Auto sector troubles

December 29, 2018

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THE automobile sector in Pakistan is seeing some amount of turbulence, in part driven by the reality of new entrants into what has been one of the most protected segments of Pakistan’s manufacturing economy, and in part driven by the cyclical downturn in the economy that has impacted every business across the board. So, recently, when auto vendors complained that their sector is on the cusp of a “recession” and almost 12,000 jobs have been lost and another 50,000 jobs are on the line, the claims merit a closer examination to discern the causes at play. If a closer examination reveals that the crunch being experienced by the vendors is due to changes sweeping the sector as new entrants prepare to enter the field, then we can say it is normal change and part of a healthy competition that the sector has to prepare itself for. But if it is true that the auto sector has been especially hard-hit due to the economic downturn, then there could be a case for calling in the vendors to ask them what policy directions they recommend to rectify the situation.

But as it turns out, neither of these courses of action may be necessary because a closer examination of the data reveals that the claims made by the vendors are largely false. They assert, for example, that production of automobiles has declined by 35 per cent and that of motorbikes by 30pc. What is odd is that auto assemblers themselves are not raising any such alarm. And their own data shows that, far from falling, the production of automobiles and motorbikes has actually surged from last year. In the tractors segment, there is indeed a steep downturn in sales, and the causes are worth inquiring after. But there is something odd about the calls for help coming out of the auto sector. The vendors are crying themselves hoarse while the assemblers are quiet. This shows that there could be some cause besides a downturn sweeping of the sector that is at play. Perhaps the requirement to forbid sales to non-filers of tax returns is a root cause, but sales have not plunged by nearly as much to suggest this. Or perhaps vendors are having a hard time adapting to the shifting realities opened up by new auto policy. In responding to their SOS, the government ought to examine their claims carefully.

Published in Dawn, December 29th, 2018