Import of used cars

EDITORIAL: The Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) recently held a half-day symposium in Islamabad; it was essentially an SOS call from its members struggling to survive in today’s challenging economic conditions.

The industry is already under severe strain, as automobile demand has fallen due to higher taxation and declining purchasing power. Now, the National Tariff Policy (NTF) threatens to push the sector further towards closure.

The automobile industry in Pakistan has long been labelled as rent-seeking, with the country gaining little after decades of protection. Successive policies have largely safeguarded the interests of assemblers, while parts’ manufacturers — mainly SMEs — have struggled to stay afloat.

Since the deletion programme was scrapped in the early 2000s, the incentive to localise production has weakened.

The 2016–21 auto policy, which encouraged nearly a dozen new entrants in the auto assembly sector, has further reduced localisation in the short term, as these new players added far less value compared to the older Japanese assemblers.

With more cars from new entrants now dominating sales, local manufacturers of auto parts have suffered a significant blow.

The economic downturn and heavy taxation on cars have worsened matters, pushing sales further down. Just when the industry was hoping for localisation to pick up again after the expiry of five-year tax breaks for new entrants, the NTF has created a new wave of uncertainty.

While trade liberalisation is beneficial for economies in the medium to long term — as supported by global evidence — implementing the policy in isolation reduces its effectiveness. Without addressing other competitive factors, local industries cannot effectively compete on the global stage.

The allowance for used cars has opened a new Pandora’s box, posing risks to both assemblers and parts’ manufacturers. It could lead to the dumping of less energy-efficient cars, even if unintentionally.

Used car dealers argue that their presence increases consumer choice, but this was more relevant before 2016, when options were limited. Today, the market is already flooded with models, while the number of buyers remains scarce.

PAAPAM members also face limited access to the aftersales market, as they primarily supply parts for new vehicles, while the spare-parts market is dominated by imports. This imbalance is driven by a lopsided duty structure, often based on weight, which makes local production uncompetitive.

Although NTF architects acknowledge this disadvantage, they lack jurisdiction over spare-parts’ valuation, leaving the industry exposed.

As a result of which, the automotive parts sector now faces an existential threat. The country must support its engineering base, enabling diversification into new products and export markets. The government should remove anomalies in the duty structure of spare parts and restrict unchecked access to used cars.

Yes, duties on new cars — both CBU and CKD — should be rationalised, but the guiding principle should be to create a level-playing field, allowing only the most competitive players to survive in both letter and spirit.

Copyright Business Recorder, 2025