Carmakers raise prices despite higher localisation

Published March 28, 2018
Cars on display at a showroom. In the first eight months of FY18, sales of locally assembled cars, light commercial vehicles, vans and jeeps increased by 23 per cent to 170,354 units.
Cars on display at a showroom. In the first eight months of FY18, sales of locally assembled cars, light commercial vehicles, vans and jeeps increased by 23 per cent to 170,354 units.

KARACHI: Honda Atlas Cars Ltd (HACL) on Tuesday raised the prices of Honda Civic and City by Rs100,000 and BRV by Rs20,000 following devaluation of the rupee against the dollar. It had raised prices in January by Rs50,000-60,000.

Pak Suzuki had earlier raised the price in January by Rs10,000-20,000 and by another Rs20,000-50,000 this month. The assembler of Toyota Corolla also increased the rates on a number of models twice – first in December 2017 by Rs 50,000-60,000 and then in March by Rs100,000-300,000. Sources said the cars arriving in the next one to two years by new entrants with low proportion of local parts would be more vulnerable to price increase than the existing car assemblers, despite higher localisation.

Justifying the price rise, a leading Japanese car assembler told Dawn that rates of locally-produced cars would remain under pressure in fear of a further devaluation as automobile assemblers are importing over 55pc of their raw material.

The overall production costs are subject to prevailing exchange rates that form the basis of frequent increases in retail prices while the industry’s dependence on imports of essential components such as suspensions, chassis parts, engine, transmission apparatus, brakes etc give rise to further inflation in all aspects, he said.

Country’s auto sector has successfully achieved indigenisation in most of its operations, however, on-the-ground capacity of local parts manufacturers and car assemblers is restricted to the production of auto parts and components like tyres, batteries, interior trim, wheel rims, seats, steel metal parts, rubber, lighting accessories and plastic parts, he continued.

The assembler said the auto industry has been endeavouring hard to achieve a maximum indigenisation level but these locally produced parts and components are based such raw materials such as resin and metals, which are imported at higher prices from the other countries owing to a weak local currency, coupled with steadily increasing costs of such procurements.

Local auto vendors claimed to have achieved localisation level in cars of up to 70pc but rising imports of semi- and completely-knocked kits create doubts over high local contents in cars. Country’s parts imports swelled to $518 million in July-Feb 2017-18, up 24pc from $417m in the same period of FY17. In 2016-17, imports rose to $674m from $518m in 2015-16 and $483m in 2014-15.

Sources said the local contents in new models like Suzuki WagonR, Suzuki Cultus, Suzuki Swift and Honda BRV etc are very low and their thriving sales lead to larger amounts of imported parts.

The car assembler said the country’s economic policymakers and advisers keep reducing the value of the rupee in a fixed exchange rate to support ailing exports, mainly of textiles, but at the cost of the rest of the industry.

He said the automobile sector has been paying a heavy price to such devaluation, thus pushing up the prices of imported parts used in car assembling making them costlier.

Pakistan Association of Automotive Parts and Accessories Manufacturers (Papaam) in its pre-budget proposal said local parts industry is facing problems due to regulatory duties (RD) and anti-dumping duties (ADD) from time to time imposed over the last three years due to fall in world steel prices. However, the metal’s trend has now reversed and prices have sharply increased.

As per Auto Development Policy (ADP) 2016-21, a comprehensive tariff structure for the industry was notified in Budget 2016-17, including customs duty rate of 1pc on import of raw materials not manufactured locally.

Paapam said it was totally unjustified to modify these approved tariff rates, through levies of RD and ADD on raw materials not manufactured locally.

All imports of raw materials by the auto parts industry under SRO 655(1)/2006 should be exempted from RD according to SRO 568, as similar exemptions had also been granted to various other sectors. There are no such levies on related imports of auto finished goods.

Published in Dawn, March 28th, 2018


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