With the current auto policy soon expiring in June 2026, it is unfortunate that targets fixed under it between 2007 and 2025 have remained largely unmet owing to multiple reasons, but primarily due to the lack of consistent implementation by the government of its own policies.

As per a report prepared by the Pakistan Automotive Parts and Accessories Manufacturers Association (Paapam), the low demand of vehicles, dwindling share of the auto sector in the gross domestic product (GDP), inconsistent policies, misusing the used-car import scheme, slow employment growth and exports were some of the main issues that were targeted and never achieved by successive governments.

AIDP 2007-2012

A quantitative benchmark analysis under the Auto Industry Development Policy (AIDP 2007-2012) reveals that the auto sector contribution to the GDP was 2.3 per cent as against the target of doubling the GDP contribution to 5.6pc.

‘The local assemblers have followed the government’s policy 100pc; the problem is with the state’s implementation of the promises’

In the above tenure, car production was targeted to achieve 500,000 units (critical mass), but it only stood at 176,000 units. Exports were planned to reach $650 million, but struggled to increase due to a lack of government support. Despite all these failed targets, exports currently stand at over $200m with the potential to achieve much higher levels.

Moreover, plans were made to develop high-value and critical components locally, but that target was missed as well. Even though engines and transmissions were assembled locally, their critical parts continued to be imported due to a lack of scale and minimum required volumes.

The above tenure saw the launch of the Productive Asset Investment Incentive and Technology Acquisition Support Scheme, but both schemes still remain unimplemented, and parts manufacturers hardly get any government support.

ADP 2016-2021

Production targets for cars/jeeps were set at 350,000 units in the Automotive Development Policy (ADP 2026-2021), but were recorded at 182,389 units, followed by production of 35,912 units of light commercial vehicles as against the target of 79,000 units.

Production targets of trucks, buses, tractors and motorcycles were fixed at 12,000, 2,200, 88,000 and 2.2m units, while actual production stood at 5,346 trucks, 631 buses, 50,700 cars and 2.475m motorcycle units.

Raising GDP contribution to 3.8pc also failed, as actual contribution reached only 2.3pc. Meanwhile, jobs in the auto sector remained at 2m as against the employment target of 4m.

The above period witnessed the entry of KIA, Hyundai, MG, Changan, HAVAL etc in greenfield/brownfield projects but with minimum local content due to 50pc reduced duties for the import of completely knocked down (CKD) and locally produced parts. Enforcement of safety/environment compliance relating to WP-29 was still going on.

The policy targeted to improve localisation of critical components, but these continued to be imported while no breakthrough was achieved in increasing vehicle demand to a critical level of 500,000 vehicles per year.

A five-year tariff roadmap for existing and new entrants was unveiled, but it was partially met, as the roadmap was announced, but its execution remained inconsistent and subject to several changes in every annual budget.

Reduced duties on CKD kits attracted multiple auto assemblers. The policy planned to curb misuse of used car imports, but no critical reforms were implemented, and, therefore, used car imports continued to take almost 20pc share of the market.

Ongoing AIDEP 2021-2026

The Auto Industry Development and Export Policy (AIDEP 2021-2026), planned to implement WP-29 safety regulations fully, but the target was only partially met as phased implementation is still ongoing.

The policy emphasised promoting localisation and rationalising aftermarkets, but high-value components continued to arrive while under-invoicing also persisted.

Affordable small cars (Meri Garri Scheme) were part of the AIDEP 2021-2026, but so far they are not in sight, as affordability was eroded by inflation and the rupee devaluation. The policy also included duty reduction on small cars, but Paapam feels that the policy was implemented initially and then partially reversed amid fiscal tightening and an increase in general sales tax to 18pc. By FY24, the benefit was largely eroded by rupee depreciation and inflation.

Despite this policy setback, Japanese brands — which have decades-long supplier relationships — continue to drive most localisation. Toyota’s Corolla, for instance, has achieved 60–65pc localisation while Honda’s City maintains 58-68pc local parts.

The localisation achieved by Suzuki Alto stands at 60pc, followed by Cultus’ 69pc, 70pc by pickups, 68pc by the now discontinued Bolan, 38pc by Swift and 32pc by WagonR.

These achievements underscore the maturity of Pakistan’s vendor base and the ability to meet global quality benchmarks when supported by stable volumes and long production cycles. The next phase of localisation will hinge on policy realignment.

As duty concessions for Korean and Chinese assemblers in Pakistan expire in 2026, these brands will face stronger incentives to source locally. Here, policy consistency is paramount, as the government needs to ensure Korean and Chinese original equipment manufacturers to start their localisation process to enable auto parts manufacturers to expand their investments and business volumes, creating high-skilled jobs for Pakistani workers and engineers.

A senior auto vendor commenting on the role of auto assemblers in achieving the government’s targets claimed that, “The local assemblers have followed the government’s policy 100pc; the problem is with the government implementation of the promises.”

Despite robust results, currently the most haunting issue for the local assemblers and their vendors is the rising import of used cars under various schemes.

Ali Asghar Jamali, CEO of IMC, said the sharp increase in used-vehicle imports, estimated at 40,000–45,000 units, now accounts for almost one-third of the domestic market compared to less than 10pc up until 2023, posing a serious threat to local manufacturing and pressuring the country’s foreign exchange reserves.

He expects demand momentum to continue in FY26, supported by lower interest rates, moderating inflation, and increased adoption of hybrid and electric vehicles.

Published in Dawn, The Business and Finance Weekly, September 8th, 2025