No room for used car imports

A few hours after the publishing of this note, the Economic Coordination Com-mittee will be meeting to discuss this years trade policy, where one of top items on the agenda is the much-heated proposal to relax the rules for used car imports in Pakistan.

The local auto industry has been facing a lot of flak for raising car prices during the past two years, observing which the Ministry of Industries and Production proposed to the government allowing the commercial import of used cars.
The government has also been advised to increase the allowed age limit on the import of used cars to 5 years from the existing 3 years and increase the depreciation rate to 2 percent from the existing 1 percent, under the personal baggage, transfer of residence and gift scheme.
Since the onset of the financial crisis in 2008, the auto industry is among the hardest hit in Pakistan. Not only has the sales volume tumbled, but escalating commodities prices and rising inflation, along with massive rupee depreciation, have put the industry through the wringer.
Except for Indus Motors, auto assemblers were not able to rescue their margins despite increasing prices to cushion against the rising cost of production.
This can be gauged from the fact that Pakistan Suzuki Motor delivered a loss during the first quarter ending March, 2010, while Hondas bottom-line also went deeper into the red during the year ended March 2010, posting a record loss of Rs852 million from a loss of Rs402 million incurred in the year before.
If the ministrys proposals are accepted, relaxation of used car import rules will increase the influx of cheap cars in Pakistan, but local manufacturers would undoubtedly be thrown out of business.
If the aim is to increase competition in the local industry, a rational strategy would be to invite more investors and manufacturers to set up car manufacturing and assembling units in the country by providing incentives such as land at low tariffs, access to uninterrupted power supply, regulatory protection and a better law and order situation.
In fact, the government should take a leaf out of Indias and Thailands book in order to assist existing auto players, as well as consumers, as far as reducing prices of locally assembled cars is concerned.
A slew of non-tariff barriers on used car imports in these Asian countries has been creating a demand for locally manufactured cars, while the high spread between CBU and CKD import duty has been enticing assemblers to manufacture locally rather than importing.
These measures can help increase the volume of sales and the industrys capacity utilization, giving more room to the local industry to cut vehicle prices.