KARACHI: Federal Industries Minister Mian Manzoor Watoo has asked the car makers to increase the localisation of parts in order to offset the negative impact of fluctuations in foreign currencies rates against the rupee, which pushes up the production cost and result in price hike.

In a meeting with the Pakistan Automotive Manufacturers Association (PAMA) and vendors on Wednesday in Islamabad the minister asked the assemblers to make serious efforts in increasing the locally-made parts in cars.

Sources in the auto sector said that the minister was highly concerned over the premium being charged on locally-assembled cars and sought reasons from them on this issue. The assemblers have been asked to come up in the next meeting with genuine reasons and solutions for combating this menace. The car makers asked the industries minister to issue directives to the provincial excise department to hold the transfer of cars for at least three months. But the minister reportedly did not agree saying that it was not possible to interfere in provincial matters.

It may be noted that the issues like premium, car prices, localisation and value-addition were to be discussed at length in meetings scheduled for Oct 8 and 16, which were postponed.

At a time when the country was hit by acts of violence, the car makers anticipating increase in demand, made a clever marketing move by pushing up the prices soon after the postponement of Oct 16 meeting.

Indus Motor Company (IMC) was the first to enhance the rate by Rs30,000 on Oct 17, followed by Rs25,000-35,000 by the maker of Honda cars and Rs 5,000-15,000 by Pak Suzuki Motor Company Limited.

According to reports Mian Watoo strongly urged the assemblers to cut car prices within 10 days. But PAMA on Thursday rejected these reports.

The association in a statement said no such directions were given, which would in any case not be possible owing to the sharp increase in cost. Prices are determined by independent companies reacting to their individual cost structures and market requirements, the association added.

The industry, however, assured the minister that with its considerable unutilised capacity it is able to fully meet the current and future demand.

The association briefed the minister on the significant decline in volumes, which amounted to about 50 per cent year-on-year for the year ended June, 2009. Though there is some marginal growth in certain segments in the first quarter of 2009, the continued law and order problems, high interest rates and a general reluctance of lenders to finance automobile sector, are factors still badly affecting the industry.

PAMA said that the industry informed the minister that in the last 16 months the rupee had devalued about 39 per cent against the dollar, while the yen had appreciated about 63 per cent against the rupee, leading to a significant increase in cost, most of which had been absorbed by the makers.

The prices of various makes and models in any case is not a matter for the association to deal with, which have been unavoidably increased to a much lower extent, it added.

This has been possible because of the extensive localisation carried out by the industry, which has enabled it to somewhat offset the sharp increase in imported inputs.

It was further explained that some of the recent price increases announced by the industry are significantly below the losses incurred due to rupee depreciation experienced since July 2009 versus the major currencies.

Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), chairman Tariq Nazir said that the vendors had been looking forward to increase the contents of the locally-made parts in cars as it would stop unpredictable increase in prices, besides opening new jobs and encourage vendors for further investment.