Local Car-Makers Forced to Explain Poor Market Conditions & Rising Prices

This Thursday, the Competition Commission of Pakistan (CCP) held a public gathering to hear out complaints and to get the public’s perspective on the performance of Pakistan’s automotive sector and respective companies. As we can expect, the companies and their representatives received heated criticism from all stakeholders due to their failure to deliver quality products at the right prices.

The hearing was chaired by CCP’s Vadiyya Khalil and it was organized because she had heard many complaints since the “past few months”. Alongside her, representatives from Federal Board of Revenue (FBR), Engineering Development Board (EDB), Excise and Taxation, and Ministry of Commerce were also present. On the Pakistani auto industry’s side, officials from Indus Motor Corporation, Pak Suzuki, and Atlas Honda were also present.

Public On Fire

Several known issues related to Pakistan’s auto companies were brought up in the meeting and while Indus Motor Company’s (IMC) Chief, Ali Asghar Jamali responded to critics and presented his side of the story, Pak Suzuki’s representative quietly heard criticism and remained silent throughout the argument.

Customers presented their complaints to the hearing and criticized auto companies for,

• their failure to deliver quality vehicles,
• setting unfair prices for their products which are much cheaper in other countries,
• outrageously long delivery periods,
• black marketing in the form of on-money schemes,
• and failing to provide basic safety features.

The hearing made several valid points; it highlighted the fact that there’s no regulatory body in place to inspect the quality of the vehicles being sold. If Pakistan’s safety standards are strengthened and enforced then manufacturers would have no choice but to comply and deliver quality products.

Own-money Schemes

One of the stakeholders highlighted ongoing on-money schemes – a black marketing method used by auto dealers to make extra money by “delivering” vehicles earlier than usual – and suggested that vehicles should be registered to the name of the person who booked the car in the first place. In this scheme, dealers placed bookings – that usually take 6-7 months to complete – and stored inventory to sell at a premium to customers who wished to have the vehicle delivered promptly. The complainants alleged both dealers and respective assemblers for encouraging this act.

In response, IMC’s Ali Asghar Jamali reminded that his company has been actively canceling shady orders made by corporate investors who bought those vehicles for reselling purposes. However, the IMC chief agreed that making it necessary to register the vehicle to the person who placed the first order would put an end to own-money practice.

Late Delivery

Auto companies in Pakistan are known to intentionally delay vehicle deliveries to make some extra money here and there. However, companies are now required to provide discounts or pay penalties to the customer if their delivery gets delayed more than 2 months ever since the new Auto Policy came to place. Most auto companies take at least 7 months on average to deliver a booking.

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When queried, IMC Chief said that the company has made several investments to speed up delivery time and has also been giving discounts – as penalty – @KIBOR+2% if their deliveries get late. Accordingly, the company has paid Rs. 0.5 billion in penalties to consumers and Rs. 1.5 billion has been paid by the auto industry in its entirety. Ali Asghar Jamali said,

The local auto industry is consistently making all out efforts to curb premiums and has invested approximately $140 million in capacity enhancement with a major recommendation to introduce ‘transfer tax’ on transfer of vehicles,

Poor Quality

Vehicles sold in Pakistan are degraded way beyond international standards and are sold at higher prices than the international market. And this practice is quite common in top-end companies including Toyota Indus, Honda Pakistan, and Pak Suzuki which remove features and accessories, that are present in international-grade counterparts, for the discriminated Pakistani market. Disconcertingly, these degraded units are sold at higher prices too and allow the company to make extra profit in return.

One of the attendants in the CCP hearing brought up this issue and also said that Pakistan does not have a regulatory body dedicated to quality inspection and for enforcing safety features in vehicles sold in the country. Addressing the matter, an Engineering Development Board (EBD) official added that Pakistan Standard and Quality Control Authority (PSQCA) does not have the necessary resource or expertise to monitor whether the auto industry is maintaining quality and safety standards or not.

Another participant said that even the cars that cost as much as Rs. 1.9 million did not carry basic safety features such as airbags, which come with every vehicle as mandatory in other countries.

High Prices

Pak Suzuki, Atlas Honda, Toyota Indus, and Al-Haj FAW increased prices for their entire lineup after rupee’s value against the U.S. dollar significantly declined. Moreover, prices of vehicles as compared to international prices are much higher and still don’t come with basic features. This matter was addressed in the hearing and one of the attendees associated with car-import business said,

We will provide new cars at cheaper rates if we are allowed to import the same commercially. The vehicles being assembled here are not only of old technology but costlier as compared to the same vehicles abroad. The auto industry in Pakistan is an import oriented industry. Even a window screen is not manufactured here. We give 200 per cent revenues in terms of taxes.

Another auto industry representative added,

We can reduce the cost of imported vehicles up to the price of local [Suzuki] Mehran cars, if we are given concessions and relaxations in import policy,

Interestingly, an FBR official said that there never were any unexpected or sudden hikes in import rates and most of the inflated vehicles did not even classify for the new rates in the recent changes.

The RDs (regulatory duties) have been imposed on only high engine capacity vehicles and there is no change in customs duty structure on the import of such vehicles,

Furthermore, the IMC Chief said that auto companies increased prices by only 3-4 percent, whereas rupee’s valued declined over 10 percent in respect. He also said that load-shedding and other resource-shortages also push their costs upwards which is why IMC is forced to charge extra costs.

New Entrants

Concluding the meeting, CCP said that this situation will take a major turn in the coming years and the auto sector will soon see fair pricing and better vehicles as more and more international brands are entering Pakistan’s vehicle market. Currently, most of the vehicles are produced (or assembled) by three main companies including Honda Atlas, Pak Suzuki, and Toyota Indus which is why the country faces an acute demand-supply unbalance.

When the new companies start selling their vehicles, the demand-supply issue will be resolved. For now, these companies are confirmed to bring their products to the market,

• KIA – South Korea
• Renault – France
• Nissan – Japan
• Hyundai – South Korea
• SsangYong – South Korea
• Changan – China
• Sazgar – Pakistan (a rickshaw company which will soon launch its own cars)
• United – Pakistan (a motorbike company which will manufacture its own cars)
• Regal Automobiles
• Khalid Mushtaq Motors

For updates and development in Pakistan’s auto industry, keep watching this space.