EDITORIAL: Pakistan’s automobile industry is at an interesting juncture. The auto policies of 2016-21 and 2021-26 are beginning to yield results. The number of OEMs (auto assemblers) has expanded from three Japanese players to around 13, producing 16 to 18 brands, including South Korean and Chinese entrants.
Consumers are benefiting, as over three dozen new cars have been introduced in the Pakistani market this year. A majority of these are Chinese, offering the latest models with modern technology, comfort, and safety features.
That’s positive — but the market size isn’t growing. Last year, around 180,000 locally assembled units were sold against an industry capacity of 500,000. Intriguingly, new plants are being established while others are adding latest brands to their portfolios.
While consumers benefit from an array of choices, localising parts remains extremely difficult. This hurts parts manufacturers, as achieving economies of scale for any one model becomes impossible. The government is now in the process of formulating Auto Policy 2026-31 and is evaluating different options.
The IMF (International Monetary Fund) is pushing to reduce protection for local assemblers under the National Tariff Policy and to liberalise used car imports. This will make life harder for local assemblers; and localisation levels are likely to remain low.
The government must be clear about the direction it wants to take. There are three broad options: (1) continue supporting local assemblers, (2) allow imports of new cars in CBU form; or (3) fully liberalise used car imports. Whatever policy it chooses, it should remain consistent so that industry players can plan accordingly. The government must also define its policy objectives clearly: whether the priority is safety, environmental standards, job creation, export promotion, or saving foreign exchange. A level playing field for all is essential.
A major loophole exists in the import of used cars under the “gift,” “baggage,” and “transfer of residence” schemes. These are found to be grossly misused by commercial importers, with payments often processed through informal (hundi/hawala) channels. The entire system rests on shaky legal grounds, with frequent instances of under-invoicing.
Last year, around 30,000-35,000 used cars were imported under these schemes, and the current monthly rate is 3,000–4,000 units. Now, the government is allowing the commercial import of used cars but has not abolished the old schemes. Isn’t it an absurd policy overlap? Under the new arrangement, regulatory duty (RD) of 40 percent and customs duty of 55 percent would apply, but there is no RD on cars imported under the gift/baggage schemes.
The government should abolish these outdated schemes for they lack safety standards and provide no credible mechanism to prevent under-invoicing — both of which hurt local assemblers. If used car imports are to be allowed, it should be done transparently, with proper safety regulations and a reliable valuation system.
However, given weak governance, it is likely that any used-car policy, in whatever form, will be abused. The policy debate should, therefore, focus on choosing between CBUs and CKDs. Localisation is feasible only with sufficient volumes — as seen in FY18 when each of three Japanese models over 40,000 units. By FY25, only one model crossed that mark.
Today, new models are being launched almost every month, and it is unlikely that any new Chinese or South Korean entrant will sell more than 10,000 units annually. The Japanese may retain some scale in the lower-price segment.
Many new Chinese cars are actually cheaper to import as CBUs than to assemble as CKDs due to added packing and freight costs.
CKD assembly remains viable only because of tariff protection. But should this continue in view of the fact that it brings little foreign exchange savings? The main argument for CKD assembly is job creation — especially in auto parts manufacturing. However, localising modern, high-tech components is difficult when production volumes are low.
Meanwhile, older players are lobbying for higher duties on parts already localised — a short-sighted stance, as they continue to enjoy duty protection on many components, including engine assemblies. If the new policy continues to protect them, older models will gain an artificial cost advantage over newer entrants, reducing consumer choice.
The government must take stock of the situation and avoid policies that create confusion, which is necessary to ensure a level playing field, prioritise foreign exchange savings, create jobs, and allow consumers to enjoy safe, high-tech, and environmentally friendly cars.
Copyright Business Recorder, 2025
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