Karachi —The downstream auto industry, heavily depending upon local car manufacturers are in a fix due to import of used cars which is affecting the production volumes vehicles in the country. The influx of used cars in the country has been taking a heavy toll on local auto assemblers who purchase 60 percent of the auto parts from domestic manufacturers.
The domestic industry has tremendously developed during last few years mainly by investing huge capital but also with the help of agreements of transfer of technology with world renowned equipment makers.
This includes hundreds of components such as bumpers, radiators, mufflers, batteries, tyres, wheels, air conditioners, wiring harnesses, instrument panels, steering wheels, sun-visors, seats, carpets, interior panels, sheet metal and plastic parts. All of this is being locally produced by more than 400 vending companies. Almost 2,200,000 skilled workers are directly and indirectly associated with these local vending companies.
But, these domestic auto parts manufacturers have now started feeling the brunt of the government’s inconsistent policies as the demand for locally produced vehicles, especially cars, has slowed down. This is evident by the fact that the size of the local market has shrunk to currently 30 percent from its peak level of the year 2007 when some 200,000 vehicles were produced.
No doubt, this damage to the local market has been caused by the heavy inflow of five-year-old used cars. During the last 12 months almost 50,000 used vehicles have been imported, amounting to 30 percent of the total market demand for automobiles in the country, causing a loss of over Rs 14 billion revenue to the government in terms of relaxations allowed pertaining depreciation allowance. For example, during the month of June 2012 approximately 8,000 used vehicles have been imported while the number in July 2012 might be 9000. It amounts to 30% of the total market demand for automobiles in the country.
It is strange thing that most of the imported cars of 1000cc (or higher) such as Vitz, Corolla, Belta, Premio, Axio, Mira, Probox, Land Cruiser and Pajero are being sold in the price range of Rs 1.1m to Rs 3.5m. One can guess now that these vehicles, mostly purchased by elites, are being imported at the cost of the local automobile industry’s growth.
The scrupulous dealers purchase copies of passports and other relevant documents from so called overseas Pakistanis to flourish their businesses ofused cars.
And the government has joined them fulfilling their agenda to turn the country into junkyard of used vehicles at the cost of indigenous auto industry, which is providing jobs to hundreds of thousands of skilled and unskilled workers.
Vice Chairman Pakistan Association of Automotive Parts Accessories Manufacturers (PAAPAM) Munir A. K. Bana said, ‘It has become clear that this decision of used cars import is not helping the government, the customer or the manufacturer.’
The worst thing is that the government is allowing import of each and every thing into the country to jeopardize local industries instead of paying attention to the core issue of curtailing inflationary trends that are engulfing resources and endangering national integrity. ‘It is the high time that the government, in order to put a halt on the loss of foreign exchange, should reverse the concessions granted in the shape of depreciation in customs duty upto 60 percent that is allowed on the import ofused cars,’ he reasoned.
It may be noted here that the country’s foreign exchange reserves had fallen below $15b while the Pak Rupee has also depreciated against dollar, which is now close to Rs 96 per dollar. And the huge increase in the import ofused cars has exerted pressure on the country’s already widened current account deficit.
Owing to the recession all over the world, a large number of vehicles have become surplus in various countries and now they want to export these surplus vehicles to other countries to support their economies.
The Vice President PAAPAM further said that it is the government’s primary responsibility to protect the masses employed with the domestic auto manufacturing industry. ‘Therefore, the allowable age for the import of used vehicles must be reverted from five years to three years,’ he added.