Pakistani automakers have long peddled the impression that when automobile manufacturers set up shop in Pakistan, they do so with the intent of actually making their cars here – from the ground up.
However, this is not the case. Most Pakistani manufacturers are little more than assemblers, who import pre-made parts – or “kits” – from the original automaker’s home countries, and simply put them together locally.
However, H. M. Shahzad, Chairman of the All-Pakistan Motor Dealers Association (APMDA), alleges that now even that low standard has begun to slip.
“Not what you paid for”
Talking to The Correspondent, Mr Shahzad claimed that most established manufacturers in the country including Toyota Indus, Pak Suzuki and Honda Atlas import almost all of their raw material from China and Thailand.
“One would assume that these renowned Japanese brands would either source their materials directly from their country of origin or make them here in Pakistan. That is, after all, what the customer is made to believe and is paying for.”
Sharing his concerns with The Correspondent, H.M Shahzad said: “these companies are importing their spare-parts and other raw-materials from their own factories in China and Thailand. While these factories may be registered with these manufacturers, the quality of parts they produce has always been dubious.”
For years third-party retailers have attributed the quality and price of parts to their country of origin; with Japanese parts considered to be the best and Chinese/Thai parts considered to be cheap, low quality alternatives. Mr. Shahzad reaffirms this belief by telling us that these manufacturers bring in parts from China and Thailand instead of Japan because it saves them money but the quality just isn’t the same.
“Customers pay the price of Japanese vehicles but end up getting vehicles that are mostly assembled with Chinese and Thai parts that compromise on both reliability and safety,” he claimed.
Tin cars, titanium price tags
On one hand, these manufacturers are cutting costs by using parts that that are subpar. On the other, they ask consumers to pay extra for immediate delivery of their vehicles in the form of a fee that local dealers like to call, “Own Money.” This fee in today’s market can range anywhere from Rs 300,000 to Rs 1.2 million, depending on the list price and demand of the vehicle. If customers choose to not pay this fee, they are asked to wait 6-7 months for their vehicle; in some cases, the wait is even a year. “Even new entrants, like KIA and MG, are charging ‘Own Money’ of around Rs 1 million for the delivery of their vehicles,” Shahzad claimed. “Why are these companies asking for this fee when they are not even producing vehicles in Pakistan right now,” he questioned.
For the last few decades, local automobile manufacturers have been making huge profits on their investments at the cost of their customers. They do this by cutting costs at one end and simultaneously raising prices at the other. In the last two and a half years, local manufacturers have raised prices substantially due to the depreciation of the Pakistani rupee. However, even as the rupee starts to regain some of its lost value, the price hikes have not stopped. In December, both Pak Suzuki and Toyota Indus raised the prices of their vehicles again despite the rupee appreciating against the US dollar. “The prices of almost all of the vehicles in Pakistan have jumped 100 to 125 percent in the last two and half years; if you look at the Suzuki Cultus, it was being sold for around Rs 1 million two and half years ago but is now being sold for Rs 2.1 million. Similarly, the Toyota Corolla was being sold for around Rs 1.7 or 1.8 million and is now being sold for around Rs 3.6 to 3.8 million,” said Shahzad.
An onerous oligopoly
The only solution to this problem, according to Mr. Shahzad, is to give the consumer more choice. One way to do this would be to open the commercial import of vehicles so that customers can observe what manufacturers are selling abroad and what they are getting here. Currently, the government only allows for the import of vehicles under three schemes: Personal Baggage, Transfer of Residence and a Gift Scheme. This policy severely limits the number of vehicles that can be imported and increases costs.
Mr. Shahzad said that the government levies taxes of around 45 to 48 percent on local manufacturers for the import of their knockdown kits. This puts dealers at a significant disadvantage as they are made to pay between 100 to 400 percent of the value of the cars they import. During this year, the import of vehicles, according to APDMA, has been limited to around 10,000 to 12,000 units. Part of this may have been due to the coronavirus pandemic which halted trade and significantly impacted demand earlier on in the year.
However, a lot of this is also due to government policy. Mr. Shahzad claimed that the APDMA had discussed these issues with the Federal Minister for Industries and Production, Hammad Azhar, and were hopeful for a change in policy. The PTI government, however, has been aggressively trying to correct the country’s current account deficit over the last two years. Hence, they may not be willing to open up another avenue of import that may negate the work they have done.
What marginal impact would allowing the commercial import of a completely built vehicle over the knockdown kits these local manufacturers import have on Pakistan’s current account remains uncertain. However, one thing is certain, the Pakistani automobile market is in desperate need of change. Whether that change comes from dealers importing more vehicles or the addition of new players in the local industry is something that is still up for debate.
