

1,162,876

1,182,307

1,199,963

236,129Motor Cabs/Taxis 83,182 83,687 83,844 83,892 92,062 56,590Buses 119,365 125,929 150,108 154,401 161,887 69,636Trucks 131,322 132,895 145,111 148,569 156,588 57,141Motor Cycle (2 Wheels) 1,995,421 2,068,730 2,175,488 2,260,772 2,283,381 196,991Motor Cycle (3 Wheels) 76,224 81,777 95,345 99,376 107,555 32,719Others 700,315 724,309 746,718 772,279 786,907 199,293Total4,173,945 4,303,296 4,559,490 4,701,596 4,788,343 848,499

*6 months data from July-December Source: Federal Bureau of Statistics

Market share of Japanese brands (Assembled in Pakistan)Car Make

(Brand)Motorcycles Buses/Trucks LCVs Tractors % share90% 90% 80% 50% 0%Suzuki Honda Nissan SuzukiToyota Yamaha Hino ToyotaHonda Suzuki MazdaNissanDaihatsu (Cuore)

Source: Pakistan Automotive Manufacturers Association

Market share of non-Japanese brands (Assembled in Pakistan)Car Make

(Brand)Motorcycles Buses/Trucks LCVs Tractors10% 10% 20% 50% 100%Hyundai Qingqi Dong Feng Hyundai Massey FergusonKia Sohrab Volvo Kia FiatFiat Zabardast Universal

Source: Pakistan Automotive Manufacturers Association

Overview of Technical Collaboration in Vehicle IndustryCategory Number of

Manufacturers/AssemblersTechnical Collaborations StatusCars 6 Japan 5 Republic of Korea 2 Italy 1LVCs 3 Japan 2 Republic of Korea 1Jeeps 1 Japan 1Trucks and Buses 4 Japan 3 China 1 Sweden 1Tractors 3 United Kingdom 1 Italy 1 Romania 12/3-Wheelers 8 Japan 3 Italy 1 China 3 Pakistan (local brand) 2Total: 25 29

Source: Pakistan Automotive Manufacturers Association

Due to limited market size, the production volumes have been low in the past but the industry has undoubtedly entered a new era as it produces eight international brands in various models. In order to meet rising demand the vehicle industry has considerably increased its production capacity. The vehicle industry in Pakistan can be broadly categorized into following segments:

The industry operates under franchise and technical cooperation agreements with leading world manufacturers. Japanese, Korean, and European entrepreneurs have invested almost US$ 1.5 billion in Pakistan's vehicle sector, whereas the local investment is approximately US$ 1.0 billion. Twenty-five leading manufacturers/assemblers in Pakistan have set up as joint ventures, technical collaboration in vehicle industry with foreign multinational companies. Five out of 25 leading local manufacturers are engaged in the manufacture/assembly of buses and trucks. This Industry Sector Analysis (ISA) report covers Trucks and Bus sector of vehicle industry in Pakistan.

COMPETITIVE ANALYSIS

Market Share of Buses and Trucks

Buses:Hino (Hinopak Motors) 58.3%Mazda (Sind Engineering) 37.1%Nissan (Ghandhara Nissan) 4.6%

Trucks:Hino (Hinopak Motors) 41.0%Mazda (Dong Feng) (Sind Engineering) 26.5%Nissan (Ghandhara Nissan) 32.5%

Domestic Production: The Production and Sales of buses (Hino, Mazda, Nissan) stood at 1,296 and 1,332 units in FY-2003 as compared to 1,086 and 1,065 units in FY-2002. The Production and Sales of trucks (Hino, Mazda (Dong Feng) and Nissan) in FY-2002/03 jumped to 1,929 and 1,883 units, respectively, from 1,134 and 1,208 units in FY-2001/02.

