12 February 2004	Thursday	20 Zilhaj 1424

KARACHI, Feb 11: The federal cabinet's decision approving import of second hand cars besides cutting import duty on completely built up (CBU) cars has caused a stir in the local automobile industry which thinks that these kind of approvals may put on hold many future and current investment and expansion plans being undertaken by Japanese and Korean car assemblers.

The import of second hand cars and CBU will also eat away the market share of local assemblers. "It seems that the government has approved the second-hand car import under some pressure of some group or a lobby whose basic aim is to make windfall," Chairman Pakistan Automotive Manufacturers Association (PAMA), Kunwar Idris told Dawn on Wednesday while reacting on the Cabinet's decision.

At this time, the industry as well as vendors are putting up huge investment, undergoing expansion plans, increasing productions and creating new job avenues. Any drastic cut in import duties on second cars will prove fatal for both vendors and local assemblers.

The Cabinet, which met on Wednesday, had approved import of second hand cars in due course. The makes and models of these used cars and the terms and conditions of their import will be decided by a committee to be constituted shortly.

In another decision, the Cabinet with Prime Minister Mir Zafarullah Khan Jamali in the chair also approved reduction of import duties on completely knocked down kit (CKD) and completely built up (CBU) cars of lower engine capacity.

The reduction in import duties on CKD and CBU small cars may be effected before the next budget, depending on the recommendations of the committee. Reacting on this, he said the possible cut in import duties on CKD kits was a welcome move for the local assemblers but it will spark anger among vendors.

In case the government cuts the import duty on CKD to 25 per cent from the current 35 per cent and bring down import duty on CBU cars to 55 per cent from the present 75 per cent on 800-1000 cc cars then the protection to the local industry will drop to 30 per cent from 55 per cent, PAMA chief said.

To a query whether the approval to cut import duties on CKD kits and CBU cars had been done by taking into confidence the local assemblers, Kunwar Idris said, "we have not recommended to the government to approve any cut in import duty on CBU cars. We have only proposed for duty cut on CKD kits," he said.

He was of the view that the approval of CBU duty cut was aimed at giving a wider choice to the consumers to buy imported cars as they could not purchase locally made cars due to premium and late delivery problems. If the duty is reduced on CBU cars, the price would definitely come down.

Currently buyer has to arrange extra money as premium to purchase a 800-1000cc car. If price of imported CBU cars fall due to cut in import duty, a buyer would have an open option whether to buy imported cars or locally assembled cars.

"Price cut in CBU cars due to import duty cut will definitely take away some share of local assemblers, which will hurt the industry," PAMA chief said. On import duty cut in CKD kits, he said he would ask the local assemblers to pass on the benefit of cut in import duty in CKD kits to the general consumers in shape of price cuts. He said volumes of car assemblers have gone up and overhead cost has come down.

Market watchers say that government's approval towards opening second hand car import after February 1992 does not carry much weight. "Approving import of used cars looks like a sort of warning rather than looking a firm commitment of the government to be implemented in future.

The hidden message to the assemblers is actually to improve delivery timing and control premium menace," Head Research of Invest Capital and Securities, Mohammad Sohail said.

Much depends on the rate of import duty to be applied on the import of second hand cars. The government is unlikely to cut the import duty on used cars drastically as any negative move will jeopardise the foreign investment and expansion plans undertaken by the local and vendor industries as well as shake up the confidence of foreign investors, he said.

Any final decision regarding used car import would be taken after the committee's report before budget. In contrast, chairman All Pakistan Motor Dealers Association (APMDA), H.M. Shahzad looked quite happy over the Cabinet decision regarding with CBU and used car imports.

"I am happy that the government has taken notice of the customers' grievances regarding premiums and late deliveries," he said adding that the approval with reference to used car import besides cut in import duties on CBU will create an healthy environment in the markets besides creating wider options for the consumers.