Improving auto competition

With spiralling inflation and commodity prices showing no signs of tapering off any time soon, the general passion for cars has brought government officials and auto industry stakeholders many times to the table, to discuss and devise strategies to make cars affordable.
It seems that ballooning vehicle prices is one of the major factors that compelled the Public Accounts Committee to call a meeting with auto manufacturers.
Ructions over increasing local components in cars have made it difficult for the industry and government officials to devise rational strategy. Adverse currency price movements and rising cost of imports suggest that further investments in localisation are needed to ease the cost of production.
But, given that the economy is still in a rut and auto manufacturers are nursing poor margins, at this point in time, increasing localisation levels seems a tall order.
Since it is difficult for auto manufacturers to ease cost of production under their own steam, price reduction is only possible if the government reduces the duty rate on imports of highly specialised auto parts (in disassembled form).
Realising the fact that auto industry is one of the major contributors - it pays nearly one third of its revenue to the government in the form of various direct and indirect taxes and duties - it would be difficult for government to take cuts in its own revenue.
Although, it seems that lower duty on high-tech parts would scarf down revenues, but, in essence, reduction in duty income would be compensated by an increase in car sales. Besides, duty revenues could also be increased through curtailing smuggling and under-invoicing of spare parts.
The size of auto spare parts industry is around Rs50 billion, out of which, Rs46 billion worth of spare parts fall under the category of non-genuine parts, mis-declared and under-invoiced parts, according to an auto industry official, adding that the government is losing around Rs12 billion annually.
Last but not least, inviting and incentivising other small car manufacturers, primarily, from China and Thailand, will not only foster healthy competition within the local industry, but would also pave the way for development of the auto equipment industry and other auto supporting industries in Pakistan.