An assembler linked the rise in bus production to rising sales of buses under the Urban Transport Scheme (UTS) in Punjab. Bus sales should increase in coming months as Sindh and NWFP introduce their respective transport plans. In the truck segment, Sindh Engineering, maker of Mazda trucks, has entered into an agreement with leading Chinese truck assembler, Dong Feng, to introduce Chinese trucks. Those will replace Mazda trucks as the Mazda Motor Corporation, Japan, has indicated it will not be able to supply the T-3500 chassis. Under a franchise agreement, the Chinese company will assemble vehicles of 1.5 tons; 3.9 tons and 15 tons pay load commercial vehicles fitted with Cummins engines. A 1.5-ton (capacity 2600cc) Chinese truck - Zabardast - had already been launched in March 2002 by Adam Motor Company, a sister concern of Omar Jibran Engineering Industries Limited, in collaboration with Jiangsu Mudan Automobile Group Company of China. Master Motor Corporation, a subsidiary of Master Group of Industries; has started production of medium loaded trucks and luxury buses in collaboration with China.

National Logistics Cell (NLC), which pioneered transportation of goods by long bodied vehicles and established Container Freight Stations and Inland Dry Ports, has recently repositioned its logistical resources including establishment of major warehousing facilities in Quetta (located on the Pakistan - Iran border) and at Nowshera (Pakistan-Afghanistan border). It has a fleet of 1318 vehicles with Dry cargo carrying capacities ranging from 25-50 tons individually and 382 vehicles in Liquid cargo tankers with capacity ranging from 9,000 liters to 40,000 liters. The Dry and Liquid cargo transportation resources comprise 6x4 and 4x2 configuration Prime Movers coupled with 40 feet and 20 feet containers, Flatbed Trailers, Low bed Trailers, Car carriers and Tankers.

Dry Cargo Carriers (with Trailers) Nos CapacityMercedes Benz 413 25Volvo 357 25 TO 50Mitsubishi 168 25 TO 40Renault 356 25 TO 50Mitsubishi Car Carrier 24 8 cars1318 Total: 39,249and 192 Cars

Bowzers Nos (Lits)Mitsubishi 80 28000 To 40000Renault 99 25000 To 35000Volvo 125 25000 To 40000304 10.938 millionliters

Water Bowzers Nos (Lits)Mercedes Benz 32 9000Isuzu Water Bowzers 2 9000Mitsubishi Water Bowzers 34 27000 To 30000Renault Water Bowzers 9 25000 To 35000Volvo 1 25000Total: 78 Total: 1.728million liters

The road sector, however, is more promising. Pakistan has a road network covering 251,845 kilometers including 151,028 high type and 100,817 low type roads. The total roads increased from 170,823 Km in 1990-91 to 251,661 in 2001-02, to 251,845 Km in 2002-03 or by 47.4 percent. In 2003, some 4.44 million registered vehicles were plying a network of 249,959 Km in pursuit of business and pleasure. Out of this, 148,569 were load-carrying trucks of capacities of 10, 20, and 40 tons.Population of Pakistan Province-wise

1951, 1981, 1998, and 2003 (Estimated)

(Population in thousand)Total

Punjab Sindh NWFP Baluchistan FATA IslamabadYear 1951 33816 20557 6054 4587 1187 1337 94Year 1981 84453 47292 19229 11061 4332 2199 340Year 1998 130600 72585 29991 17577 6510 3138 799Year 2003 149030(E) 82710(E) 34240(E) 20170(E) 7450(E) 3420(E) 1040(E)

FATA: Federally Administered Tribal Area Source: Population Census Organization

NWFP: North West Frontier Province

Buses and Trucks on the Road

(000 number)Year Buses

Trucks

TankersOil Water1997-98 72.5 117.1 6.8 1.31998-99 84.4 121 6.8 0.71999-00 92.8 127.4 7.0 0.72000-01 97.1 132.3 7.2 0.82001-02* 99.6 135.6 7.4 0.8July-March

2002-03*97.0 149.0 8.8 1.1

*Estimated Source: National Transport Research Center

NEW BUS TRANSPORT NEEDS BY PROVINCE

PUNJAB

Current Bus-Franchise Operation in PunjabLahoreWithin City Engine Capacity

Horse Power (hp)New Khan Metro Bus Services 255 - Non AC Buses 175-200 hpDaewoo City Bus Division 70 - AC Buses 275-350 hpPremier Bus Services 81 - Non AC Buses 175-200 hpBaloch Bus Services 24 - Non AC Buses 175-200 hpChatta Bus Services 40 - Non AC Buses 175-200 hpMonolite Bus Services 40 - Non AC Buses

