Automobile Industry of Pakistan – an Overview Essay

The automotive industry rightly prides itself on being recognized as the “mother of all industries. ” In its folds it carries many different kinds of vehicles to provide mobility to people and goods. While they may appear to be simple machines, their design and manufacturing have much deeper roots in all the known technologies. In-depth knowledge and skillful application of mechanical, electrical, electronics, chemical and a host of other technologies culminate in achievement and improvement of the manufacturing base of a country, by focusing on a single product “the automobile.

” This then provides an opportunity to produce a large number of goods and services for consumption of the entire international community. Use of the word “mother” for automotive industry is therefore the most appropriate description to define the nature and importance of the industry. In recent years, we have witnessed that the industrialization of South East Asian countries greatly depend on the development of their automotive industry. Similarly, automotive industry acted as a catalyst in the overall growth of the industry in Japan and Koreas and the consequent wellbeing of their citizens.

It is indeed heartening that the mother has once again smiled at Pakistan. Fortunately the last 3 years have witnessed phenomenal growth in the industry in terms of technological advancements and production/sale volumes with the local contents rising as high as 90%. The industry is already employing 120,000 people, contributing more than 12 billion rupees to GDP, contributing more than Rs. 30 billion to the national exchequer in terms of duties and taxes, attracted investment worth Rs. 52 billion including a substantial foreign investment.

Today the customers have choice to pick from a wide range of products including motorcycles, trucks, buses and cars of premier Japanese and Korean brands at internationally competitive prices which has only become possible due to local contents and availability of highly productive and inexpensive human resources. An automobile has over 2000 components and parts out of which the assemblers usually concentrate on the manufacturing of small but critical parts while the remaining parts are supplied by the vendors and the subcontractors.

In Pakistan the automobile component manufacturing industry consists of mainly units producing original components for assembly under delegation program and units producing reconditioned and original components for local use. These units are in three types which include the original equipment manufacturers, independent equipment manufacturers and the ancillary (auxiliary) industry producing small parts and non-automotive items.

There are more than 800 vendors in the country with a total investment of over Rs.8 billion; they are engaged in the manufacturing of original components for the assembly operation under the delegation program as well as producing reconditioned and original components for sale in the local market. They manufacture and supply the local car assemblers with auto parts such as pistons, engine valves, gaskets, camshafts, shock-absorbers, struts, steering mechanism, cylinder heads, wheel hubs, brake drums, wheels, bumpers, instruments and instrument panels, gears of all types, radiators, cylinder liners, blinkers, lights, doors and door locks as well as auto air conditioners.

Critics say that the local vendor industry though still in the process of development, have not achieved the delegation targets by producing low quality components which are not acceptable by the local assemblers, it is said that the Pakistan Association of Automotive Parts & Accessories – which represents the auto parts manufacturers – have not in a way been fully able to contribute its share to the development of this sector. The vendors on their part however put the blame on the policy makers and partly on the assemblers who have not been encouraging the local vendors as such.

On the other hand it is said that the foreign car principals have no justification for their complaints because of the level of their participation in the local vendor industry. Hino trucks, as it was pointed out, have started manufacturing wheel drums locally while Suzuki is still complaining about the quality of silencer it received from the local vendors. In the world trade, Automobile Sector is one of the largest segments. It is the major driver of economic growth and business activities in a country.

It puts multiplier impacts on the economy. Day-in, day-out around 200,000 vehicles roll off the world’s assembly lines with car as the dominant segment of the industry. Evolution of Automobile Industry in Pakistan Automotive industry in Pakistan started in the 1950 and has gone through different phases from being a private sector industry in 1950 – 60s, and becoming a government controlled industry in the 1970s – thanks to Mr. Bhutto’s Nationalization policy, and then reverting back to the private sector from 1980 onward.

