2010

Tanvir Aslam

Ahmed Ismail

Pakistan Economic Policy

12/13/2010

Potential for Growth? Pakistan’s Automobile Industry

Table of Contents Table of Contents .............................................................................................. Error! Bookmark not defined.

Abstract ............................................................................................................................................................. 3

Introduction ....................................................................................................................................................... 4

Literature Review .............................................................................................................................................. 6

Article: Automobile industry in Pakistan: History and Prospects. ................................................................... 6

Analysis of Pakistani Industry ........................................................................................................................ 6

Methodology ..................................................................................................................................................... 7

Data Analysis .................................................................................................................................................... 8

Contribution to National Exchequer ............................................................................................................... 8

PRODUCTION & SALES ............................................................................................................................. 9

Production and Sales of Cars (Light Weight Vehicles) ............................................................................... 9

Production and Sales of Trucks ................................................................................................................ 10

Production and Sales of Buses.................................................................................................................. 11

Production and Sales of Pick-up ............................................................................................................... 12

Production and Sales of Farm Tractors ..................................................................................................... 13

Production and Sales of Motorcycles ....................................................................................................... 14

ANNUAL PLANT CAPACITY .................................................................................................................. 15

INVESTMENT ............................................................................................................................................ 16

EMPLOYMENT ......................................................................................................................................... 17

Conclusion ...................................................................................................................................................... 18

Policy Recommendation .................................................................................................................................. 18

Appendix ......................................................................................................................................................... 19

Contribution to National Exchequer ............................................................................................................. 19

Production and Sale of Cars ......................................................................................................................... 19

Production and Sale of Buses ....................................................................................................................... 20

Production and Sale of Farm Tractors .......................................................................................................... 20

Production and Sale of Motorcycle .............................................................................................................. 21

References ....................................................................................................................................................... 22

Primary Sources:.......................................................................................................................................... 22

Secondary Sources: ...................................................................................................................................... 22

Abstract

The following research paper is an in depth analysis of Pakistan’s Automobile Industry. We collected

data from various sources to analyze the potential and positive aspects the automobile industry has to offer in

Pakistan. We concluded that the industry has had positive growth and has affected the economy in a good way;

there has been an overall development process in which, due to the automobile industry, further supporting

manufacturing industries have formed. There was major government involvement during the early stages of the

automobile industry, however this has decreased now, and the protection levels the industry use to receive is no

longer there. We saw that there is opportunity for further development, which will bring more jobs, and create

new sectors in manufacturing. We recommended that there be a mixed policy, where the public and private

industries work together, and the government regulates the market enough to preserve our local industries and

protect them from foreign competition. The automobile industry is an integral part of our economy, and still

has a lot to offer if proper measures are taken to ensure its development.

Introduction

Having a country that is only sixty years old gives us a disadvantage, comparatively to other countries

with far more history then us. However, Pakistan is a country full of un-exploited resources, rich in minerals,

and raw materials. We have the opportunity to grow, and be among the top countries of the world. In recent

years, we have been in the sights of global markets, yet continually destroy our reputation with corruption, and

illegal acts around the world. If we look at the Pakistan economy over the last sixty years of existence we can

see how we have progressed, and what the potential of our country is, only being pulled back by dictatorship,

and propaganda in our democratic governments. We chose one particular industry, in order to do an in depth

analysis to prove that Pakistan has the means for growth, with positive government help, through the

implementation and maintenance of policies and regulations beneficial towards manufacturing industries.

The Pakistani automobile industry is a crucial part of our growing economy, the industry started in

Pakistan in when the first automobile plant was set up in May 1949 by General Motor & Sales Co. It was set up

on an experimental basis, however grew into an assembly plant for Bedford Truck, and Vauxhall cars. Seeing

such progress, three major auto manufacturers from the US collaborated with Pakistani business men to set up;

Ali Automobiles to manufacture Ford Products in 1955, Haroon Industries to assemble Chrysler Dodge cars in

1956, Khandawalla Industries to assemble American Motor Products in 1962, and Mack Trucks Plant in 1963.

