ISLAMABAD, Oct 25: The auto parts manufacturers are experiencing "potential threats" of reduced sales volumes due to 150 per cent to 200 per cent reduction in duties on the import of Completely Built Up (CBU) vehicles.

According to a latest study jointly got conducted by the Board of Investment (BoI) and Japan International Cooperation Agency (JICA), although reduction on the import of CBU was allowed ostensibly to stimulate competition in the market and therefore force Original Equipment Manufacturers (OEMs) to reduce their prices in the market, the reduction in duties is hurting the auto parts manufacturers.

"However, the duties were reduced in the 188 cc range that OEMs in Pakistan do not manufacture much. But it is the trend itself that worries car parts manufacturers. It is feared that an impact in sales volume and therefore production on the OEMs will automatically reduce the volumes of business the car parts manufacturers have with the OEMs," the study said.

It further said: "Should it become easier in the future to import CBU vehicles into Pakistan, a recommended strategy would be to diversify product lines and manufacture for the CBU vehicles. This can also prove helpful for future diversification in foreign markets for the entire car vendor industry."

Another issue of concern, the study continued, is that of the imposition of the WTO regime and the opening up of markers sans barriers. As the automobile industry is currently under the deletion programme, which is contrary to the TRIMS agreement of the WTO, this is a concern for the car parts industry that looks to the deletion programme for support.

"It is felt, however, that a gradual phase out of the deletion programme is not required and local content can still be established through a series of GATT compliant tariffs and duties as well as through agreements with OEMs to ensure local content in vehicles being manufactured in Pakistan."

Pakistan has currently won a two-year extension from WTO and is working on becoming fully TRIMS compliant. The WTO will ultimately open up markets for car vendors hitherto over protected, then use their competitive advantages and carve out their niches.

The study believes that both local and global prospects for automobiles and auto parts look very optimists at the moment. This scenario represents an opportunity for an investor to become at first, a part of the local supply chain for parts to local OEMs with a view to ultimately beginning exports and becoming a part of the global supply chain.

Economists predict that world automobile production should reach more than 62 million vehicles in 2004. The main engines of this growth are expected to continue to be Asian countries. America and Europe are also expected to show increased figures barring any untoward development on the international fronts. China is the world's fastest major vehicle market with production skyrocketing to 3.248 million units up 37.1 per cent.

Today, the study said, almost 60 per cent of cars are sold through leasing. This was not always the case as credit and financing available to prospective car owners was limited.

The size of the potential car market can be gauged from the number of people owning cars as opposed to non owners. Pakistan has one of the world's lowest car per 1,000 people ratios in the world with only 5.5 cars. India has 7 cars per 1000 people and China has 10. Developed countries like Japan boasts 570 cars per 1,000 people and the US has 760 cars per 1,000 people. This may be indicative of the relative strengths of the economies but can also be indicative of room to grow as economic performance increases, as is the case with Pakistan, the study added.