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Analysis of Pakistan Automobile Industry

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Analysis Report

Text of Analysis of Pakistan Automobile Industry

Analysis of Automobile Industry of Pakistan

Introduction:

Preface:

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ince ages man is trying hard to cover the distances between different places in the shortest possible time. In order to fulfill this dream man invented the automobile and within years the automobiles became a common mode to travelling to different places and replaced the traditional means of using animals . With this increasing demand for the newly invented automobiles its production also increased many folds. This industry also gave rise to many allied industries and provided jobs to millions of people all over the world. This industry also contributed its due share in the GDP of the country via import duties, sales tax, federal excise duties etc. However the increasing number of automobiles also had different impacts which affected human lives, atmosphere, social fabric etc.

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akistan Auto Industry has been a star performer of industrial sector during the last 6 to 7 Years and has registered impressive annual compound growth surpassing other sectors of the economy. The industry adopted the Tariff Based System (TBS), after elimination of Deletion Programmer without any major hiccup, during the year 2006. This reflects the strength and resilience of the industry. It can cope with the challenges of competitive environment. Thecontinuation of high growth, improving the quality and achieving the cost competitiveness while satisfying the consumer expectations and environment standards will remain a task in the future too. Becoming a part of global supply chain and exporting 2/3 wheelers, cars and tractors in particular will remain a goal both for the government and the industry. The industry is moving towards attaining a critical mass of production, is acquiring latest technologies, improving Pakistan Auto Industry has potential to become a global choice for outsourcing, off shoring and becoming part of the global supply chain.The governments guiding principle to involve stakeholders, not only in the policy formulation process but during implementation as well, is apparent from the notification of Auto Industry Development Committee, which has a majority of private sector stakeholders.

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Analysis of Automobile Industry of Pakistan

Executive Summary:1. Pakistan is amongst a few countries of the world which manufacture all kinds of vehicles i.e. 2/3 wheelers, motor-cars, LCVs, tractors, prime-movers & trucks and buses. The total country requirements are generally met from the local production except the import of certain categories of trucks & prime-movers. Import of used cars is allowed to the bonafide expartite The presence of few of world acclaimed brands and multinationals in the manufacturing of vehicles for the last 2 to 3 decades and their regular expansion plans speak of their confidence on the market, government policies and economic potential of the country 2. Pakistan auto industry turnover during the year 2005-06 crossed US $ 3.6 billion which comes to 2.8% of GDP (2005-06), thus saving substantial foreign exchange on imports. The job contribution by auto industry comes to nearly 1.392 million which includes direct jobs of nearly 192,000. The auto industry remains second largest tax payer in terms of its contribution to customs duty, sales tax and withholding tax. 3. Pakistan auto industry produced over 1 million vehicles including 2/3 wheelers during the year 2006-07, mainly due to governments economic reforms and availability of financial options and leasing facilities on purchase of vehicles. The yearly growth in the recent years has surpassed the auto industry growth in the competing countries. Pakistans total share of car and commercial vehicles remains 0.37% of the world production during the year . Global trade of automobiles is over US $ 1 trillion.

4. The auto industry contribution to other sectors of the economy both tangible and intangible is highly significant. The auto industry economic and job multiplier in Pakistan context would be around Rs.1: 3 and 1: 8 respectively. While the auto industrys deeper forward and backward linkages have created dissemination of systems, technology, skill development and providing base o the rest of engineering sector. Its deeper backward integration due to consumption of local and imported materials and toolings such as steel, aluminum, copper, plastics & chemicals, rubber & glass and its forward linkages in the form of retail & wholesale, dealerships & logistics, workshops & maintenance, filling stations, finance & insurance, marketing, advertising and consultancy services and trade speak of its contribution and future role for the industrial development of the country. 5. The auto industry expressed resilience during the last 1 year when it switched over from compulsory local content conditions to a compliant tariff based system (TBS) which came into effect on 1st July, 2006. The changeover has posed many challenges to the vendors who remained comfortable in the previous system and are now pushed to improve the quality, supply system shop floor efficiencies and better marketing. Investment in modern production infrastructure, testing equipment and automation remains high priority. The vendors are mostly SMEs which are developing their approach and are looking for professional support to re-integrate and re-design their work flow processes and improve quality through better technologies, testing equipment and adoption of best manufacturing practices workshop at Islamabad by clearly defining the objectives at a time when the industry was switching over from the deletion programmer to a competitive tariff based system.

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Analysis of Automobile Industry of Pakistan

6. Government has recently approved a 5 year tariff plan for the auto sector to ensure a stable and predictable environment and to facilitate investment. AIDP to achieve a critical mass of production, double the contribution of auto industry to GDP from the existing 2.8%, by the year 2011-12 with high focus on investment, technology up-gradation, increasing its exports to US$ 650 million, enhancement in jobs alongside the development of critical components to further increase the competitiveness of domestically produced vehicles.

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Analysis of Automobile Industry of Pakistan

History of Automobile IndustryEuropean engineers started tinkering with motor powered vehicles since late 1700's. Steam, combustion, and electrical motors had all been triedby themid 1800s. By the 1900's, it was unsure which type of engine would power the automobile. At first, the electric car was the mostaccepted, but at the time a battery did not exist that would allow a car to be in motion with much speed or over a long distance. Although some of the earlier speed records were set by electric cars, they did not stay in manufacture past the first decade of the 20th century. The automobiles with steam lasted into 1920s. However, the price on steam-driven engines, either to build or maintain was unparalleled to the gas powered engines. Not only was the cost a problem, but the danger of a boiler explosion also kept the steam engine from becoming popular. The combustion engine constantly beat out the competition, and the early American automobile pioneers like Ransom E. Olds and Henry Ford built reliable combustion engines refusing the ideas of steam or electrical power from the start. Automotive manufacturing on a commercial scale started in France in 1890. Commercial production in the United States started at thebeginning of the 1900's and was equivalent to that of Europe's. In those days, the European industry comprised of small independent firms that would turn out a few cars by means of precise engineering and handicraft processes. At the start of the century the automobile entered the transportation market as a toy for the rich. However, it became increasingly popular among the general public because it gave travelers the freedom to travel when they wanted to and where they wanted. As a result, in North America and Europe the price of automobile

decreased and they became easily accessible to the middle class. This was facilitated by Henry Ford who did two important things. First he set price of his car to be as affordable as possible Second he paid his workers enough to be able to buy the cars they were manufacturing.

This helped increase wages and auto sales. The convenience of the automobile freed people from the binding to live near rail lines or stations; they could choose locations almost anywhere in city area as long as roads were available to connect them to other places. Popularity of the automobile has moved side by side with the state of the economy, growing during the boom period after World War I and decreasing abruptly during the Great Depression, when unemploymentwas at most

Over view of Pakistan automobile industryThe automobile industry in Pakistan can be broadly categorized into following segments: Cars and Light Commercial Vehicles (LCVs). Two and Three Wheelers. Tractors Trucks and Buses.

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Analysis of Automobile Industry of Pakistan

The Automobile industry has been an active and growing field in Pakistan for a long time, however not as much established to figure in the prominent list of the top automotive industries, having a stable annual production 100-170 thousands only. Despite significant production volumes, transfer of technology and localization of vehicle components remains low, and only a few car models are assembled in the country while customers have a very small variety of vehicles to choose from. The lack of competition in the local auto industry due to the presence of just three assemblers -and only one small car assembler- has resulted in technological stagnation of the industry small car