Why isn’t the auto industry localizing?
KARACHI: As the auto industry raises the price of cars again, experts and analysts say the government needs to ensure higher location in order to keep prices from rising every time the exchange rate rises.
Industry experts agree on one point. Location is the only way the industry can keep car prices stable.
Almost all automakers last week raised car prices between 5% and 15%, according to AHL research analyst Arsalan Hanif. Pak Suzuki, which operates primarily in small-engine cars, increased its prices by 14 percent on average.
Indus Motor Company increased the prices of Toyota cars by 6%; Honda Atlas 7 percent and Lucky Motor Company increased the prices of Kia cars by 10 percent.
Since January 2018, car prices have increased from 27% to 68%.
The price of the Suzuki Wagon-R rose 54%, while the Honda Civic Turbo got 68% more expensive in less than four years. Toyota Fortuner’s price rose 58 percent in the same year. Meanwhile, the rupee has depreciated 58% against the dollar since January 2018, from Rs 110.5 to Rs 174.5.
The reasons given for this price change are: increase in international costs of raw materials, continuous evolution of exchange rates and increase in transport costs.
The industry depends on a few affiliated industries such as steel and plastic raisins, which are mainly imported by the automotive industry or its suppliers.
âWe do not produce automotive grade steel in Pakistan,â said Mashood Khan, automotive industry expert and former president of the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM). âWe also import plastic raisins to produce auto parts. “
Khan, who runs an auto parts manufacturing unit, said auto imports might not decline unless Pakistan is able to manufacture automotive-grade steel and plastic raisins.
âI think that for that, the government must allow these affiliated industries to start production. These industries would not only supply raw materials to the automotive industry, but they would also supply raw materials to other industries, âhe added.
Apart from these reasons, automakers also put the blame on economic instability, the lack of good long-term and sustainable policies for everyone, the increase in public services and also the increase in such production costs. than higher wages, etc. for rising car prices.
âI don’t think there is any other way to keep car prices stable than to increase location,â said Arsalan Hanif of AHL. On average, 60% of a car in Pakistan depends on imported auto parts, he added.
Khan said some cars derive 95% of the cost from imported parts and are therefore heavily dependent on exchange rates. However, even developed countries were facing a price spike in the auto industry in their respective countries due to the way things have turned out due to the coronavirus pandemic.
âThe auto industry around the world has now understood that localization is the way to go as shipping companies have suffocated and the industry’s supply chain has been disrupted,â he explained. On the contrary, the president of the All Pakistan Motor Dealer Association, HM Shahzad, said that the location of the auto industry has been restricted by the foreign partners of the auto companies in Pakistan.
âHow are they going to let companies locate themselves when they want to increase their turnover and bottom line by selling CKDs and SKDs to countries like Pakistan? They won’t let this happen, âShahzad said.
However, automakers reject this notion without stating it.
Mashood Khan said the government needs to increase regulatory fees and other tariffs for the auto industry to reduce auto parts imports, while also giving auto parts manufacturers a cushion and also a business case for industries in the industry. ‘steel and plastic, so that they manufacture raw materials for the automotive industry.
He said that apart from the auto industry, auto part makers also depend 30-65% on imported raw materials to produce auto parts.