Currently in Pakistan we have a total of 67 Automobile Manufacturing Units (A. M. U) which include: o7 Car A. M. Us o7 Light Commercial Vehicle A. M. Us o2 Jeep A. M. Us o5 Truck and Bus A. M. Us o4 Tractor A. M. Us o42 Motorcycle A. M. Us There are approximately 400 vendors doing businesses in the automobile sector. All the Automobile Manufacturing Units in Pakistan are operating under agreement and licensing from countries like Japan, Korea, China and some from the European Union.

Pakistan’s automobile sector has been registering high growth rates for the last four to five years due to the country’s business friendly policies along with lower tariff rates, persistent growth in GDP, and per capita income. Globally considered as the mother of all industries, the automobile industry in Pakistan is fast evolving as a robust industry. Some sub-sectors of this fast growing industry, like motorcycle production, have already achieved economies of scale.

The level of motorization in the country has also been rising over the years. In 1998-99, it was three cars per 1000 persons, which has significantly increased to 11 cars per 1000 persons in year 2005-06. The indigenous growth in production of motorcycles increased by 25 per cent during year 2005-06, reaching to an all-time high of 520,124 as compared to 106,797 units in the year 1996-97, which accounts for around 380 per cent increase in motorcycle production during the last nine years.

Similarly the production of trucks as well as that of buses also saw sufficient increase during the last 10 years. Some 2,994 units of trucks were being produced in the country in 1995-96 which, over the years, have increased to 4,518 units, recording 51 per cent increase in production. In the case of buses, the rise in production is more pronounced as compared to that of trucks as their production augmented by around 74 per cent during the last decade or so. The industry has achieved a phenomenal growth of 50.

2 percent in Fiscal Year 2004-05 and increased competition has led to the introduction of innovative products as well as a decline in financing costs. Compared with Pakistan, India has a strong engineering base and has successfully created a sizable capacity for production of vehicles. It enjoys a clear edge over Pakistan in the automobile sector. Indian auto companies are highly cost competitive due to appropriate levels of automation and low cost automation and have achieved a high level of productivity by embracing Japanese concepts and best practices.

India is already the second largest two wheeler manufacturer, second largest tractor manufacturer, and fifth largest commercial vehicle manufacturer in the world and has the fourth largest car market in Asia. The automobile industry in India is now gradually evolving to replicate those of developed countries. Pakistan can import automotive components and spare parts from India at a lower price as presently these items are being imported from the Far East at higher prices. On the other hand, India is expected to benefit from free trade due to its low raw material, electric and labor costs.

The two segments of the industry namely; Car and Motorcycles have shown remarkable growth over the last five years. The growth in domestic market of cars has risen from 40,601 in year 2001-02 to 126,817 in year 2004-05, which is expected to cross 150,000 units during year 2005-06. This growth is attributed mainly by car financing schemes, improved liquidity position of certain class as a result of economic growth indicators and other monetary measures. The motorcycles have also shown marvelous growth due to new entrants.

The new entrants with fair competition have brought about the availability of cheaper vehicles in the domestic market. Vendor Industry This industry has the potential for development of entire engineering sector. Development of vendor industries in return assures transfer of technologies in nearly all spheres of engineering, specifically, metallurgy, plastics and glass. Technology exists for major engine, suspension and transmission components but due to limited market, prospective entrepreneurs shy away from investment.

Over 400 vendors are engaged in the production of auto parts locally including tires, sheet metal parts, mirrors, gaskets, engine valves, camshafts, oil pump gears, pistons, radiators, seats, dashboard, and axles. The Beginning of Pakistan’s Automobile Industry When Pakistan came appeared on the map of the world, there were neither any automobile assembly plants nor were any industrial capabilities available for this sector. However, the development of this industrial sector started soon after the independence. Peace in the country and development planning by government resulted in increased economic growth that sequentially laid the foundation of industry.

First Period 1950 – 1964 (Start from the Scratch) First serious effort by government to develop the industry and engineering sector in particularly was observed in 1950s when a six-year plan (First Development Plan) was drafted to guide government investment in developing the infrastructure. For auto industry, to overcome the initial difficulties, the government, besides developing infrastructural facilities established the Pakistan Industrial Development Corporation (PIDC) in 1950.

