KARACHI, May 29: Local assemblers and used car dealers have set their eyes on the 2004-05 budget in which the government may announce its decision on issues like liberalization of used car imports , cut in duty on completely built-up units (CBUs) and completely knocked down (CKD) kits.

Allowing import of reconditioned cars, which has been lingering on for the last one and a half years, is not expected in the budget. The government may opt to give one more chance to local car makers to enhance capacity to meet demand, auto sector analysts think.

Car pricing, high premiums and late delivery have been in the limelight all through the year 2003-04. The next budget is expected to bring some concrete measures for local assemblers. Analysts expect the task force on auto sector to recommend 10-15pc cut in import duty on CBUs and 5-10pc on CKDs, which is likely to be announced in the budget.

They were of the view that the government, in order to provide relief to consumers, may reduce the import duty on CBUs. However, a corresponding reduction in import duty on CKD kits could also be expected so as not to severely hurt car assemblers.

Currently, CKD kits attract import duty at 35pc and CBUs in four slabs ranging from 75-150pc. This would compel car assemblers to reduce prices, but a corresponding cut in CKD cost would keep margins intact.

An analyst at Invest Capital and Securities expects a cut in the imported Chevrolet Exclusive's price from Rs600,000 to Rs550,000 if import duty on CBUs is reduced by 15pc. This may result in few consumers shifting to imported CBUs, thereby affecting car assemblers' sales volumes.

Expected car demand in Pakistan for 2004-05 stands at around 10,000-11,000 per month, while local car assemblers are supplying around 9,000-9,500 units per month, thereby creating a shortage in the market. This has forced the government to think towards allowing the import of used cars or to reduce already high duties on imported CBUs.

The main concern for local assemblers recently has been the sharp rise in steel prices. This is evident in their Jan-Mar 2004 profits, as margins have taken a huge plunge. Average gross margin of Pak Suzuki, Indus, and Dewan declined from 14.7 per cent in Jan-Mar 2003 to 10.2 per cent in Jan-Mar 2004. Dewan has already responded by raising prices of Santro and Shehzore by 2-4 per cent, the analyst says.

Coming back to used car imports, consumers took a sigh of relief in February 2004 when the Federal Cabinet had approved the used and new car import besides approving cut in import duties on CKD kits for cars. Soon after the decision, the local assemblers had been building up pressure on the government to refrain from taking any decision on used car imports that may plunge the entire current and future investment and expansion plans in doldrums.

On the other hand, the used car importers were busy in lobbying their case for liberalization of used car imports to bridge the gap of demand and supply of newly assembled cars.

The issues of late delivery, rising premium and higher prices, being raised by used car importers and legislators in the National Assembly, forced the government to put some pressure on the car assemblers. As a result, the Federal Cabinet had to take a decision on February 11 regarding used car imports, cut in CKD kits and allowing new car imports.

However, the market situation has not changed very much. The decision had caused cessation in the pace of booking of new cars in February and March but the government's dilly-dallying tactics in giving a practical shape to its decision had disheartened the buyers who again started placing fresh orders for newly assembled car after making sure that full liberalization of used car imports would remain a dream.

Despite achieving tremendous production growth and double shift productions - the delivery timing of newly assembled cars still ranged between two to six months and premium on new cars were still being charged.

The government is well aware of the auto sector issues like late delivery and high premiums, but it feels reluctant to take any decision on used car imports as any decision in this regard will send negative signals to the future prospective investors. Besides, the Japanese assemblers' cartel have still a say in the corridors of Islamabad to mould the economic decision on their own.

The government also knows that the car makers have been holding over Rs50 billion through booking of new cars and earning interest on the public money. The number of pending delivery is over 50,000 vehicles. Besides, the government also knows that most of the parts used in the cars, being assembled locally, are being imported by the assemblers and their vendors.

The tax authorities two months back seized Rs6 billion worth of imported crystal lights, a part, that has no local plant. Finance Minister Shaukat Aziz had confirmed to the reporters after the April 11 Cabinet Committee meeting that such confiscation had taken place but these were one or two cases.

Besides, the minister told a Senate session on April 12 that three car assemblers - Honda Atlas Cars, Pak Suzuki and Raja Motors - had allegedly evaded Rs517 million in taxes and customs duties.

Despite these stark realities, the government seems least bothered about the situation and is unlikely to allow import of used cars. It will continue to protect the already over-protected car assemblers, a car analyst says. "In case the government allows used car imports in the 2004-05 budget then very harsh rules and regulations are likely to be imposed to make import of used cars unfeasible in Pakistan, he remarked.