Pakistan – Automotive Industry 2019

Pakistan’s Automotive Industry is on the Move

Published: 08 April 2019

Foreign car manufacturers are stepping up their activities

Traditionally, Pakistan’s automotive industry has been shielded from import competition by high tariffs and other trade barriers. Limited competition results from imports of used cars. Entry into the new car market requires local production and assembly capacities. The Pakistani automotive manufacturing sector is still quite small but has considerable growth potential.

Forecasts point to the very low level of motorization among the 215 million inhabitants of Pakistan. The International Organization of Motor Vehicle Manufacturers estimated the vehicle population in 2015 (excluding motorcycles) at 3.2 million. By now, the figure is likely to be around 4 million vehicles, which is still only 19 vehicles per 1,000 inhabitants. In the US, there were 833 vehicles per 1,000 inhabitants in 2016.

 

Pakistan: Production of motor vehicles (units)

2014-15 2015-16 2016-17 2017-18
Passenger cars 152,524 179,944 186,936 217,774
Pick-ups and jeeps 29,298 36,609 27,795 42,419
Medium and heavy trucks 4,039 5,666 7,712 9,326
Buses 575 1,070 1,118 803
Motorcycles 765,195 1,362,096 1,632,965 1,928,757

Note: Fiscal years (July to June)

Source: Pakistan Automotive Manufacturing Association

 

Japanese brands dominate

According to the Pakistan Automotive Manufacturing Association (PAMA), a total of 217,774 cars (2016-17: 186,936) left the assembly lines from the Japanese manufacturers Suzuki, Toyota and Honda in the fiscal year July 1, 2017 to June 30, 2018. Thus, Suzuki, Toyota and Honda hold a market share of almost 100% in the passenger-car sales sector. Sales of locally assembled vehicles largely correspond to new-car sales due to the small number of new-car imports.

Market leader Suzuki (123,846 vehicles), is followed by Toyota (51,218) and Honda (42,710). The model range includes small and lower mid-range vehicles as well as minibuses. Suzuki produces the Swift, Cultus and Mehran small car models as well as the WagonR and Bolan minibuses. Toyota makes the Corolla model, and Honda the Civic and City models.

In the first seven months of fiscal year 2018-19, passenger car production grew by 5% year-over-year to 134,177 vehicles. Suzuki assembled 74,848 passenger cars (2017-18: 75,121), Toyota 33,390 (29,427) and Honda 25,939 (23,673). The decrease for Suzuki was caused by declines in minibus production.

Production of pickup trucks and SUVs stood at 42,419 vehicles in 2017-18. The pickup truck models Suzuki Ravi (21,570 vehicles) and Toyota Hilux (7,485) were produced. SUV production included the Honda BR-V (9,181) and Toyota Fortuner (4,183) models. In the first seven months of 2018-19, production of pickups and SUV’s fell by 22% to 19,898 vehicles. The Chinese pickup truck JAC X200, with 207 units produced, was added as a new model.

The truck sector has shown a positive trend in recent years. However, midsize and heavy trucks performed negatively in the first seven months of 2018/19; production shrank by 21% to 4,255 units. Models made by the Japanese manufacturers Isuzu (2,113 vehicles) and Hino (1,300) as well as Chinese Foton/Master trucks (842) were produced. Assembly of medium and large buses rose by 32% to 576 units in the first seven months of 2018/19; Hino assembled 288 buses, followed by Isuzu (162) and Foton/Master (126).

Investment incentives stimulate the automotive sector

The strategy announced in 2016 to develop the automotive industry is intended to attract foreign vehicle manufacturers in order to overcome old structures. It comprises incentives for new production facilities and re-commissioning of disused assembly plants.

Among other things, the government is granting tariff exemptions for imported machinery and equipment, as well as reduced tariffs for five years on imported car parts. For parts that could also be produced by Pakistani suppliers, a preferential tariff rate of 25% applies (regular tariff: up to 50%). The tariff rate for domestically unavailable parts will be reduced to 10%.

Apart from investment incentives, however, business conditions deteriorated in 2018. The depreciation of the Pakistani rupee has led to a considerable rise in car prices, and loans have become more expensive also. Authorities now require the submission of a tax return when registering a new vehicle – a condition many people cannot comply with.

International car manufacturers are launching new projects

As a reaction to the investment incentives, several new assembly projects are in preparation or already in the implementation phase. Kia Motors and the local Lucky Cement Company are investing US$ 190 million, with production scheduled to begin in 2019. Hyundai is planning a US$ 164 million investment along with the Pakistani Nishat Group. Local motorcycle manufacturer United Motors received approval for a US$ 18 million project to be implemented in cooperation with Chinese partner Luoyang Dahe New Energy Vehicle Company. The group plans to manufacture the compact car United Bravo/Dahe DH 320 and a pickup truck.

Ghandhara Nissan plans to assemble Datsun vehicles, and the production of JAC vehicles has already started. Renault is planning to build an assembly plant jointly with the Dubai-based Al-Futtaim Group. A plot of land has been purchased in the Faisalabad industrial zone, and production is scheduled to start in 2020. The Chinese manufacturer Changan intends to build light trucks and SUVs in cooperation with Pakistani manufacturer Master Motor.

Recently announced German commitments are attracting great public interest. So far, Pakistani business among the German automotive and parts industry has been relatively low. But in May 2018, Daimler signed a letter of intent with the Pakistani company National Logistics Cell (NLC) for the assembly of Mercedes Benz trucks. In view of the expected expansion of the logistics sector, the demand for trucks is likely to grow.

In November 2018, after two years of negotiations, Volkswagen concluded a license agreement with Premier Systems, the exclusive Audi representative in Pakistan, for the assembly of Amarok (pickup) and T6 (van) CKD kits. Karachi is planned as the production location.

Dispute over vehicle imports

Although imports of motor vehicles are already severely restricted by high tariffs and various other trade barriers, there are repeated criticisms that imports are an obstacle to the development of the Pakistani automotive industry. At present, commercial car imports are generally not allowed. Exceptions include local car manufacturers, which are allowed to import limited quotas of CBU (Completely Built Up) vehicles under certain conditions.

The “private” import of new or used cars is only permitted for Pakistanis living abroad. But the Pakistan Motor Dealers Association (PMDA) is demanding the admission of commercial car imports. The association estimates that in 2018 “private” car imports will amount to around 70,000 vehicles, while sales of locally assembled cars were at 240,000. As the result of a new obligation to validate the foreign origin of payments, PMDA fears a drastic decline in new car imports.