Budget brings flowers with horns for auto industry: local car sales, production up

Car production and sales during the 11M/FY07 period rose by 1.1 percent and 4.8 percent to 145,442 and 146,784 units respectively. Unit sales by Pak Suzuki and Indus Motors rose by 23 percent and 19 percent to 108,254 units and 43,985 units respectively.
On the flip side the sales by other two car assemblers declined by 36 percent to 26,509 units previously being 41,400 units. Tractor production and sales during the period under review rose by 12.1 percent and 12.3 percent to 49,047 and 48,707 units respectively.
The local auto industry, which was under pressure due to the influx and rising popularity of imported cars, has got some help in the Federal Budget 2007-08.
However, there are some issues irking the local auto industry. At one end, Auto Industry Development Plan (AIDP) was implemented along with reduction in capping for old and used cars at three years from five years previously. While at the other end government imposed 5 percent withholding tax on purchase of locally manufactured vehicles and also subjected the assemblers to 1 percent special surcharge on imports.
Besides that, government abolished CVT ranging between 3.75-7.5 percent on different engine capacity cars. However, in order to minimise the impact, custom duty was increased in the range of 5-15 percent.
In the budget FY07 government reduced the capping on import of cars from seven years to five years and in the budget FY08, further relief has been passed on to the sector as the capping has now been reduced to 3 years, said Hettish Karmani, an analyst.
The government has formally announced AIDP, which provides a long-term duty structure to the local auto industry. This new policy proposes reduction in the import duty on non-localised parts to 30 percent by FY12 from the existing 35 percent along with gradual reduction in import duty on CBUs of 1500-1800cc and above 1800cc categories from existing 65 percent and 75 percent to 60 percent and 70 percent, respectively.
The high revenue collection target set in the budget forced the government to impose 5 percent withholding tax rate on purchase of locally manufactured cars, except 800cc cars. This would bode negative for the local assemblers, as the upfront payment would increase.
Although it would be passed on to the customers, the differential could encourage customers towards imported cars, he added. Levy of 1 percent special surcharge on imports is applicable on CKD. This levy if kept constant in the coming years would effectively increase the duty on non-localised CKD hence reducing the margins as the assemblers import CKD kits from different countries.
Government abolished CVT ranging between 3.75-7.5 percent on different engine capacity cars, however, in order to minimise the impact, custom duty was increased in the range of 5-15 percent. This measure would marginally dilute the negative impact of CVT withdrawal, observed the analyst.