Can we run with the bulls?

The past year has been full of news in the auto sector, and not just in the passenger car segment which really gets people excited. Thanks to all the activity which will be potentially spurred by CPEC and CPEC-adjacent projects, global commercial vehicle giants have also been eyeing Pakistan. We have Chinese FAW Motors which has been operating in Pakistan since 2011 in collaboration with Al-Hajj group, now hoping to expand its existing assembly line of heavy duty trucks and chassis. Al-Hajj also signed a MoU with Hyandai to introduce the South Korean brand’s commercial vehicle line.

Meanwhile, Dewan Motors submitted a plan to manufacture light commercial vehicles and SUVs with different partners. Both are seeking some concessions from the government similar to those offered to new entrants under the auto development policy.

Volkwagen is also in talks with Audi’s local partner in Pakistan to introduce Amorak pickup and transporter bus/minvan to the auto commercial sector. German MAN SE also expressed interest in launching an assembly line in Pakistan. There are several others that are hoping to enter this market (see table).

The interesting bit in all this is that the government is not very sold on the idea to tweak its existing policy to provide concessions to existing players wanting to start a Greenfield project. Perhaps many of these projects may never see light of the day.

But the interest itself is a strong indicator of the demand that investors are foreseeing in the country, particularly in the commercial vehicle sector. Already the growth numbers for commercial vehicles we are seeing are phenomenal for existing players. There is not a doubt new entrants and high quality vehicles being assembled and distributed locally would change the face of the industry as we know it. But demand is not the only determinant that factors into how well an automotive company will do in a country.

The question then becomes whether we can keep up with the times. From the regulatory point of view, better quality vehicles and engines introduced on the roads will require higher quality fuel, more robust roads and highways and more conducive overall infrastructure.

Pakistan has been slowly trudging along the narrow pathway of introducing Euro-II emission standards into the auto industry. The diesel used and refined in Pakistan is comparatively low-quality with really high sulpher content which is hazardous to the environment.

Only recently the government set a ceiling for the sulpher content in diesel at 500 parts per million (ppm), though most countries today now use diesel with as low as 15ppm of sulpher content. Oil marketing companies as well as PSO are now importing better quality fuel but the refineries also need to come up to the mark.

A lot has to be tackled all at the same time, and the work is cut out for all the stakeholders—the government to provide a conducive business environment, for local partners to how well they can mesh the new models locally and for local auto parts makers and suppliers to keep up with the demand. It is not going to be easy.