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Enforcing discipline in car market

July 15, 2013
- File Photo
- File Photo

The federal government is actively evaluating policy options to discipline a few automakers stated to be manipulating the car market. They are accused of using their dominant market position to flout norms of fair trading practices.

“Yes, we are monitoring their (car makers’) behaviour. They cannot be allowed to charge extra at whim, especially on a big ticket item (car) in a country where hardly 10 people in 1,000 have a four-wheeler,” responded a senior member of the government’s economic team.

He was reached in Islamabad for comments on a report regarding the upward revision in prices of vehicles that were sold before the budget, on the plea of the increase in the GST rate from 16 to 17 per cent.

Atlas Honda and Toyota have reportedly sent letters to purchasers to deposit the balance of what they project as cost differential after the budget 2013-14. These purchasers are still waiting for the delivery of the vehicles they bought weeks before the budget. Pak-Suzuki has decided to internalise the additional cost.

“Adding insult to injury, I received a letter telling me to deposit Rs15,000 before July 10 with the company. This is absolutely atrocious. First they fail to give the car I paid for months back, and now they are penalising me for their incompetence,” an irate buyer told Dawn.

“If I could have my way, I would have dragged the company to a court of law. I leased the car through a bank. I have copy of the receipt of full payment to the company before the announcement of the budget. They should have handed over the car as soon as they received the payment draft,” this buyer said, and e-mailed the relevant receipts to Dawn to substantiate his plea.

The hierarchy in the relevant ministries regretted the attitude of the carmakers, and informed from Islamabad that they were studying the situation before making a move to put things right.

“There is no justification for the carmakers’ behaviour. The government has continuously been interacting with them over the issue. The persuasion has clearly not worked. We believe that the best way to deal with such stubborn elements is to facilitate new entrants. The increased market competition will force the auto industry to become efficient and responsible,” a senior bureaucrat in a relevant ministry told Dawn over the telephone from Islamabad.

“This is easier said than done. Tycoons in the automobile industry have cultivated support in powerful quarters. They might not be sacred cows, but the way they manage to wriggle their way out of tight corners speaks of their influence in Islamabad,” commented a market expert.

A former deputy chairman of the Planning Commission of Pakistan told Dawn that he was outmaneuvered by the automakers’ lobby when he moved a summary to open up the sector by liberalising car trade.

“The people of the country are not getting value for their money. They deserve better,” he said, while referring to the outdated, low quality car models produced in the country.

“For how many more years will the industry be pampered at the cost of consumers,” he asked, while dismissing the position that advocates protection to broaden the manufacturing base.

Shafqat Hussain Naghmi, federal secretary of the ministry of industries, confirmed over the telephone from Islamabad that the government would soon announce a five-year policy for automobile industry.

“The devaluation of the rupee has narrowed down the scope of car imports. We are, therefore, looking with interest at proposals from carmakers in Europe and China. Ideally, we would like companies to locate their plants in Pakistan,” he made a point.

“In case carmakers show reluctance in putting up a major plant, we would encourage them to put up their assembly plants here, as it would serve their business interests and also suit Pakistan,” he asserted.

Meanwhile, senior officers in car companies defended their policies and highlighted their contribution to the economy as a major employer and a contributor to the national exchequer. On the issue of recent letters to customers asking for additional payment, they said that it was part of the deal between the company and the customer.

“The customers have not been tricked. Our booking form clearly states that the price at the time of delivery will be applicable. It implied that any change/increase in government levies/taxes/duties would have to be borne by the customer,” a senior officer of car company told Dawn.

He denied the market practice of charging ‘on’ money, and could not satisfactorily explain the delay in the delivery of cars to the customers. Buyers allege that the car companies use their money for as a long as they can manage to avoid bank borrowings and save financial charges.

Under the reported market practice, as much as 7-15 per cent is charged over the quoted price of cars from customers. Automakers call this ‘on’ money that has to be deposited for quicker delivery of the vehicle.

Pervez Ghias, chairman of the Pakistan Automotive Manufacturer Association, was reached over the phone but was not able to spare time for comments. Rahat Kunain Hasan, chairperson of the Competition Commission of Pakistan, was in Geneva for business, and no one else was ready to record his comment over why the Commission has not been able to check car market manipulation by a few players.

In a transformational Pakistani society, the car industry has a huge potential. However, three automakers — Suzuki, Honda and Toyota — share among themselves about 70 per cent of the car market. Imported second hand cars cater to a part of the remaining market.

The automotive industry is the fifth largest sub-sector of manufacturing. The latest Pakistan Economic Survey records an overall minus 11 per cent growth in the sector during FY2012-13 as compared to the corresponding period last year. The slackness was attributed to sluggish economic growth, political uncertainty, and a temporary, marked shift in policy towards import of used cars.

The long term Auto industry Development Programme 2007-12 expired, and stakeholders say that their future plans will hinge on the government’s next auto policy.

Despite growing in size, the industry did not fare well in transfer of technology and indigenisation of vehicles. The lack of competition has resulted in technological stagnation. The old model, small cars produced by Pak- Suzuki use obsolete technology.

The auto industry contributes about three per cent to GDP and about 15 per cent to the manufacturing sector.

The industry was highly regulated till the early 1980s. After deregulation, Japanese manufacturers entered Pakistan. Assemblers of Hino trucks, Suzuki cars, came in 1984, Mazda trucks and Toyota in 1993, and Honda in 1994. The assembly of Daihatsu and Hyundai cars (1999), beside some brands of LCVs and mini-trucks, commenced much later. The industry boomed in the middle of the last decade, when sales peaked because of low interest rates and an increase in car leasing.