(+12 Double Decker)175-200 hpMultanNew Khan Metro Brothers 81 - Non AC Buses 175-200 hpFaisalabadMinthar Metro Bus Services 40 - Non AC Buses 175-200 hpBashir Sons 40 - AC Buses 200-300 hpRawalpindi/IslamabadVaran Tours 155 - Non AC Buses 175-200 hp

Total Buses: 798

Demand (under process):LahorePremier Bus Services 40 - Non AC Buses 175-200 hpFaisalabadMinthar Metro Bus Services 20 - Non AC Buses 175-200 hpBashir Sons 40 – AC Buses 275-300 hpRawalpindi/IslamabadVaran Tours 105 - Non AC Buses 175-200 hp

Lahore, capital of Punjab province, is the second largest metropolitan city of Pakistan having an estimated population of about 7 million people. It is the principal commercial and banking center of the province. Lahore serves as a distribution center for the heavily industrialized surrounding area. An educational and cultural center, the city is the site of the University of the Punjab (the oldest university in Pakistan), University of Engineering and Technology, and the Lahore University for women. About 3.5 million people commute on a daily basis; the passengers face serious transportation problems particularly during peak rush hours. In general, the buses and mini-buses are over-loaded and the number of road-worthy vehicles is highly insufficient to meet the demand. In addition, over half a million passengers arrive and leave the city on 4,000 buses, wagons, and mini-buses daily.

The City District Government (CDG) of Punjab encourages franchised companies to introduce more buses on city routes by providing 4 percent subsidized loans to transport companies and individuals for purchasing buses. The government is also giving a 10 percent rebate on custom duties for the import of public transport vehicles. There are more than 900 buses of six franchised companies serving city routes in the Punjab province. Another 1600 large, CNG buses are needed to replace the existing 8000 LCVs/wagons. Monolite Urban Star has introduced Euro-2 standard environment-friendly Chinese buses. These vehicles will help reducing vehicular pollution besides reducing traffic burden on the City roads. The CDG is not requiring the transport companies to introduce air-conditioned buses as their fare is higher as compared to

the ordinary ones, but CDG is not averse to this option. The sustained growth in the demand for passenger vehicles has produced very positive demand projections, as well as planned investments of Rs.19 billion to meet the projected demand of 2210 buses for FY-2004 and FY-2005. More than 74 private companies offered bids for operation with minimum 400 buses in different cities of Punjab province under the franchise scheme.

Procedure for Grant of Franchise Buses & Incentives In Punjab

o Advertisement for bidso Evaluation of bids by Evaluation Committee headed by Minister Transporto Security of documents of financial soundnesso Bids Evaluation Committee recommends qualifying bids for approval of Chief Ministero Final approval granted by Chief Minister, Punjabo Franchise period-10 yearso Exclusivity of routes for operationo Flexible fare structureo Lease of land of PRTC Depots/terminals for operation, parking, office and workshop where availableo Subsidy on the mark up of loans (70: 30) debit/equity ration up to a maximum of 5 % for A.C. Diesel, 10% for CNG buseso No concessionary fareo Minimum fleet requirement for operation is 40 brand new buses and 20 for smaller citieso Extended from bigger cities to smaller citieso Exemption of import duty on import of buseso Due protection to foreign investmento Flexible/supportive legal structure of the operatorso Exemption from IRO and Declaration as an essential service to save from menace of unionism

SINDH

Current Urban Transport Scheme (UTS) in Sindh

KarachiWithin City Engine Capacity

Horse Power (hp)The Green Bus Company 28 – Non AC Buses 175-200 hpAllied Bus Service 30 – Non AC big Buses 300-350 hpThe Worldwide Express 30 – Non AC Buses 175-200 hpSweden Bus Company 32 – AC long Buses 300-350 hpGreen Bus Company 28 – AC Buses 200-300 hpMetro Bus Service 197 – Non AC buses 175-200 hp

City of Karachi, with a projected population of 13 million (2003), requires 8000 buses for public transport. Present mix of transport including mini-buses/wagons comes to 3000 buses.