The absence of technological knowledge, and basic professionalism, led to the demise of these organizations.

However towards the end of the seventies all automobile assembly in Pakistan stopped, until 1983 when Pak

Suzuki started manufacturing their vehicles in Pakistan. Further Toyota Indus Motors was set up in 1990,

followed by Honda.

Today we have four major automobile manufacturing industries, these include, Toyota Indus Motors,

Pakistan Suzuki, Honda Atlas, and Diwan Farooq Ltd. The most recognized are Toyota, Honda, and Suzuki;

producing the majority of the light weight vehicles.

“The Toyota Motor Company has taken a leading role in the world only because their vehicles are

designed and produced as a result of the best possible interaction between them, their vendors and the ancillary

industry. The Toyota production system is not only conceptually unique but has also proved to be the best when

put into practice. It ensures negligible or zero waste, optimum product quality and reliability and thus

competitiveness together with best service to customers throughout the world.” (Economic Review)

Pakistan’s view towards the automobile industry is undisputed; we know its importance and contribution

towards the growth and stability of our economy. We need to understand the mechanism which is the industry.

In the above passage from an article from the Economic Review, it discusses why Japan has the world’s leading

automobile industries. It is because of the integration of vendors, suppliers, and supporting engineering

industries. According to the Economic Review, the working of an automobile industry requires the following

things.

1. The original equipment manufacturer or assembler.

2. A network of component manufacturers or vendors.

3. An ancillary or supporting engineering industry to provide assistance in design and production of required

equipment, tools, jigs and fixtures.

An assembler acts as the center, it is constantly in research and development, design and final

production, however there are many more diversified and complicated technologies that are involved in

successful mass production. The Economic Review stated, “The key areas where improvement is desired are:

1. Training and development of managerial staff to change-modify the management's attitude towards the

implementation of sound production, planning and control functions.

2. The use of appropriate production techniques (not necessarily the most updated).

3. The enforcement of discipline in maintaining facilities.”

We believe that the Pakistan automobile industry is an important part of the countries growth process

and can be a leading industry because there is room for growth and development, there still is a vast domestic

market with a demand for vehicles.

Literature Review

Article: Automobile industry in Pakistan: History and Prospects.

The Following article was written by Economic Review, and published in 2006; the writer along with

Toyota Indus Motors did a research on the Pakistan automobile sector and its development. They found that, the

industry had room for growth.

“The performance and present state evaluated jointly using Toyota's techniques was not all that

disappointing. Whilst we are not too far behind some of the rapidly developing countries like Thailand,

Malaysia and Indonesia,”

They suggested that the key attributes towards developing an automobile industry was in developing

supporting industries as well, such as an engineering industry to provide them the support with required

machinery and equipment. We agree with this philosophy as it can be seen in Japan, and they have the biggest

automobile manufacturers in the world.

Analysis of Pakistani Industry

This report was written by Economic Watch, and was also an analysis on Pakistan’s automobile

industry, they discussed pervious and current policies that have been implemented, and they looked at

government support towards the industry and how they can help develop the auto industry in Pakistan.

“Before the TBS was introduced the auto industry was well protected by the government but now as the import

of CKD and CBU is liberalized the protection level to industry by government is decreased.”

We agree with their analysis, and that for us to have a successful market, there has to be some

government intervention and they should help protect the local industry. It is hard for new manufacturing

industries in Pakistan to compete against international organizations.

Methodology

We collected our secondary data from the Pakistan Automobile Manufacturing Association. We decided

to collect the historical data and create graphs to show us a representation of what the industry has been like

over the past two decades, and determine whether there is still opportunity for growth in this sector or if we

have reached our limits.

Our Hypothesis was:

H0: There is no more opportunity for growth in Pakistan’s Automobile Industry

H1: There is opportunity for growth in Pakistan’s Automobile Industry

We used the data we had collected, and created multiple graphs to analyze the trends in different aspects

of the automobile industry. These included looking at the total production and sales of different classes of

vehicles, the Industry production capacity of different manufacturers, and the increase in employment over the

last decade. We also analyzed the monetary contributions towards the economy, to see how important the

automobile industry is towards our GDP and whether it is helping in the growth of our economy.