The main objective of PIDC was to play the pioneering role of establishing such industries which the private enterprise was unable to undertake either because they were technologically complex, needed large capital, or were less profitable. These steps resulted in growth of the industrial sector recording 56. 62 % growth of the manufacturing sector from year 1949 to 1955. Investment in the automobile industry in Pakistan started in the mid 1950’s when Kandawalla Industries established its units for assembling buses and trucks, the company’s name was later changed to NayaDaur Motors.

National Motors took the indigenization when it came out in the 1960’s and was said to have reached above 80% delegation of the Bedford lorries and trucks before it closed down. Kandawalla Motors on its part came up with ‘Nishan’ , a jeep copied on the pattern of Willeys Jeep of USA by the Pakistan Army, it was said that the project was successful but was killed before the commercial production could begin. It may be worth mentioning here that the same blueprint is said to still be in use in Iran till today but under their own brand name.

Second Period 1964 – 1972 (Progressive Manufacturing) Potential of the industry and high demand of the products attracted new entrants whereas the existing players started producing in mass quantities. This mass production that started in 1964 resulted in the first ever period of progressive manufacturing in the history of Pakistan. The idea of progressive manufacturing was first mooted by the Ghandhara Industries and Mack Trucks. The idea was to start local manufacturing with simple and non-functional parts and to add more and more complicated parts in small steps.

According to the planning then done 100% local manufacturing was to be achieved in seven to ten years. Unfortunately, this period did not last long as the projects undertaken proved to be over ambitious that eventually failed. Clearly the concept of progressive manufacturing has not added much to technology, self-reliance or economy. For example, as against the targets set of manufacturing 100% of local contents in maximum 10 years, actually achieved delegation in eighteen years is 45. 78% for trucks & buses, 43. 17% for trucks & buses engines, 16. 50% for 4×4 jeeps and zero percent for cars.

Furthermore, no new units for manufacturing passenger cars, 4×4 vehicles, LCVs, buses and trucks were established under this concept, but still few new units for producing tractors, jeeps and specialized vehicle were established. New units established were Atlas Honda, Khawaja Autos, Rana Tractors, Jaffar Industries, and Bela Engineers. A more market oriented approach was adapted by Honda motorcycles and Vespa scooters during this period, as they introduced light motorcycles for the first time in a market dominated by heavy motor bikes like BSA, Triumph and Lamberetta scooters.

Third Period 1973 – 1987 (Nationalization of Industries) Following the progressive manufacturing period, nationalization of industries under Economic Reforms order had a profound impact on automobile industry in Pakistan. In early 1972 under Martial Law Regulation, the Government took over the control of 32 industrial units, including eight automobile plants, under the officially appointed Board of Industrial Management with the Minister for Production as its Chairman. The units taken over by the Government were iron and steel, heavy engineering, heavy chemicals, assembly and manufacturers of motor vehicles.

The companies gone under nationalization included: oWazir Ali Engineering oSind Engineering oHyesons Mack Trucks oAli Autos oAwami Autos oRana Tractors oMillat Tractors oHaroonInd/Karachi Autos oRepublic Motors oJaffer Trailer Developers oGhandhara National Motors oKandawala Industries oNayaDaur Initially, the management of these industries was taken over by the government, but in August 1973, the President promulgated the Economic Reforms (Amendment) Ordinance after which the Federal Government acquired majority ownership of shares of these industrial units.

After nationalization, these units were renamed, their functions were redefined, and Pakistan Automobile Corporation (PACO) was created in 1973 as a holding corporation under the administrative control of the Federal Ministry of Production. Formation of PACO In order to manage the automobile units and to advise the Government (in developing policy guidelines for growth and development of auto industry), Pakistan Automobile Corporation (PACO) was formed in 1973 under the administrative control of the Federal Ministry of Production.

