KARACHI: As the Auto Policy 2016-21 nears its end on June 30, 2021, consumers have not witnessed any rolling out of small 800cc or below cars by new international entrants who instead raced towards introducing sports utility vehicles (SUVs) and high engine power models under duty concessions.
There are also no signs that any international carmakers will be starting a greenfield project for manufacturing 800cc or below vehicles needed by the masses.
Pakistan attracted over one billion dollars in investment from new entrants — mainly from Korea and China — under the Auto Policy 2016-2021.
The key objective of the 2016-21 auto policy was to bring competition that would result in reduction of car prices, especially in the entry level segment so that the middle-class population of the country would be able to purchase smaller cars.
No global brand rolls out car up to 800cc or below under Auto Policy 2016-21
Unfortunately, after almost five years, though the auto market has been flooded with SUVs and high-end passenger cars, there is not a single entry level car of below 800cc by any international brand of repute.
Under the 2016-21 policy, new entrants are allowed import of parts at concessionary custom duty of just 10 per cent, while old manufacturers are importing these parts at 30pc custom duty.
Chairman of the Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam) Abdul Rehman Aizaz said the assembly of SUVs is an easy option for new entrants. “They have been allowed to import most of its parts at concessionary rate of duty due to a thin ‘A max part list’ of this segment, assemble the vehicle and sell these in the market easily which is already booming because of low interest rates and a high demand from consumers,” the Paapam chairman explained.
“Actually the auto policy of 2016-21 has resulted in a price benefit for high-end consumers of SUVs and passenger cars,” he added. Concessions on import duty provided in the 2016-21 policy would continue till June 2026. These concessions have resulted in subsidisation of import, loss of revenue to the government, employment generation in a foreign country instead of Pakistan, loss of GDP to the country etc, he lamented.
Without any doubt the 2016-21 policy, especially in case of new assemblers, resulted in slowdown of localisation and loss of business to auto part manufacturers who are key stakeholders in the automobile value chain and where bulk of the employment is generated, he added.
In the new Auto Policy 2021-26, there are indications that duties on completely built-up (CBU) and completely knocked-down (CKD) will be reduced across all segments of passenger cars and SUVs. Reduction in CBU and CKD would once again result in subsidising the imports and that too mostly in the luxury cars and SUV segment. The Paapam chief was of the opinion that to reduce the prices of entry level cars, concessions should be targeted towards this very segment only. Instead of reducing CKD and CBU duties, concessions in mark-up rates for financing smaller cars, abolishing federal excise duty and additional custom duty on raw materials and parts, reduction in sales tax rates etc. should be considered.
“Before finalisation, there is a need that all proposals shall be deliberated in detail with ample time and opportunity to discuss the pros and cons and come up with a policy that will support the make in Pakistan vision of the Prime Minister,” Mr Aizaz summed up.
Shankar Talreja at Topline Securities said there has been a global shift towards SUVs and that trend with auto policy 2016-21 has become more affordable for consumers as well.
In Pakistan, the market for SUVs remained untapped and hardly one to two models were offered to the consumers and that too at higher price brackets of over Rs7 million.
Mr Talreja said with new auto policy, assemblers have targeted top-notch sedans buyers and have provided them with more luxury at similar price bracket of sedan.
He said higher engine power vehicles have emerged as more profitable while smaller cars will have to face a direct competition with Suzuki Alto 660cc.
Meanwhile, a Korean car and SUV assembler said very few companies have below 1,000cc models.
Published in Dawn, May 4th, 2021