We used Microsoft Excel to create our graphs, from which we did a visual trend analysis. Further we

used Excel to calculate the slopes for a majority of our graphs to give us a better understanding of the change in

production, employment, or monetary contribution according to time.

Our end result showed that we would reject our null hypothesis, and agree that there is opportunity for

growth in Pakistan’s Automobile Industry. The next section shows the basic graphs and contents used to do our

analysis, the data used, including regression models, and other functions can be found in the Appendix, and are

cited in the report where necessary for analysis.

Data Analysis

Contribution to National Exchequer

http://www.pama.org.pk/custom_traffic.htm 1

The Following Graph Shows the Contribution to National Exchequer by the various automobile

manufacturers, overall we can see a positive slope showing that, the amount towards Pakistan’s economy is

increasing, and with a few downturns in current years, it has an overall positive correlation with time. This

shows that the industry has been progressing.

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

Pak Suzuki Motor Company Ltd 2,446 1,126 4,029 6,286 8,473 12,224 16,318 16,838 13,286 8,461

Indus Motor Company Ltd 3,106 3,440 5,776 8,303 10,098 12,474 13,791 14,478 14,144 20,524

Honda Atlas Cars (Pakistan) Ltd 1,540 2,300 1,713 3,782 6,371 8,481 6,213 4,958 6,452 6,316

Dewan Farooque Motors Ltd 1,079 1,236 1,423 1,737 2,542 2,433 2,074 1,617 500 301

Atlas Honda Ltd 1318 1508.39 1962.75 3,183.674,514.175,034.164,294.354,310.562,922.075,441.70

0

5,000

10,000

15,000

20,000

25,000

Ru

pee

s in

mill

ion

s

Contribution to National Exchequer

PRODUCTION & SALES

Production and Sales of Cars (Light Weight Vehicles)

http://www.pama.org.pk/historicaldata.htm

This Graph Shows the overall Units sold over the last decade, as we can see up to 2007 there has been

positive growth, however a decline in sales thereafter, the decrease can be due to political instability, the

transition from military rule to a democratic government, and further the recession that affected global markets

in 2008. Thus we can see that the overall Industry has been growing, and still has potential to increase as it is

currently producing less then what it had in the past.

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

PRODUCTION 41,556 42,679 66,432 103,662 133,722 170,487 176,016 164,710 84,308 121,647

SALES 40,310 44,378 66,315 101,848 134,550 165,965 180,834 164,650 82,844 123,957

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

'000

UN

ITS

CARS

Production and Sales of Trucks

http://www.pama.org.pk/historicaldata.htm 1

This Show’s the production and sales of Trucks in Pakistan, also an important part of the automobile

industry. It follows the same trend as the previous graph for vehicles, and same analysis can be applied.

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

PRODUCTION 912 1,134 1,929 2,022 3,204 4,518 4,410 4,993 3,135 3,425

SALES 925 1,208 1,883 1,868 3,345 4,273 4,293 5,350 3,136 3,620

0

1000

2000

3000

4000

5000

6000

'000

UN

ITS

TRUCKS

Production and Sales of Buses

http://www.pama.org.pk/historicaldata.htm 2

The overall production and sale of busses has decreased, over the last decade, this could be due to the

foreign contracts set for the CNG busses which were to be introduced. Other data also shows that the Busses are

used and reused for many years, no matter what the condition maybe thus leading to less production since

busses are not being replaced, only added.

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

PRODUCTION 1,326 1,086 1,296 1,380 1,762 825 993 1,146 662 628

SALES 1,384 1,065 1,332 1,363 1,605 927 978 1,195 686 657

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

'000

UN

ITS

BUSES

Production and Sales of Pick-up

http://www.pama.org.pk/historicaldata.htm 3

Pickups are becoming more popular, and as we can see the trend shows a positive correlation. The

number of sales has increased, and the decrease in the last two years, the same economic and political factors

come in play as the car production graph shows us, however the decrease is not as substantial as it was for Cars.