* Some new investment has come in the shape of Green Buses/Metro Bus Service/Gray Horse Public Transport Company Limited in Karachi including foreign investment from Swede-Spanish company

* There is a current shortfall of 5000 long buses

* Karachi has 14,854 inter-city buses, which are owned by private operators.

* In addition, Karachi has 2 transport plans: 1) Urban Transport Scheme (UTS); and 2) Karachi Public Transport Scheme (KPTS), a federal-funded project.

Karachi is the hub of a sprawling metropolitan area and is the nation’s largest city and its chief transportation, financial, commercial, and manufacturing center. Most of the international trade of Pakistan and landlocked Afghanistan passes through the city’s busy port. The City District government Karachi (CDGK) has a passenger load of 10,000 to 15,000 on a daily basis. Five million commuters use different public transport vehicles daily. At present 2321 big buses, 3601 mini-buses, and 3262 wagons serve the city. In addition, at least 4,000 additional large buses will be needed to cater to the demand.

The Transport and Communication Department offered franchises on 18 new routes. Only six are operational at present. The Green Bus Company serves 2 routes with 28 buses. The

Worldwide Express, a newcomer operates 2 lucrative routes with a fleet of only 30 buses. The Sweden Bus Company, which is not a part of the Urban Transport Scheme (UTS). It was initiated through the Karachi Public Transport Scheme (KPTS), a federal-funded project, and operates 32 buses. Various operators are running another 197 Metro buses under the KPTS. The mostly non-air-conditioned diesel buses have a capacity for 40 seated and 50 standing persons, carrying a total number of 90 passengers. These buses under the Urban Transport Scheme have a concessional leasing rate of 7 percent, nearly 2 percent lower than the market rate, which is being funded to the City District Government Karachi (CDGK) under federal sponsorship.

North West Frontier Province (NWFP)

Peshawar, the capital of North-West Frontier Province is a commercial center and the traditional terminus of caravans from Afghanistan. Public transport vehicles in the province roughly total 258,000 -- 13,000 buses, 23,500 mini-buses, 105,000 trucks, 15,000 rickshaws, and 115,000 miscellaneous. The number of unregistered vehicles might be more than double the registered ones.

The District Transport Authority (DTA) has decided to designate 21 new bus routes under the UTS scheme in Peshawar. DTA is inviting bids from interested parties for at least five 50-seat buses for each of the 21 new routes. In addition, the city required at least 500 buses to overcome its lingering transport problem.

Problems Faced By the Automobile Industry

The automobile industry of Pakistan is an oligopoly with 22 automobile OEMs producing passenger cars, commercial vehicles, tractors and motor cycles in collaboration with Japanese and Korean manufacturers. The major assemblers/manufacturers are Pak Suzuki Motor Co. Ltd., Honda Atlas Cars (Pakistan) Ltd., Hinopak Motor Ltd., Indus Motor Co. Ltd., Ghandhara Nissan Ltd., Ghandhara Industries Ltd., Atlas Honda, Suzuki Motor Cycles Co. of Pakistan Ltd., Dewan Farooque Motors Ltd., World Korean Motors Ltd. (Pakistan), Allied Motors Ltd. and Fateh Motors Ltd,l a lot of other Chinese companies have also entered the market like Cherry QQ . It faces a number of obstacles:

* The Vendor industry plays a critical role in the growth of auto industry as all the component parts are not manufactured under one roof. Development of vendor industry would be able to expand the employment opportunities, reduce cost of production, pre-empt imports and help achieve deletion programmes. There are four sources of spare parts, namely imports ($70 million annually), smuggling, vendor industry in organized sector and unorganized sector.

