THE past 15 years have proved to be quite a bumpy ride for the country’s automobile industry which has seen many ups and downs since the late 2000s. The last three years have been particularly bad for the industry which is undoubtedly one of the most protected sectors of the economy. Carmakers are often criticised for the high prices of vehicles and their poor quality and missing safety features, delayed deliveries, the exorbitant premium buyers are forced to pay and so on.
In their defence, the manufacturers have always blamed the massive government taxes that amount to over 40pc of the total price in certain cases and very low economies of scale as only 17 out of every 1,000 Pakistanis own a car compared to 77 in Indonesia, 281 in Thailand and 70 in India. The import of cheaper, used cars under various schemes for overseas Pakistanis is also said to have suffocated local car production. While the government has made the import of used cars difficult, it has significantly cut automobile taxes in the budget to bring down their prices. The assemblers have already responded to the initiative and revised down their prices, which is expected to push car sales in the country.
The rest of the issues facing the industry, according to Industries Minister Khusro Bakhtiar, will be addressed in the new Automotive Industry Development and Export Policy 2021-26 to be announced next month. From the broader details given by the minister, the new policy can be expected to push car demand, create jobs across the supply chain, incentivise local assembly of environment-friendly hybrids, encourage localisation and value addition of parts used in car manufacturing and promote exports. Additionally, the new policy will address late delivery and high premiums, as well as force manufacturers to improve safety features.
But what the proposed policy does not address is just as important, if not more. Although the cuts in tax have led to a significant decrease in prices, ‘entry level’ small cars still remain outside the reach of first-time buyers hailing from middle-income groups. Likewise, it doesn’t carry incentives for foreign carmakers to take steps for the localisation of more sophisticated engines and other hi-tech parts. Nor does it make clear if the consumers will have to pay extra for new safety features. Also, there is no compulsion for foreign carmakers to introduce their models in every engine size to create healthy competition in the market and give consumers more choices at affordable and competitive prices. The automotive industry can play a big part in growing an economy. But the government must ensure that the industry doesn’t focus only on profits by catering to the needs of the moneyed segments only; the middle class should also be able to afford and enjoy a better ride.
Published in Dawn, July 9th, 2021