Slump, slowdown, downturn, and recession: these are some of the most commonly used words when talking about economic conditions in the world, after the events of September 11.

What else could it have been—with the United States, the planet’s economic powerhouse, diverting huge funds to its war chest? Closures, bankruptcies, and massive job cuts are the order of the day in the US and elsewhere.

On the whole, the situation in Pakistan is not much different. Rather, Afghanistan’s eastern neighbour has been hit harder than many other countries. However the up-coming automobile industry has defied the dreary scheme of things. It came out of about a decade of stagnation last year posting a growth of over 20 per cent— which is the highest growth achieved in any manufacturing sector of the country. This year, domestic demand for new cars has skyrocketed by 50 per cent.

As would be expected, given the limited market size, production volumes have been low. But there are clear indications that the industry has finally come of age, producing cars of eight international brands in scores of models,— all fully approved by the original manufacturers for quality and endurance.

Beside passenger cars, the Pakistani plants are turning out tractors, pick-ups, minibuses, buses and motorcycles, although deletion levels attained for each category of vehicle differ. While it is around 90 per cent for motorcycles and more than 87 per cent for tractors, motorcars lag much behind. The proportion of domestically manufactured is 65 per cent for 800 cc; 55 per cent for 1000 cc cars and just over 50 per cent for 1300 cc cars.

The deletion programme, however, has led to the development of a vibrant, hi-tech vendor base in the country. This recent upsurge has further led vending industries to grow—as fast as 30 per cent annually.

Another healthy trend witnessed in recent years has been diversification origins. As recently as five years ago, Pakistani automakers were manufacturing only Japanese brands. Not anymore; Korean and European brands have arrived in style. Besides, a domestic entrepreneur has also unveiled plans to produce a Chinese pick-up by the middle of this year.

All these factors together have boosted confidence of the consumers in the domestically-manufactured cars. Moreover, how the Pakistani auto industry has managed to outdo its Indian counterpart in efficiency makes for a separate study. Notwithstanding the low production volumes and higher cost base, most Pakistani automakers have been able to offer prices roughly equal in dollar terms to those offered by Indian manufacturers for comparable models.

The annual production volume of 800 cc Suzuki Mehran cars in Pakistan averages around 10,000 units. In contrast, the Indian industry turns out 300,000 units annually of Maruti. In dollar terms, both retail at roughly the same price.

Suzuki and Maruti are both “basic” motorcars. But manufacturing activity in Pakistan is not confined to this category of vehicles—or to “stripped off” models of the cars available in the international market—anymore. The domestic assembly lines are now delivering fully featured, brawny cars in a variety of chic designs. Honda, who accentuated styling, comfort, and safety features in its marketing campaigns, which in time led other manufacturer’s to pay more attention to these areas, brought the trend to these shores.

This competition has worked to the advantage of the consumers. The flow of newer engine technologies, braking and transmission systems, safety features, design elements, etc has been fast-tracked to a point where Pakistani automobiles are fast catching up with First World markets. One leading manufacturer actually ensures its Pakistani models are the same as those on sale in Europe and North America, though another synchronises with the less exacting South East Asian standards.

Perhaps the most important impact the domestic automobile industry has made on the domestic vendor base is making it export-oriented. Before domestically manufactured parts are used by domestic automakers, they are tested and approved by the original manufacturers at their R&D facilities abroad, something of a certification of their quality. This, together with competitive pricing, has fostered exports. Already in 2000-2001, auto parts exports had more than doubled to $25 million from $12 million in 1999-00. This year, $35 million worth in forex are expected to flow in under this head.

And it can be argued that the efficiency achieved by the car manufacturers in Pakistan with very low production efficient domestic vendor base. This in turn has helped vendors to compete internationally in the sales of auto parts for the after-sales market.

Pakistan ventured into auto-parts exports about four years ago. Domestic vendors have established limited production units due to low production volumes. Even this low production capacity is double that of domestic consumption.. This was why vendors were bound to turn to export markets. Many Pakistani vendors are now supplying parts to foreign car-makers.

The slow growth in domestic car production has been attributed, among other things, to a flawed regulatory framework and short-sighted policies. Pakistan is perhaps one of the very few countries in the world where the smuggling not only of car parts but also of finished cars continued for a long time.

Besides, the authorities have from time to time also allowed imports of used and reconditioned cars. This directly impinged upon the demand for the domestic car, because reconditioned models were available at lower prices. Last but not the least, the import of used auto parts was freely allowed through special arrangements until 1998.

Post-September 11, international border vigilance has been stepped up world-wide, providing for improved checks on smuggling. Besides, black money is not as free to flow about as it used to be, as hundi and hawala networks are being closely watched by the developed world and the Gulf States.

This aspect of the situation offers prospects of rapid growth for Pakistan’s auto industry, possibly leading to export of finished autos. One hopes the domestic car-makers are awake to this opportunity.