It was a major public industrial conglomerate of 15 companies including four joint ventures. For the first time in Pakistan emphasis was given to develop the nationalized units under local manufacturing facilities and the development of parts in an organized manner and the system of standardization, regulations and monitoring was established. This required the industry to assemble from Complete Knock Down (CKD) and then go on to manufacture components and to achieve a local content of 75% over a five year period.

A number of small and large industrial units that were mostly functioning in the unorganized sector were channelized into a more formal pattern of production management under the PACO control. The direction for achieving quality standards as laid down by the “Principals” was also established. The MOI was entrusted the responsibility of allowing any waiver for non-performance, and was applicable if CBR also concurred. Performance under Government Control According to the government resources, the nationalized industries made progress on a wide front.

During the year 1973-74, large scale manufacturing sector achieved a growth rate of 7% as compared to 11. 8% achieved during year 1972-73. The performance of automobile and farm equipment group was the best with production recording an increase of 78. 6%, followed by chemicals (30%) and steel and engineering (15. 1%). It can be observed that number of units in almost all areas of automobiles developed in this phase. The distinctive feature of after nationalization period is the assembly of Suzuki range of vehicles (Cars, Pick-up, Vans and Jeeps) and Isuzu Trucks & Buses in the public sector.

Awami Autos signed a Joint Venture Agreement with Suzuki Motor Co. of Japan and a new company by the Name of Pak Suzuki Motor Co. Ltd was established in 1982 to produce Suzuki range of vehicles at the existing facilities of Awami Autos. PACO also established two units in the public sector namely Baluchistan Wheels and Bolan castings. The performance of PIDC was also excellent under the nationalization reform and it also contributed towards the progressive manufacturing. The performance of PIDC can be evaluated from the fact that by the end of December 1973, PIDC was successful in completing 62 projects at a capital cost of Rs 1,242.

6 million. In March 1974, 16 industrial projects were transferred to the respective 12 corporations set up by the Federal Government. Including in these projects were Pakistan Machine Tool Factory, Heavy Mechanical Complex and Heavy Foundry and Forge Projects. Subsequently, the remaining 10 projects under the PIDC’s control were also transferred to the Mineral Development Corporation. During the year 1972-73, the PIDC-managed projects and companies produced goods worth Rs. 470. 5 million as compared to Rs. 446. 6 million in 1971-72.

Fourth Period 1987-95 (Privatization on Industries) The policy of de-nationalizing public sector units was adopted once the change in government took place. Privatization brought in foreign companies. This resulted in a number of joint ventures. Due to these ventures, Pakistan auto industry entered into assembly/progressive manufacturing of passenger cars, commercial vehicles and motorcycles. Once the new management of cars and motorcycle assemblers took over the control they entered into joint ventures with foreign companies mostly Japanese, for further development.

Most important joint venture that took place was of Atlas with Honda and Indus Motor with Toyota. Similarly, NayaDaur which after discontinuation of AMC-Jeep franchise had become a mere vendor to Pak Suzuki (assembling Suzuki Jeeps) was sold to Tawakal group. Under the Government de-nationalization policy NayaDaur entered into Joint Venture with Kia Motors of Korea and started assembling Kia Ceres Pickups and Kia Pride Cars. The process of privatization is still on and fortunately every government has adopted the policy of privatization and opening of the markets to foreign investment.

Although, process is on but still many object that this process is not crystal clear and has many short comings. Major Players in Pakistan’s Automobile Industry oPak Suzuki Company Ltd. oSuzuki Motorcycles Pakistan Ltd. oAtlas Honda Ltd. oIndus Motors Compay Ltd. oDewan Farooque Motors Ltd. oDawood Yamaha Ltd. oSigma Motors (Pvt. ) Ltd. oHinoPak Motors Ltd. oGhandhara Industries Ltd. oSind Engineering Ltd. oVPL Limited. oMaster Motor Corporation Ltd. oAl-Ghazi Tractors Ltd. oMillat Tractors Ltd.

Still stressed from student homework?
Get quality assistance from academic writers!