Organized sector consists of some 350 units such as Agriauto Industries Ltd., Allwin Engineering Industries, Bolan Castings Ltd., Exide Pakistan Ltd., Atlas Battery Ltd., Axle Products Ltd., Balochistan Wheels Ltd., General Tyre and Rubber Company Ltd., Loads Ltd., Landhi Engineering Works, Thal Engineering, Mali Auto and Agricultural Industries Ltd. Rao Engineering Ltd., Transmission Engineering Industries Ltd. and Sindh Engineering (Pvt) Ltd., supplying different parts namely axle products, auto filter, wheel, tyre, gasket, engine valve, shock absorber, automotive pump, piston radiator, radiator core, fly wheel, battery, etc.

In addition, there is a slew of small units in the unorganized sector located mostly in Karachi, Lahore and Gujranwala which fabricate smaller parts (without brands or names of manufacturer) such as ignition control system, micro touch button, dash board light indicator, built alarm system, door operating system, handle lock revolving warning light and horn. These are much cheaper than those produced under brand names or imported and, therefore, command a big market, as disclosed by a spare parts dealer. The unorganized vendor industry is producing quality products imitating foreign makes with extraordinary skill and expertise of the experienced but unqualified workers. The quality is improving with keen competition among the workers.

The vendor market hasn’t developed to the extent that it can provide the same quality supplies as that of imports. Unabated smuggling of auto parts has hamstrung the development of vendor industry. It will take a few years to meet the entire demand of spare parts for expanding the automobile industry.

* The total auto market exceeds $1 billion, of which half is serviced by local production. Motor vehicles worth $300 -$400 million are imported annually besides import of other transport equipment worth $150- $200 million forming 4 to 5 per cent of the total import bill. During 1999-2000, the production and import of cars stood at 62,500 (32,500 and 30,000 respectively) falling from 85,000 (39000 and 46000 respectively) due to rising value of Japanese Yen and slackness in the economy.* The market conditions for truck and bus industry have deteriorated during the past few years to a seemingly irreparable extent. The capital and operational cost of commercial vehicles has increased to an alarming limit while the revenue did not increase correspondingly. The manufacturing of medium and heavy transport equipment has become an unprofitable business. Therefore, the capacity utilization of truck and bus industry is less than 7 per cent as the production is 1000 compared to annual installed capacity of 15,000. One reason is the increased import of CBU buses in recent years.* The government has been urging the auto industry to explore ways and means for boosting exports and criticized the inexorable jump in prices of car in the short span of time, rendering it beyond the reach of middle class. It is observed that local car market, particularly of small brands is much bigger but it remained limited due to high prices. For example, 800 CC cars are 30 per cent dearer in Pakistan than in India.

* Like other industries, automobile industry suffers from a high cost of production because of heavy import component as the plants are merely engaged in assembling rather than "manufacturing". Escalating input prices such as power and raw materials, mounting taxes, and high wages relative to productivity add to this cost.* Our automobile industry does not enjoy economies of large-scale production, contrary to industrialized nations where output of cars runs into millions resulting in lower cost per unit.

* The industry is far behind the schedule of deletion program as indicated by WTO. It is simply importing CKD kits to assemble vehicles locally, which means minimum inclusion of local components. The result is inflated profits for foreign-based manufactures, fewer employment opportunities for local engineering sector, little technology inflows and inflated market rates for the locally manufactured automobiles.

The Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) has been calling for an upward revision of deletion program. The automakers have been asked to indicate the deletion program and achieve an optimum within four years, coinciding with the period of the textile quota termination. This places considerable stress on the manufacturers, especially in times of rising costs.

* Reduction in customs duty on automobiles and spare parts has caused erosion in the viability and competitiveness of the local industry. The industry's demand for immediate protection against imports may not be easy to accede. Under the existing covenants of WTO, import duties are required to be gradually reduced. The all-important aspect in the local manufacturers is the need to improve the quality of goods to conform to international standards. At the same time, technological innovations should also be assiduously pursued which alone can ensure production of superior quality finished goods and high level of capacity utilization in local industry.* Transfer of the state-of-art technology from parent companies of Japan and Korea is one of the most important areas of automobile industry. Unfortunately, Pakistan has not been able to derive maximum benefits in terms of technical know-how, production technology, quality control, post-sale servicing, etc, to the mutual advantage of the manufacturer and consumer.* Smuggling of cars from neighboring countries.* The expansion of capacity and the distribution of volume of different models and makes within the auto industry prevent them from realizing economies of scale.* The rise in new entrants is adding more capacity to the surplus pool threatening levels of the industry.

