Pakistan’s auto policies have repeatedly promised greater localisation, competitive exports and substantial employment. Those ambitions have often exceeded the foundations needed to realise them: production scale, affordable energy, competitively priced materials and preferential access to overseas markets. Yet judging the industry solely against these promises obscures an important consequential achievement: the engineering capability built by its component manufacturers.

As the government finalises another auto policy and moves towards lower tariffs, it should explicitly consider this capability. Reform should make vehicles more affordable and manufacturing more competitive, but the sequence and pace of change must also reflect the value of productive skills and supplier networks that could take decades to rebuild if lost.

A visit to component factories around Port Qasim reveals an industry quite different from the familiar image of imported kits being bolted together. Manufacturers produce windshields, seats, fuel tanks, wiring, lights, exhaust systems, sheet-metal assemblies, rubber products, moulded components and thousands of sub-assemblies that go into engines and other sophisticated parts of a vehicle. Other clusters operate in Hub, Karachi’s SITE and Korangi industrial estates, and the Lahore–Sheikhupura corridor.

These factories must satisfy demanding specifications, especially by the three longer term assemblers — Suzuki, Toyota and Honda. Guided initially by these Japanese assemblers, and subsequently by other international manufacturers, suppliers have learned to control tolerances, maintain consistent quality, minimise defects and meet delivery schedules. An assembly line cannot function reliably if components arrive late or vary from the approved design. And none of this is possible without trained and skilled craftsmen.

A published transition plan that reduces domestic cost disadvantages as tariffs fall

The resulting competence extends beyond individual products. Toolmaking, precision fabrication, quality assurance and production planning are transferable capabilities. They can support agricultural machinery, industrial equipment and selected defence applications, provided manufacturers obtain the necessary designs, materials and certifications.

This is a more credible basis for support than sweeping claims about employment or self-sufficiency. Vehicle assembly is capital-intensive, whereas component manufacturing provides a broader range of jobs. The industry estimates that it employs about 300,000 people, but the stronger case for support lies not in numbers employed but in the technical content of those jobs and the production knowledge accumulated around them.

The limited domestic supply of automotive-grade steel and specialised petrochemical inputs restricts how deeply indigenous a vehicle can become. However, it does not make competitive manufacturing impossible: imported materials can underpin successful production. But their cost, combined with expensive energy, financing and logistics, makes Pakistan’s challenge harder.

These cost disadvantages are compounded by limited scale. Pakistan’s small and volatile market is increasingly divided among numerous makes and models, leaving short production runs for each component. Because suppliers must recover the cost of moulds, dies and testing equipment from those runs, lower volumes translate directly into higher costs per part.

New entrants bring competition, technology and consumer choice, and these benefits matter. But the number of assembly plants is an inadequate measure of industrial progress. When new models rely heavily on imported kits and divide limited demand across more makes and models, production runs for established local suppliers shrink. Assembly activity may therefore expand even as domestic engineering value stagnates or declines.

Policy should therefore encourage shared components, supplier development and commercially viable production volumes. Concessions should produce measurable manufacturing progress, with comparable obligations for comparable activities. That approach must also recognise that assemblers and component suppliers have very different abilities to adjust when market conditions or tariff policies change.

Assemblers and suppliers also face very different adjustment options. An assembler may be able to shift towards importing finished vehicles, but a supplier tied to specialised tooling, trained workers and a small number of customers cannot change course as easily. Diversification requires time, capital and access to new buyers.

The proliferation of makes and models can therefore leave the auto-parts industry with fragmented demand, underused capacity and greater exposure to falling production volumes. These conditions raise unit costs and weaken suppliers’ ability to meet the price, quality and scale requirements of export markets, making the vehicle export targets envisaged in the draft auto policy extremely difficult to achieve profitably.

For component manufacturers that cannot quickly replace lost assembly volumes, the replacement market offers one route to diversification. Pakistan’s substantial stock of older vehicles requires parts long after particular models cease production. Serving this demand can extend tooling life and reduce dependence on new-vehicle sales. However, the government must address smuggling, under-invoicing and counterfeiting while ensuring that consumers receive safe parts, and manufacturers must develop distribution, branding and reliable warranties.

Exports offer another route, though expectations require caution. Pakistan already exports some automotive products; the challenge is to expand competitive supply. Foreign assemblers can help qualified vendors enter their international procurement networks. Certification, dependable delivery and competitive costs, particularly of energy, are essential. Preferential trade agreements can improve access but cannot compensate indefinitely for inefficient production.

Neither the replacement market nor exports can resolve the industry’s adjustment challenge on their own. This brings the debate back to tariffs. Lower duties can reduce vehicle prices and improve access to imported inputs. However, cutting protection on finished components while domestic manufacturers continue to bear high costs for materials, energy and taxation can make importing more attractive without making local production more efficient.

The answer is a published transition plan that reduces domestic cost disadvantages as tariffs fall. Support should be assessed component by component and tied to measurable gains in productivity, quality, training and customer diversification. Consumers should benefit through better products and lower costs, while protection should decline where producers fail to meet those conditions rather than becoming a permanent entitlement.

Any policy change should be judged by whether it preserves capabilities that have future commercial or strategic value. In an uncertain geopolitical environment, the ability to manufacture, maintain and adapt essential equipment is itself valuable. Pakistan should identify which capabilities meet that test and preserve them through transparent, accountable and time-bound support.

Past auto policies deserve scrutiny, and their shortcomings justify reform. But sound reform must also recognise the engineering capabilities those policies helped create. The objective should be to make the industry more competitive without inadvertently dismantling the skilled and experienced supplier base on which those capabilities depend.

The author is a former CEO of Unilever Pakistan and of the Pakistan Business Council

Published in Dawn, The Business and Finance Weekly, October 5th, 2026