The Pakistan Auto Show 2015 kicked off on Friday amid much fanfare and coverage from the media. Besides throngs of exhibitors, foreign delegates and eager observers, the countrys President also graced the occasion.
Although President Mamnoon Hussains praise for the industry was the quotable quote for the events official press release, it was the back-handed compliments he dished out that warrant attention. In his speech, the President called on the automotive industry to pay more attention to the "most important stakeholder; the consumer".
This is not the first time that the auto industry has been called out for stifling consumers interests in their quest for profitability. In October 2014, the Competition Commission of Pakistan (CCP) released findings of inquiry that found evidence that "collusion took place in four relevant markets"; namely the sale of new cars, sale of spare parts, body repairs and paint jobs as well as employment of experienced staff.
Economic think tanks and industry observers have often highlighted the lack of affordable choices for domestic car buyers. Sticky car prices despite significant declines in the value of the Japanese Yen allude to the auto makers position of strength as do the stellar profits raked in by PSMC, INDU and HCAR.
In their defence, the leading auto companies point out that they are operating at relatively low efficiency amid stifled demand for automobiles in the country. But critics cite the rampant collection of "auon money" as contrarians evidence. Clearly, all but the auto industry members themselves believe much is amiss with the countrys auto landscape; at the expense of car buyers.
For its part, the government has indicated its intent to foster more competition domestically by granting incentives to new entrants in the domestic auto assembly industry. But even the formulation of the Auto Policy 2015 has so far been devoid of any meaningful input from consumers.
Sustainable Development Policy Institute (SDPI) is among other economic think tanks that want the new auto policy to be more "consumer sensitive". What does that entail? Some of the most interesting suggestions include mandatory product recalls in case of faulty technology; accelerated localization coupled to bring down car prices; wider array of choices through drawdown on import duties and other barriers; stricter vigilance against deceptive marketing, etc. Despite the criticisms, it would be foolish to deny the economic impact of domestic auto sector whether in terms of employment generation, GDP contribution and exports, albeit to a limited extent. However, the guiding principle in formulating this and other policies must be to maximize consumer surplus while inculcating a vibrant and sustainable industry in the country. Protectionism and handouts will not do that.
Yes, an exportable surplus from the auto industry is welcome and any significant growth in its sales overseas from the current level would be a boon to the economy. But the auto assemblers, parts manufacturers and associated firms cannot be appeased at the expense of the people. The new auto policy must put the industry on the road to progress. But it must do so with consumers in the driving seat.
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