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 manufacturing.* 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 approval.* Small size of the market resulting in under capacity utilization. The vending industry, which comprises 400 units, is operating at just 30 per cent of its capacity.* Indifferent attitude of the assemblers i.e. a component developed for one assembler is not accepted by others.

Indian Automobile Industry

Snippets

* India is being recognized as potential emerging auto market.* Foreign players are adding to their investments in Indian auto industry.* Passenger vehicles sales crossed the mark of 1 million in 2004-05.* Automobile industry expert predicts that by 2050 every sixth car in the world will be for Indians.* 2/3rd of auto component production is consumed directly by OEMs.

India is the second-biggest market for small cars after Japan. It accounts for 60% of the domestic market.

Current Scenarioo India represents one of the largest two-wheeler markets in the world, with an estimated size of 5.4 million units a year.o India is the two-wheeler capital of Asia with an average of 27 two-wheelers per thousand people, compared to China's 8 two-wheelers per thousand people.o India became the fastest growing car market in the world in 2004, growth rate of 20%.

Facts & Figures

It seems that India has finally arrived in the big league of Asian car markets. Steady and impressive annual growth rate, presence of international automakers, relaxation of foreign exchange and equity regulations, reduction of tariffs on imports and few others are the components of its booming auto market. The country has now come to be recognized as a potential emerging auto market. The perception of foreign investors has changed, everybody wanting to be here.

For the first time, in the financial year end in 2005, the total sales of passenger vehicles - cars, utility vehicles and multi-utility vehicles - crossed the one-million mark to touch 1.06 million, with exports of 166,000 vehicles. Study says that by 2010 India will take over Germany in sales volumes and Japan by 2012. And by 2050, Indians will buy every sixth car produced in the world.

Apart from serving the domestic market, the auto sector has turned as a sourcing base for the global auto majors. The auto component market is also in its full swing. As per the research of RNCOS, one of the leading industry firm, the Indian automobile component industry is estimated to triple from USD 63 billion to USD 190 billion within a span of six years by 2012.

Indian Automobile Industry Estimation

Estimated turnover USD 12 billlion, plus components revenue USD 3 billion, this is the vastness of Indian automobile industry. Industry analysts predict this industry to touch USD 13000 million mark by 2010, a cumulative growth of 9.5% annually. It is said that for every Re 1 spent, the auto sector returns Rs. 2.24 to the Indian economy.

Cars by Price Range

* Under Rs. 3 Lakhs Maruti 800, Alto, Omni RevaRs. 3-5 Lakhso Ambassadoro Fiat Palioo Hyundai Santro, Getzo Chevrolet Opel Corsao Maruti Zen, Wagon R, Versa, Esteem, Gypsyo Ford Icon & Fiestao Tata Indica, Indigoo Mahindra BoleroRs. 5-10 Lakhso Chevrolet Swing, Optra, Taverao Hyundai Accent, Elantrao Mahindra Scorpioo Maruti Baleno

o Toyota Corolla, Innovao Tata Safario Mitsubishi Lancer, Lancer Cediao Honda CityRs. 10-15 Lakhso Ford Mondeo & Endeavouro Chevrolet Forestero Skoda Octavia Classic & Combio Honda Civic & CR-VRs. 15-30 Lakho Maruti Suzuki Grand Vitarao Hyundai Sonata Embera, Terracan & Tucsono Mitsubishi Pajeroo Audi A4o Opel Vectrao Honda Accordo Mercedes C Classo Toyota CamryRs. 30-90 Lakhso Audi A6, A8 & TTo BMW X5, 5 Series & 7 Serieso Mercedes E Class, S Class, SLK, SL & CLS-Classo Porsche Boxster, Cayenne, 911 Carrera & Cayman So Toyota PradoAbove Rs. 1 Croreo Bentley Arnage, Continental GT & Flying Spuro Rolls Royce Phantomo Maybach