This shows that there is still demand for the pickup truck, and room for growth in this product.

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

PRODUCTION 4,982 5,900 7,815 8,888 16,294 19,152 19,672 21,354 16,160 15,768

SALES 5,041 5,987 7,558 8,898 16,301 18,951 19,981 21,321 15,400 16,496

0

5,000

10,000

15,000

20,000

25,000

'000

UN

ITS

PICK-UP\ LCV

Production and Sales of Farm Tractors

http://www.pama.org.pk/historicaldata.htm 4

The Tractor manufacturing industry is very important to our country, since at one point we were an

agrarian society, agriculture is still a large part of our economy. Agricultural growth and development will also

help in the development of this sector. Our Agricultural sector is still growing and it shares a positive

correlation with Farm Tractor production.

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

PRODUCTION 31,635 23,801 26,240 35,770 43,200 48,887 54,098 53,256 59,968 71,607

SALES 31,121 24,001 26,832 35,900 43,578 48,802 54,052 53,203 60,351 71,512

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

'000

UN

ITS

FARM TRACTOR

Production and Sales of Motorcycles

http://www.pama.org.pk/historicaldata.htm 5

Motorcycles have become an important mode of transport for many people in Pakistan, they are not too

costly, and annually almost a million motorcycles are purchased in Pakistan. Overall there has been a positive

growth for the motorcycle manufacturers; the overall growth rate is the best of all locally manufactured

transport vehicles. There is definitely growth opportunity for the motorcycle industry.

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

PRODUCTION 108,850 120,627 175,169 303,383 416,189 520,124 467,267 660,593 509,054 736,861

SALES 108,649 120,113 171,873 301,656 417,066 516,640 467,353 662,573 507,924 737,759

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

'000

UN

ITS

MOTORCYCLE

ANNUAL PLANT CAPACITY

http://www.pama.org.pk/apc.htm 1

http://www.pama.org.pk/apc.htm 2

http://www.pama.org.pk/apc.htm 3

We can see that the overall plant capacity for the three major car manufactures in Pakistan has increased

however been stable for the last five years. It seems that the reason that they have not grown, is because they

have not been able to create more demand in the market. Pakistan is a price conscious country, and with current

prices sky rocketing it will be a while before the demand starts to increase, but at the moment they are able to

handle the supply required.

2005-06

2006-07

2007-08

2008-09

2009-10

CAPACITY 120000 150000 150000 150000 150000

050000

100000150000200000

Cap

acit

y in

No

s.

Pak Suzuki Motor Co. Ltd

2005-06

2006-07

2007-08

2008-09

2009-10

CAPACITY 44298 53040 53040 53040 53040

3500040000450005000055000

Cap

acit

y in

No

s.

Indus Motor Co. Ltd

2005-06

2006-07

2007-08

2008-09

2009-10

CAPACITY 30000 50000 50000 50000 50000

0

20000

40000

60000

Cap

acit

y in

No

s.

Honda Atlas Cars (Pakistan) Ltd

INVESTMENT

http://www.pama.org.pk/investmentnemployment.htm 1

We were only able to retrieve data from 2000 to 2005 for this graph, however it showed that there has

been a positive growth in investment towards the automobile industry, with current times being tough with an

economic recession we predict that the investment level has decreased, however the positive slope before the

recession shows that there are investors willing to support the automobile industry because they believe that

there is space for growth and development.

