Jeremy Clarkson, the controversial host of the hit TV show Top Gear once launched into an episode thus: “Now we get a lot of complaints that we don’t feature enough affordable cars on the show… so we’ll kick off tonight with the cheapest Ferrari of them all.”
The local auto industry has followed similar logic; launching successively more expensive cars in the country, while discontinuing smaller, more affordable models, even as demand for 1000cc and below segment went through the roof.
They minted money doing this, but also turned into corporate punching bags for regulators, policy makers, media and the public. Besides the downright incorrect arguments like ‘cars are expensive in Pakistan’, the argument levelled against the auto sector most often goes something like this:
Auto industry has been used by many countries to expand its engineering sector, generating jobs and national production. Car manufacturers in the country have managed to localize production to lesser extent than motorcycle and three-wheeler makers. Hence, domestic auto industry has failed in its role to meet national goals so the government should toughen up on the sector in its upcoming policy. Nothing else could be further from the truth.
Yes, INDU, PSMC and HCAR have all made hefty profits in the country. Profitability is the raison d’être for private enterprise. It is also true that these companies have inculcated thousands of jobs, directly and indirectly. They have contributed to the national exchequer and provided cars to people that want them.
Over this period, the country’s auto policy has remained fixated with increasing localization levels. But does fostering domestic engineering industry necessitate that every component of every car made in Pakistan, must be indigenously produced? If PSMC localized the Mehran further and began manufacturing 100 percent of the parts domestically, instead of the current 74 percent, would that bring leaps and bounds of growth for the country’s engineering sector?
Is it not more pertinent to independently evaluate which are the most competitive auto parts and autos for Pakistan? Or find out where changes to government policy can drive competitiveness further?
All the focus in the debate over upcoming auto policy seems fixated with Big Auto. Among the already known components of the upcoming policy are incentives for new auto manufacturers. Although this is a good move, it will not guarantee that newer entrants will focus on small cars instead of chasing high-margin movers like the existing market participants. The new policy should be tweaked to ensure that the void in the small car segment will be filled.
Also, if engineering is indeed a sunrise sector for the country, it can only be so through the scores of smaller firms that work as vendors and service providers to Big Auto directly, or through the after-sales market. If auto exports are to ever reach the much-mentioned level of $5 billion (or even $1 billion), it’s PAAPAM that will need a step up.
Observations over previous auto policy are as stale as they are contentious. Government decries the sector for failing to meet localization and production targets. The industry claims demand projections set forth in the initial policy were too rosy and never became reality.
In an industry source talking to BR Research contended that “it would require at least 100,000 units of local sales of a single make of car to attract a second tier automobile parts maker from Japan”. Clearly, we are miles from that milestone. But the real question is, is that even the target?
The fixation with localization should be reconsidered with better focus on comparatively advantageous segments within the automotive sector. Only then may the auto sector shift gears and traverse beyond its present status.
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