Indian Auto Market Growth for the year 2005-06

* The domestic automobile industry sales grew 12.8 per cent at 89,10,224 units as against 78,97,629 units in 2004-05.* The automotive industry crossed a landmark with total vehicle production of 10 million units.* According to the Society of Indian Automobile Manufacturers (SIAM), car sales was 8,82,094 units against 8,20,179 units in 2004-05.* The growth of domestic passenger car market was 7.5 per cent* Car exports stood at 1,70,193 units against 1,60,670 units in 2004-05.* The two-wheeler segment, the market grew by 13.6 per cent with 70,56,317 units against

62,09,765 units in 2004-05.* Motorcycles had the upward march, 17.1 per cent in domestic market touching 58,15,417 units against 49,64,753 units in 2004-05.* Scooter segment grew by 1.5 per cent, fall at 9,08,159 units against 9,22,428 units in 2004-05.* Commercial vehicles segment grew at 10.1 per cent with 3,50,683 units against 3,18,430 units in 2004-05.* Medium and heavy commercial vehicles managed a growth of 4.5 per cent against 23 per cent growth in the year ended March 31, 2005.* Light commercial vehicles sales growth was 19.4 per cent at 1,43,237 units against 1,19,924 units in 2004-05.* Three-wheelers sales rose by 17 per cent at 3,60,187 units against 3,07,862 units in 2004-05.

Two Wheeler segment as a whole during the year 2004/05 grew by over 15%. This growth has been due to the Government's initiative on rural roads and better connectivity with major towns and cities, improved agricultural performance, upward trend of purchasing power in the hands of rural people.

The two wheeler industry was able to achieve the record performance of crossing 6 million two wheelers with exact sales standing at 6,208,860 during the year 2004-05. The northward trend of growth among the two-wheelers is set to continue in the years ahead.

A brief input about the growth of various segment of two-wheelers with the statistics from their leading manufactures are as follows.

Scooters

2001-02 2002-03 2003-04 2004-05 2005-06937506 848434 935279 987498 1020013

Though the metal bodied geared scooters have fallen out of favour of the Indian two-wheeler user their upward trend in growth has been due to rise in the sales of Scooterettes and Motor Scooters. Bajaj Auto has been able to sell 152,936 units in the year 2004/2005 of two wheelers which don't include motorcycles. They have shown a negative trend in the two wheeler segment other than the motorcycles. This goes on to show that Bajaj Auto has lost its supremacy in the Scooter and moped segment as they have shifted focus to motorcycles.

Motorcycles2001-02 2002-03 2003-04 2004-05 2005-062906323 3876175 4355168 5193894 6201214

Motorcycles as has been mentioned through out this website have become the most preferred choice among all two-wheeler users. They account for nearly 80% of the total two wheeler sales in the country. This trend is set to continue as more and more models of this hot set of two wheelers enter the market. Bajaj Auto one of the largest manufactures of two wheelers in the country has managed to sell about 1,449,710 units of motorcycle in the year 2004/2005. Hero Honda which claims to be the largest manufacturer of two-wheeler in the world was able to sell 2.62 million motorcycles during the year 2005/2005. The company also accounts for half the market in the motorcycle segment.

Mopeds2001-02 2002-03 2003-04 2004-05 2005-06427498 351612 332294 348437 379574

Mopeds which were once the entry level options in the two-wheeler, have been replaced by entry level or price category bikes which provide all the comfort and advantages of a motorcycle but at an affordable price. Thus it has not come as a surprise that mopeds have shown a negative growth over the recent years. TVS Company one of the pioneers of mopeds manufactures of India was able to sell about 2.90 lakh of mopeds during 2005/2006. This trend is supposed to continue in the days to come, as the motorcycles race ahead other two-wheelers will find it difficult keep up with the pace of their growth.

