Localisation Stressed to Bring Auto Prices Down

By Ayesha Mudassar

ISLAMABAD, April 18 (INP-WealthPK): The automobile industry’s monitoring committee has expressed worries about the large price hike by various local car brands over the last five to six months and the sector’s lack of localisation.

However, Engineer Asim Ayaz, secretary of Auto Industry Development Committee (AIDC), told WealthPK that the dramatic hike in car prices is due to main cost-pushing factors such as high freight charges, expensive raw materials and adverse rupee-dollar parity.

“Despite being an old industry, the sector has yet to achieve the targeted level of localisation as assemblers import two-thirds of the auto parts for vehicles assembled in Pakistan,” he pointed out.

The country’s import bill is rising at an exponential rate with the gap between imports and exports having expanded to an alarming level.

Automobile imports account for a significant portion of the import bill.

As per data released by the Pakistan Bureau of Statistics (PBS), the country’s import bill for completely and semi-knocked down (CKD/SKD) kits for cars imported by local assemblers was worth $1.6 billion in the first eight months of the current fiscal year 2021-22 as compared to $818 million in the corresponding period of last year, registering an astronomical increase of 96.65%.

Import bill of CKD/SKD increased to $177 million in February 2022 from $152 million in February 2021.

Assemblers are now in top gear as the first eight months of FY22 ended with a whooping 57.5% jump in sales of cars to 149,813 units from 95,139 units during the same period of last year, according to Pakistan Automotive Manufacturers Association.

Strong demand led to a massive jump in CKD/SKD imports to $1.58 billion in fiscal year 2020-21 from $727 million in fiscal 2019-20, up by 117%.

According to the documents available with WealthPK, the automobile sector’s output accounts for 3% of the country’s GDP as it employs 500,000 people directly and 2.4 million indirectly.

Honda, Toyota, and Suzuki have had footprints in Pakistan for a long time. They have carried out some local value addition by substituting the imported axillary parts with the local ones.

However, new entrants have begun rolling out vehicles from their assembly lines with only five percent locally-made parts, which is insufficient to ease the pressure on imports.

Kia Lucky Motors led the way in the recent price increases, followed by Toyota Pakistan, Hyundai Nishat, Suzuki, and then Honda Atlas. The companies cited the devaluation of the Pakistani rupee, an increase in freight rate, and high raw material prices as the main reasons behind these hikes.

The auto industry largely depends on steel and plastic, which are primarily imported.

Mohammad Ayoub, who runs an auto parts manufacturing unit, told WealthPK that auto imports would decline provided Pakistan manufactured its own auto-grade steel and plastic raisins.

 

To ease pressure on imports, the government should ensure that the steel and plastic, which are the main ingredients in vehicle assembly, are produced in Pakistan in abundance to meet the local needs.