Pakistan’s auto parts manufacturing sector employs over 300,000 people directly and 1.8 million indirectly, comprises roughly 1,200 Tier-1 and Tier-2 manufacturers, and represents four decades of accumulated industrial capability. It is also in serious danger — not because of market forces, but because of policy choices that have consistently prioritised assembler growth over vendor survival.

How it was built

Pakistan’s auto industry was rebuilt from scratch in the 1980s around a Deletion Programme — a progressive localisation mandate requiring assemblers like Suzuki, Toyota, and Honda to source increasing proportions of components domestically over time. Modelled on Japan’s industrialisation experience and Thailand’s concurrent approach, it worked. By the 2007–12 policy era, annual vehicle production capacities had surged from roughly 50,000 units in 2004 to nearly 300,000 by 2010.

Vendors invested in plants, equipment, and know-how. A real supply chain was born. The lesson from that period is clear: given a stable policy framework and a growing market, Pakistan’s vendor industry can compete. It does not need perpetual subsidy — it needs scale and a level playing field.

How it was damaged

That foundation was eroded through a sequence of avoidable policy mistakes. First, lobbying pressure opened the door to used vehicle imports — vehicles up to five years old — which suppressed demand for new domestically assembled cars and the locally sourced parts inside them. When the first auto policy lapsed in 2012, no successor framework was announced for four years, freezing investment decisions across the sector.

No auto parts manufacturer in the world has achieved export scale without first mastering its domestic market

Then came the Automotive Development Policy 2016–21, which offered new entrants — Hyundai, KIA, MG, Changan, Haval, Peugeot, and others — import duty concessions of up to 50 per cent to establish assembly operations in Pakistan. The result was structural damage: new entrants captured roughly 30pc of the market while importing completely knocked down (CKD) kits rather than sourcing locally, because concessionary tariffs made importation more rational than localisation. They gained assemblers; the industry shed vendors.

The 2021–26 auto policy nominally placed localisation at its core but was functionally a continuation of its predecessor, extending concessionary tariff access (for models launched before June 2021) through June 2026 with no meaningful enforcement mechanism.

The math of fragmentation

Today, Pakistan has 14 assemblers competing across 40-plus models in a market producing fewer than 200,000 vehicles annually. This is arithmetically devastating for the vendor sector. Auto parts manufacturing requires heavy upfront investment — tooling, dies, presses, precision equipment — that must be amortised over production runs. In Thailand or Indonesia, a single model may sell 100,000+ units per year.

In Pakistan’s fragmented market, the same model sells 5,000 to 15,000 units — volumes at which tooling investment is rarely financeable and foreign technical partnerships are nearly impossible to attract. Fragmentation has not expanded vendor opportunity; it has destroyed the economics of localisation.

A new threat

The National Tariff Policy 2025–30, shaped under International Monetary Fund conditionalities, envisions reducing import duties across industrial sectors, including automotive components. Its application to Pakistan’s auto parts sector, however, ignores a quantified structural reality. The Pakistan Association of Automobile Parts and Accessories Manufacturers (PAAPAM) and the Engineering Development Board (EDB) have calculated Pakistan’s cost disadvantage in auto parts manufacturing at approximately 34pc and 21pc respectively, above comparable regional producers.

This is more of a structural problem than an efficiency one. Pakistan lacks domestic scale production of steel, aluminium, copper, rubber, and plastics — every foundational input carries freight and import costs that regional competitors do not bear equally. Industrial energy tariffs are among the highest in the region, a consequence of circular debt and capacity payment obligations. With a sub-200,000-unit market, per-unit amortisation costs are structurally higher than in markets 10 times Pakistan’s size. Finally, security concerns and political risk perceptions make foreign technical partnerships difficult to attract.

Cutting tariffs without offsetting this 34pc disadvantage is not trade liberalisation — it is deindustrialisation by another name.

That said, Pakistan’s vendors, operating at one-fifth or less of the Association of Southeast Asian Nations volumes, have achieved cost parity. That is an extraordinary industrial achievement, and a powerful indicator of export potential — if the domestic base is preserved.

The Auto Policy 2026–31

No auto parts manufacturer in the world has achieved export scale without first mastering its domestic market. Every policy that suppresses domestic vendor activity simultaneously forecloses Pakistan’s automotive export ambitions. The two cannot be separated.

The Auto Policy 2026–31 is Pakistan’s most consequential near-term industrial decision. Six core recommendations. First, a tariff differential of 15pc (with total tariff at 45pc) for locally manufactured components has been successful in inducing active localisation of components by incumbent assemblers (Suzuki, Toyota & Honda). Without this safeguard, commercial logic will continue to favour CKD importation.

Second, the structural cost disadvantage (worked out at 34pc and 21pc by PAAPAM & EDB, respectively) must be formally incorporated into the tariff structure. Any rationalisation under the National Tariff Policy 2025–30 must be sequenced to ensure domestic vendor viability is not compromised.

Third, 14 assemblers and 40-plus models in a sub-200,000-unit market are not healthy competition; they are a symptom of policy failure. The new policy should introduce minimum volume thresholds and market entry standards. The focus must shift to deepening the capabilities of existing participants and their vendor ecosystems.

Fourth, a structured mechanism should co-finance vendor investment in tooling, technology upgrades, and quality systems. Channelling a portion of import duty revenues from automotive components into a ring-fenced fund would be self-financing over time.

Fifth, the government should work with relevant agencies to reduce barriers preventing Pakistani manufacturers from accessing foreign technical partnerships — supporting PAAPAM in engaging global Tier-1 suppliers and creating a verified quality-certification programme that gives foreign partners confidence in Pakistani manufacturers’ capabilities.

And sixth, the new policy should include duty drawbacks on imported inputs used in exported parts, support for compliance certification to international standards (IATF 16949), and market development funding for vendor participation in global automotive trade fairs and original equipment manufacturer qualification processes.

The next auto policy will either secure the sector’s future or surrender it.

The writer is the former chairman of the Pakistan Association of Automobile Parts & Accessories Manufacturers.

Published in Dawn, The Business and Finance Weekly, April 20th, 2026