Recommendations

Here some proposed suggestions are given to progress the auto industry in Pakistan by taking some important measures .

* 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 and form "S" be maintained and officially announced to lessen

uncertainty created by WTO agreement.* The duty on parts be increased from 35 percent to 45 per cent to create a gap between CKD which is also 35 per cent.* The duty on 10 seater and above 10 Seater van, which was reduced to 60 to 25 per cent should be increased to 60 per cent.* Deletion level should be increased specially of high tech and major engineering parts.* Market expansion measures should be taken which will definitely benefit the industry, government and general public in terms of employment and price.* Volume of production should be increased in order to achieve the economies of scale. Localization should be increased and investments should be made to increase localization.* Financing options such as leasing and car finance scheme in collaboration with banks and financial institutions should be extended on a wider basis so as to increase the purchasing 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 despite the rise in fuel prices.* The government should also keep a close watch on new entrants so as to prevent Foreign Firms from dumping there vehicles to the Pakistan market

Conclusion

The local automobile industry has experienced impediment and decline in its different segments as compared to earlier where the industry observed tremendous high growth in terms of production and sales.

The most recent statistical data issued by Pakistan Automotive Manufacturers Association explains that the arrival of the imported vehicles and rising interest rates situation has decelerated the over 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 manufactured 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 and better quality vehicles in their trading portfolio. However in today’s fast globalizing world changing models, improving fuel efficiency, cutting costs and enhancing user comfort without compromising on quality are the most important challenges of the industry. Following international trends, the auto industry in Pakistan is also quickly evolving and may soon begin materialize the dream of achieving economies of scale.

The import of used automobiles has considerably declined in the first quarter of the current fiscal year. This downtrend can be ascribed to uncertain policies, a glut of imported used automobiles and a saturating auto market. On the back of high demand various vehicles were

imported in the ending months of last fiscal, as a result creating a glut of imported cars. Non-availability of parts and their unsatisfactory performance on Pakistani roads has somewhat halted their imports.

Comparing the import of vehicles on a quarter on quarter basis, import of cars was down by 53 percent to 6,571 units in July to September period of 2006, when compared against 13,927 units in April to June 2006. Import of CBU were up by a 574 percent whereas those of CKD was down by 62 percent sending a clear message that we might witness a slow down in car production in the last quarter of 2006.

In terms of market share, Pak Suzuki holds a main lump ensued by Indus Motors. Market share of Pak Suzuki improved to 55 percent whereas market share of Indus Motors surged to 31 percent on year on year basis.

Industry car sales in 4 months FY07 were up by 7.6 percent to 50,707 units on year on year basis and were down by 20.2 percent to 10,663 units months on months basis. Further break-up of the car sales revealed that in 4M/FY07, 27,917 units were sold by Pak Suzuki, 15,629 were contributed by Indus Motors and the rest by Dewan Motors and Honda Atlas. Pak Suzuki and Indus Motors whose sales were up on year on year basis were down in double digits when compared on mo-m. In the month of October 2006, sales of Pak Suzuki were down by 24 percent to 5,741 units whereas sales of Indus Motors were down by 14 percent to 3,333 units.

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 increased financial charges by the leasing or bank financing. It may be mentioned that over 70 percent of the cars enrooted either through leasing or bank financing in Pakistan. The industry is required to enhance investment from Rs. 21.63 billion in 2006-07 to Rs. 21.63 billion in 2007-08 for the production capacity of 276,000. Likewise, for2008-09, the industry has to inject Rs 14 billion in 2008-09; Rs 11 billion in 2009-10; Rs. 450 billion in 2010-11 and Rs 5.20 billion in 2011-12 for incremental car production capacity from 348,000 to 516,000 units.

The lack of long-term auto policy will have a negative impact on the growth of local auto industry. Help is needed to make Pakistan a global supplier of auto components and embodying incentives to facilitate research and development.

Import tariffs should be fixed to help promote manufacturing of cars and auto parts locally, while the government should encourage local and foreign investment for capacity expansion in order to meet the rising demand. But there should keep a balance between production levels of vendors and assemblers with continued governmental assistance.