KARACHI: Auto vendors said the profitability of assemblers has increased tremendously, but they are not sharing their profits with the vendor industry.

As assemblers continue to frequently jack up prices, both stakeholders — customers and vendors — are the first losers due to soaring car pricing and late deliveries over which they have no any control.

The Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) directly stated the major reason is the low localisation of parts by automotive assemblers, despite having exclusive market benefits for over three decades.

Vendors elaborated that parts prices at the time of initial rates finalisation include profit based on cost of raw materials which the assemblers freeze while increasing intermittently the car prices. This process has left auto parts makers absolutely cash starved.

Auto sector sources said a representative of PAAPAM gave a presentation at the meeting of the Automotive Industry Monitoring Committee (AIMC) held in Islamabad at the office of the Engineering Development Board (EDB) on March 31, 2022, where he showed profits of the car assemblers in the post-Covid scenario.

He informed the meeting that the sales revenue of Honda Atlas Cars Ltd has soared to Rs67bn as of March 31, 2021 from Rs 55bn while the company’s profit after tax (PAT) rose by 163pc to Rs 1.79bn in 2021 from Rs0.68bn in 2020.

Sales of Indus Motor Company (IMC) swelled to Rs 179.6 billion for the year ended June 2021 from Rs 86bn while PAT rose to Rs12.8bn from Rs5.1bn in 2020.

The annual report of Pak Suzuki 2021 showed net sales of Rs 160bn from Rs 76bn while PAT stood at Rs 2.6bn from Rs 1.37bn in 2020.

He added that the automotive assemblers get payment in advance from customers and supply parts from vendors on deferred payments over a spread of period 30-50 days. Assemblers have surplus cash for short- and long-term investment while vendors borrow funds from banks. Assemblers make handsome profits on operations as well as from investments made out of surplus cash while vendors pay the financial cost of borrowed funds.

PAAPAM representative said the assemblers are the ultimate beneficiary of price increases in automobiles and they do not pass a due share of any price rise to the vendors, thus solely responsible for making price rise in vehicles.

He reiterated that localization is the only way to reduce prices. He said local parts delay might happen just for a few hours whereas delay in imported CKD kits is substantial.

He informed the meeting that the profitability of Suzuki and Honda car assemblers is less because of transfer pricing.

However, the Head of Corporate Affairs of Honda Atlas Car, Muhammad Nauman Ali said that the Federal Board of Revenue (FBR) may carry out an audit of the firms and suggested that an audit by the FBR after three years may be carried out the auto assemblers to ascertain transfer pricing charges.

Published in Dawn, April 6th, 2022