The Cabinet's approval of allowing import of used cars and completely built up (CBU) cars of lower engine capacity (800cc), while proving a ray of hope for the general public, has fallen on local assemblers as a bombshell.
The Cabinet has also approved to reduce the import duties on completely knocked down (CKD) kits of lower engine capacity cars to appease the assemblers. But the Cabinet's approval has not properly settled the dust as the industry people, vendors and genuine car buyers still need some more clarifications.
A committee will soon be set up to decide the makes and models of used cars to be imported and the terms and conditions for import. However, cut in the import duties on the CKD and CBU cars might become effective before the next budget, depending upon recommendations of the proposed committee.
In the light of above, it is still not clear that how much the government has planned to cut import duties on used cars, CKD kits and import of CBU units. As far as cut in CKD kits are concerned, industry people are expecting a 10 per cent cut, but the cut, if any, will raise eyebrows of the local vending industry.
However, all eyes of consumers and the local industry are now set on what import duty cut is in the offing. Whatever the cut in import duty on reconditioned cars or CBU vehicles, it will have definitely a negative impact on the local assemblers who fear erosion of some market share when imported and used cars arrive in Pakistan.
Commercial importers and used car dealers are happy that the government, though a bit late, has at least taken notice regarding the plight of general consumers who were forced to wait months to get the newly assembled car and pay heavy premium on spot purchase.
The government has linked its three approvals (cut in duty on CKD, CBU and used cars) to the recommendations of the committee. Much now depends on the persons to be included in the committee. Like past practice, the setting up of committees and Task Forces have caused delays in decision making of the government.
The delay in deciding the fate of intending car purchasers through the recommendations of the Task Force, set up in July 2003, is the clear example of government's functioning.
Market people said that if the government was really concerned about the consumers' grievances then it should have avoided the setting up of a committee and made a straight decision in larger interest of general consumers.
Much now depends on the inclusion of people in the committee and how long it takes to propose the cuts in duties of CKD, CBU and used cars. The setting up of the committee itself will take ample time as different lobbies will become active once again.
As regards import of reconditioned cars after February 1992, it is unlikely that the committee, to be set up, will recommend any sharp cuts as Commerce Minister Humayun Akhtar Khan and Industries Minister Liaquat Ali Jatoi have already said in various business forums that the government has no intention of making Pakistan a junkyard of old cars.
The committee is likely to propose such a rate of duty on the import of used cars or impose certain conditions that would ultimately become unfeasible for the people to take risk in importing second hand cars.
Analysts think that used car imports, if allowed, as was in the case of early 90s, may boost car demand in Pakistan at a time of booming liquidity and cheap consumer loans.
Market watchers think that the approval regarding used cars have been made under some political pressures or lobbies who want to make heavy windfalls. Some analysts see the approval as a note of caution to the big car assemblers since the proposed committee will decide the makes and models of used cars to be imported and terms and conditions for import.
However, the decision to reduce import duties on CKD kits for local assemblers and CBU cars of small engine capacity carries some weight here and may become effective before 2004-2005 budget announcement since the International Monetary Fund (IMF), World Bank (WB) and the European Union (EU) have already been raising objections over huge protection being provided to the local assemblers, urging the government to withdraw the protection.
Besides, the State Bank of Pakistan (SBP) has also passed some candid remarks on the auto sector's performance for achieving slow deletion targets. The Central Bank thinks that the local car assemblers have been enjoying the most protected status and the pace of deletion should have been higher.
In the light of above, the cut in import duties (whatever) on CBU cars looks quite imminent in order to satisfy the leading donors. As far as import duty cut in CKD kits are concerned, it is likely to be in the range of five to 10 per cent as compared to the existing 35 per cent. But the vendor industry will definitely feel its pinch.
It is also surprising that the Cabinet has only taken notice of only small car segments (800cc cars) in which the problems of deliveries and premiums are not so grave as are prevailing in big engine capacity segments where delivery time ranges between four to eight months and premium hovers between Rs 70,000-100,000.
Pak Suzuki Motors Limited (PSML) enjoys the domination in 800cc cars (Suzuki Mehran) which has over 50 per cent share in total production of the company's various vehicles.
Mehran has over 70 per cent local parts and any cut in import duty on CKD kits (may be at 10 per cent) to be made by the government will hardly make any difference. PSML executives are now puzzled over the government's move to cut import duties on CKD kits and CBU cars.
The approval to cut import duties on CBU and used cars import has started making its impact from the next day of the Cabinet decision with the decline in share prices of four listed car companies - Pak Suzuki, Indus Motors, Atlas Honda and Dewan Farooq Motors. Besides, booking of new cars also fell by minor percentage but not substantially.
Assemblers have now put their heads together in their respective offices to chalk out a joint strategy to prevent the government's decision from being implemented.
Assemblers feel that all the on-ongoing plans of expansion and investment, undertaken by the industry, may be reviewed and put on hold in the light of the latest decision of the Cabinet as the import of second hand cars and CBU cars will also eat away the market share of local assemblers.