Auto Import policy back to square one

The decision by the government to relax the used car import policy, a trauma (for the local auto industry) that had begun last month didn last more than 3 weeks.
The abrupt reversal to tighten back the used car import policy (under personal baggage, gift and transfer of residence schemes) again to 3 years from 5 years, took the market by a huge surprise. Last month, the government had relaxed the age limit on the import of used car to 5 years from 3 years, to put heat on local manufacturers to reduce car prices.
The decision came as a relief to the automakers, who have been negotiating with government officials to adopt a tough import policy.
During the past month, car prices have not softened across the board, except for Indus Motor Companys variants. According to company officials, they have managed to reduce car prices by taking cuts in localisation benefits.
With the government playing hardball on prices, major impetus behind early revocation is the misuse of import facility on the part of commercial importers, according to industry sources.
Some believe the decision is taken to make a new entrant policy more overwhelming. Government officials have drafted a package of incentives to entice Chinese automakers to set up auto manufacturing units in Pakistan.
Although the import policy has trekked back, the industry doesn expect car demand to improve by much in FY11. Total car sales dropped by 14 percent in November and are also expected to inch down in December.
"Car sales are expected to increase by around 4 percent during FY11, with major contributions by PSMC which would increase by 11 percent,", according to Furqan Punjani, at Topline Securities, who added that this year car imports would be somewhere around 5,000 to 6,000 cars. It would have been around 9,500 had the government continued the age limit to 5 years.
Amid slow economic growth, the auto industrys performance hinges on a sustainable policy and uptake in car financing, which is expected to remain in short supply during the current fiscal year.