2000-01 2001-02 2002-03 2003-04 2004-05

Pak Suzuki Motor Company Ltd 3000 3094 3105 3874 5144

Indus Motor Company Ltd 2154 2357 2442 2579

Honda Atlas Cars (Pakistan) Ltd 1094 1128 1188 1417 1619

Sigma Motors (Pvt) Ltd 3 13 34 115 160

Dawood Yamaha Ltd 10.37 16.007 139.654 24.58 13.332

Suzuki Motorcycles Pakistan Ltd 208 260 270 358 430

Pakistan Cycle Industrial Cooperative Society Ltd

33.15 33.57 35.64 38.73 40.63

Plum Qingqi Motors Ltd 485.9 505.3 471.5 555.2 513.5

0

1000

2000

3000

4000

5000

6000

Rs.

in m

illio

ns

Investment

EMPLOYMENT

http://www.pama.org.pk/investmentnemployment.htm 2

This graph shows the employment rate in the automobile sector, and we can see that there has been an

overall positive growth in employment. This tells us that the automobile industry has been growing and

providing more job opportunities to the public, which will help develop our local economy and increase our

GDP. We conclude that the automobile industry is an important part towards employment, and the continual

growth will create more jobs, and help bring stability to the economy.

2000-01 2001-02 2002-03 2003-04 2004-05

Pak Suzuki Motor Company Ltd 1144 1130 1109 1378 1723

Indus Motor Company Ltd 628 697 1021 1226 1429

Honda Atlas Cars (Pakistan) Ltd 431 470 477 625 1032

Sigma Motors (Pvt) Ltd 15 46 73 112 159

Dawood Yamaha Ltd 466 506 557 623 809

Suzuki Motorcycles Pakistan Ltd 224 215 271 352 393

Pakistan Cycle Industrial Cooperative Society Ltd

202 229 247 251 267

Plum Qingqi Motors Ltd 189 198 198 227 235

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Emp

loym

ent

in N

os.

Employment

Conclusion

The Pakistan Automobile industry has had its up’s and down’s, however overall we can see that there

has been positive development in this sector. There has been a positive growth in all parts of this industry, from

production and sales, to employment levels. The automobile sector is an important one for our countries future,

with positive reinforcement from the government through policies and regulations; it can help boost our

automobile industry towards an important and leading role in our economy. According to a study by the World

Bank, the ratio for cars to population is one is to one thousand. There is one vehicle for every thousand people

in Pakistan; this alone shows the potential opportunity for growth in this particular industry. We believe that

even though there has been positive growth, the growth rate itself could be better, and development can be

faster. The automobile industry is important because it will not only create more jobs, it will help develop other

supporting industries as well.

Policy Recommendation

The first major policy that was implemented was the Deletion Policy, finalized in 1996. The core aspects

of this policy were local manufacturing protection. There were high import taxes on foreign cars, and low taxes

on manufacturing equipment. The deletion policy gave a boost to the growth in the automobile industry, which

was later replaced by the Tariff Based System and the Auto Industry Development Program, which gave the

auto sector less protection from foreign competition. However the competition did bring about more efficiency,

and protection for the final customers.

We see the automobile industry as a very important sector for the Pakistan economy; our research has

shown that there is potential growth, and a domestic market that could be developed and catered to. After

talking to some members of Toyota Indus Motors, we came up with the following recommendations which

should be implemented in a policy to help develop our Automobile Industry.

We need more government involvement, to help protect our domestic manufacturers as they do not have

the capacity, to compete with international companies importing their vehicles.

They should increase taxes on the import of cars, spare parts, and any other accessories which may be

manufactured over here.

They should decrease import taxes on machinery, and create incentives for business men to start new

factories in support of the automobile industry, such as vendors for spare parts, engineering sector for

development of machinery, and advanced technological capabilities.

They should allow multiple vendors to supply to the domestic market for spare parts, to create local

competition, which will protect the customers by avoiding a monopoly, and ban the import on such spare parts,

other than those imported by the vendors themselves.

There needs to be a mixed economy created where public and private help each other in boosting the

economy. We have seen that there is positive growth, and opportunity in Pakistan, now it’s time for investors

and the public sector to capitalize on these prospects.

