LAHORE, Jan 24: European car manufacturers must be given incentives to set up their assembly plants in Pakistan as soon as the local industry crosses the production target of 100,000 units per year.

"The entry of the European car makers would induce competition in the local market leading to reduction in prices for consumers, expansion of the market, localization of parts, increase in jobs, tax revenues and transfer of modern technology," insists Pakistan Association of Auto Parts and Accessories Manufacturers (Paapam) chairman Syed Nabeel Hashmi. The industry is expected to produce 115,000 automobiles by the end of this year as compared to 84,000 last year.

Talking to Dawn on Saturday, he said the existing OEMs should "start facilitating local vendors financially and technologically to make high-tech, engine parts locally. Local vendors have the capability to build high tech parts. We've not done so in past as production volumes had been very low," he said, and added current volumes and bright future prospects have made deletion of engine parts viable for vendors.

Mr Hashmi discounted the fears that the recent growth in "auto production volumes was not temporary but correction of the past lost opportunities. We'd have attained the current volumes all the same had faulty policies like yellow cab scheme not adopted."

He called for rationalisation of car insurance rates and mark- up on car financing, saying these measures would trigger further growth in the car sales.

He said automobile producers and vendors foresee a "sustained high growth in the automobile sector of the country if government continues to regulate the industry and market judiciously during the next 18-24 months."

He said the turnaround in production began when the government effectively protected the automobile industry by maintaining ban on import of used and reconditioned cars. He said despite immense pressure government stood fast on its decision to maintain ban on import of old auto-parts. He said car financing started in recent years further boosted the sales.

He said the car sales boosted further as the car financing rates declined from a peak of over 20 per cent a few years back to 8-12 per cent. However, he added, the rates of car loan were still higher than average mark-up charged by the banks. He said car financing carries no risk and ought to be financed at lower than average lending rates to push up sales.