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Here’s Why Existing Car Makers are Not Happy with New Auto Policy

Pak Suzuki Motor and Indus Motor have legally challenged the new Auto Policy which undermines their dominance in the local market.

They are initiating court proceedings against the Auto Policy 2016, challenging the government to amend the policy in favor of them.

Critics have argued that the current 3 big auto companies in Pakistan, namely the local arms of Toyota, Suzuki and Honda, have enjoyed an oligopoly for two decades. This has led them to set exorbitantly high prices for cars, forego safety features that are standard in other countries, and even sub-standard builds for ‘premium’ vehicles.

The Competition Commission of Pakistan (CCP) alleges that the three Japanese automakers, enjoy a monopoly with the Pakistani market. Each of them focus on a different socio-economic client base, with Pak Suzuki catering to the lower end, and Toyota and Honda in charge of the middle and upper segments.

Incentives Offered by Auto Policy 2016 to New Entrants

After much bickering, the government of Pakistan finally introduced the Automotive Development Policy 2016-2020 in March.

The policy offers relaxation to the new manufacturers in terms of taxes and tightens the quality assurance rules for the existing ones.

PM Nawaz has taken up on the initiative to attract more foreign investments as the country’s economy seems to be booming, with an expected growth rate of 4.5% for 2015-16 which is highest in eight years.

The latest policy allows new car assemblies to import machinery without having to concern themselves with taxation. New entrants, for five years, will have to pay only 10 percent import duty to acquire parts and accessories which are made outside of Pakistan whereas the existing manufacturers will continue to pay 30 percent.

If the blow to the existing assemblers wasn’t devastating enough, the government has demanded from them to install immobilizers and air bags in their models. They have also asked them to initiate recall systems in line with global practices.

Suzuki holds 50 percent of Pakistan’s market shares. In order to convince the government to revise their policy, Suzuki has offered to invest $460 million. This highlights the signs of sheer desperation to maintain their command on the Pakistani market.

The policy is said to attract European automakers so they can use Pakistan as an export base. Hasan Azhar, an analyst at Taurus Securities, a Karachi-based brokerage said:

“Pakistan’s domestic private auto market is not that big if we compare it with India or China.” He also added, “We are competing with countries like Thailand and Indonesia, who don’t have a huge domestic market but are major export bases.”

The counterargument presented by the existing assemblers is that the incentives offered only to the new entrants should also be offered to them as long as they continue to invest.

“We have always advocated a level playing field,” said Ali Asghar Jamali, chief operating officer of Indus. “Any investment in the sector is a welcoming sign for the country.”

The policy has already made its mark in Germany and Italy where Volkswagen and Fiat have shown interest respectively.

The statistics are that about 184,000 locally assembled cars were sold between July 2015 and April 2016 whereas some 53,600 refurbished units were imported from Japan. Total number of cars sold since 2015 are estimated around 275,000 by the experts.

One of the main reasons why companies like Suzuki are fighting tooth and nail against the new policy is because models such as Mehran have not been sold in Japan since late 1980s whereas in Pakistan, the demand for it is still there. H.M. Shahzad, the chairman of the All Pakistan Motor Dealers Association claimed, “There is no value for money.”

Taurus’ Azhar expressed his delight for the new policy but also claimed, “No foreign investor will take chances if we cannot guarantee them long-term stability.”

Via Nikkei

  • it will change things for manufacturers as their share of pie will decrease with new entrants but won’t give any relief to consumers as new players will start charging crazy prices as well. Look at the japenese cars, the import of which was aimed to bring down costs, but they’re extremely expensive. Passo for as much as 1.4m – imagine!

  • New entrants are good option to get maximum benefit for the end users. The existing manufacturers need to improve their quality to maintain their market share rather than playing games with the policy. I fail to understand that Suzuki still missing basic requirements in their cars especially in Mehran (automatic transmission, ABS, AC and Airbags). Mehran being sold in more than Rs. 600,000/- without having any of the features which other Japanese cars have. Vehicles have become a necessity nowadays rather than a luxury so these must be sold at a price at which people can easily purchase.

  • Govt. Should also work on development of Roads as Thousands of new Cars are coming out on roads on daily basis and traffic system is getting worse day-by-day. if we want more cars then roads to run the cars should also be there.

  • Govt is kinda soft on the three idiots, PM Nawaz Shareef should have imposed a recall for the lack of basic security features in their cars. Lets just talk about Mehran.. this car even in 1980’s was like an average car and in 2016 means like Suzuki has surely gone nuts..! And if you say ppl are still buying it i would say launch a Foxy or manufacture a cart with engines like todays Riskshaws ppl will buy that too.. so with this name tag SUZUKI will you ever want to do that..
    Not even a single car by these manufacturers are worth their cost i mean look at the so called Grande with this price tag why would i ever want to buy it..? i should rather opt for Audi A3 trillion time better than the Toyota’s Taxi Class Grande..!

    • Very true. I don’t know if it is true or not but I have heard Honda Civic is for 2.8 million in PK? This car was never my preference as food delivery guys here use the same or marketing guys, costs approximately 1.5 Million for starter model.

  • These automakers have become vultures. Any policy by any govt which screws them is most welcome. They sell us total crap in comparison to other markets and yet charge the highest prices on planet.

  • gives me hope but at the same scares me too about the pricing of existing auto manufactures, if Govt really succeeds in implementing those new rules.
    Also, I totally agree with Hasnu that Nawaz Sharif should have imposed a recall for the lack of basic safet features. A country we so proudly dismiss for being cruel and poor, India, has made it mandatory for all auto manufacturers to provide even their cheapest cars with at least a driver air bag, plus their car prices are much more competitive than ours despite the fact that taxes are almost the same. While here, except FAW V2, a single driver air bag starts from 2 million (20 lakhs corolla 1.6 Altis) which is downright criminal.

    • My car has all modern safety features (at least 3 that I can recall) not just 9 air bags and costs just Rs.2.8 million :D

  • I don’t see any new auto maker entering Pakistan in near future. Only Chinese cars like Foton, Ching Chong Changgan, Ling Long and Xing Bong will be running in our country due to CPEC agreement

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