Appendix

Contribution to National Exchequer

Pak

Suzuki

Motor

Company

Ltd

Indus

Motor

Company

Ltd

Honda

Atlas

Cars

(Pakistan)

Ltd

Dewan

Farooque

Motors

Ltd

Atlas

Honda

Ltd

2000-01 2,446 3,106 1,540 1,079 1318

2001-02 1,126 3,440 2,300 1,236 1508.39

2002-03 4,029 5,776 1,713 1,423 1962.75

2003-04 6,286 8,303 3,782 1,737 3,183.67

2004-05 8,473 10,098 6,371 2,542 4,514.17

2005-06 12,224 12,474 8,481 2,433 5,034.16

2006-07 16,318 13,791 6,213 2,074 4,294.35

2007-08 16,838 14,478 4,958 1,617 4,310.56

2008-09 13,286 14,144 6,452 500 2,922.07

2009-10 8,461 20,524 6,316 301 5,441.70

Production and Sale of Cars This has a slope of 10651.15 which shows that the car

manufactures have had a positive growth rate of over

10500 cars per year for the last ten years*

PRODUCTION SALES

2000-01 41,556 40,310

2001-02 42,679 44,378

2002-03 66,432 66,315

2003-04 103,662 101,848

2004-05 133,722 134,550

2005-06 170,487 165,965

2006-07 176,016 180,834

2007-08 164,710 164,650

2008-09 84,308 82,844

2009-10 121,647 123,957

Production and Sale of Buses

The data has a Slope of -73.32 which shows us that the

production of buses has decreased over the last decade at a rate

of 74 buses per year.*

Production and Sale of Farm Tractors Has an Average Slope of 4901.018 Which means that at an

average over the last ten years production and sales have

increased by 4900 tractors per year*

PRODUCTION SALES

2000-01 912 925

2001-02 1,134 1,208

2002-03 1,929 1,883

2003-04 2,022 1,868

2004-05 3,204 3,345

2005-06 4,518 4,273

2006-07 4,410 4,293

2007-08 4,993 5,350

2008-09 3,135 3,136

2009-10 3,425 3,620

PRODUCTION SALES

2000-01 31,635 31,121

2001-02 23,801 24,001

2002-03 26,240 26,832

2003-04 35,770 35,900

2004-05 43,200 43,578

2005-06 48,887 48,802

2006-07 54,098 54,052

2007-08 53,256 53,203

2008-09 59,968 60,351

2009-10 71,607 71,512

Production and Sale of Motorcycle The motorcycle manufacturers have had the largest growth, with a

growth rate of over 69,000 motorcycles per year. This is the highest

growth rate out of all automobile manufacturing. It shows the

potential and demand for motorcycles in Pakistan*

*All the above data was collected from PAMA Historical data.

PRODUCTION SALES

2000-01 108,850 108,649

2001-02 120,627 120,113

2002-03 175,169 171,873

2003-04 303,383 301,656

2004-05 416,189 417,066

2005-06 520,124 516,640

2006-07 467,267 467,353

2007-08 660,593 662,573

2008-09 509,054 507,924

2009-10 736,861 737,759

References

Primary Sources:

Mr. Khalid Latif Aslam Senior Manager Toyota Indus Motors

Mr. Faisal M. Khan General Manager Human Resources Toyota Indus Motors

Secondary Sources:

“Pakistan Automobile Manufacturing Association (PAMA)” (2010) http://www.pama.org.pk/

“Auto Industry Development Programme (AIDP)” Ministry of Industries, Production and

Special Initiatives; Government of Pakistan (2008)

http://www.engineeringpakistan.com/EngPak1/Auto%20-

Industry%20Development%20Programme%20(AIDP).pdf

“Pakistan’s Automobile Industry in Decline” Hafsa Ahsan (2009) South Asia Online

http://southasia-online.com/back-issues/288-pakistans-auto-industry-in-decline.html

“Pakistans Economy and the role of IMF and World Bank on it” Nauman Ayubi (2007)

“Automobile industry in Pakistan: history and prospects.” Economic Review (1991)

http://www.highbeam.com/doc/1G1-10839917.html

State Bank Pakistan http://www.sbp.org.pk/