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205-001-6
This technical note was written by Saqib Hussain and Hasan Fuad under the
direction of Asif Ali Rahman, Mohammad Ali Jinnah University. It is intended to be
used as the basis for class discussion rather than to illustrate either effective or
ineffective handling of a management situation.
The note was compiled from published sources.
Pakistan Stepping into the
Future:
Automobile Industry of Pakistan
Technical Note
© 2005 Mohammad Ali Jinnah University, Islamabad, Pakistan.
Distributed by The European Case Clearing House, England and USA.
North America, phone: +1 781 239 5884, fax: +1 781 239 5885, e-mail: [email protected].
Rest of the World, phone: +44 (0)1234 750903, fax: +44 (0)1234 751125, e-mail: [email protected].
All rights reserved. Printed in UK and USA. Web Site: http://www.ecch.cranfield.ac.uk.
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205-001-6
2

Pakistan Stepping into the Future:
Automobile Industry of Pakistan

Pakistan: A Profile
The land mass constituting Pakistan has always been in the limelight of history because of
its distinguished geography. Linked to the mighty Indian Ocean through the Arabian Sea
in the South and situated in close proximity to the Persian Gulf, the country provides a
strategic link to the Middle East in the West, Central Asia in North, China in the
Northeast and India in the Southeast. With the ninth largest population in the world, the
country has a sizeable market of 140 million people. The country comprises a land mass
of 796,095 sq km, with one of the world’s highest mountains, such as K-2, in the North,
to vast deserts in the South, with arable plains in the middle irrigated by five famous river
systems of the great Indus Valley. Four seasons namely winter, summer, spring and
autumn, are among the greatest natural endowments of the country. The climate of the
country, therefore, offers an interesting diversity of temperatures ranging from subzero
levels on the mountains in the winter to scorching heat in the plains in the summer.
1


The Auto Industry
The importance of auto industry to our economy can hardly be over emphasized. It along
with its related industries contributes a handsome amount to GDP. Apart from providing
revenue of Rs. 30 billion annually, it provides employment to around 150,000 individuals
including technicians, engineers, and management staff. It is estimated to have an
investment of over Rs. 8 billion.
2

The industry responded to rising demand by sharply ramping up production capacity, with
expected production of around 95,000 cars during 2003-04 more than twice produced in
2001-02 (See Exhibit 1). This sharp increase in production has certainly helped reduce
delivery lags as well as the premium for immediate availability, though these problems
have not yet been eliminated. The government has recently announced its intension to:
1. Reduce the import duty on cars as well as CKD (Completly Knocked Down)
2. Permit limited import of used cars
The demand of the reduction in duties for the auto industry is simply based on the belief
that domestic manufacturers were taking undue advantage of the privilege market access
to reap windfall gains with little benefit to the country in terms of transfer of technology,
increased investments, and job creation.
Car sales in the first quarter of the current fiscal year 2004-05 (July-September) rose
sharply though the government has liberalized import of used cars and imposed condition
of NTN (National Tax Number). Figures released by Pakistan Automotive Manufacturers
Association (PAMA) indicate automobile sales portraying a firm trend. It is pertinent to

1
Courtesy of Mr. Yasin Tahir, Senior Joint Secretary, Ministry of Industries and Production, Govt. of Pakistan
2
“Industry in focus: Auto”, http://www.imt.edu.pk, May 2003
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The Automobile Industry of Pakistan
3
mention that despite the recent liberalization of used cars import and introduction of NTN
requirement, the performance of the automobile sector remained head above these
negative regulatory developments as car sales during July-September 2004 stood at
28,777 units depicting a 37 percent increase, against 20,944 units during the
corresponding period of the last year.
3


Historical Background
4

Automobile industry in Pakistan took start in 1950, when General Motors, USA started
CKD assembly operations and established National Motors Limited, a public limited
company. The company assembled passenger cars as well as commercial vehicles that
carried “General Motors” brands such as Bedford, Vauxhall, Victor etc. The first vehicle
was a Bedford truck assembled in Pakistan in 1950. Later it was bought over by Pakistani
entrepreneurs, Ghandhara Industries Limited.
A regular car industry started in the country in 1983, when Suzuki commenced assembly
of FX (800CC) to target the middle-income group, which constituted the larger segment
of the market. In 1992, Suzuki introduced Khyber (1000CC) and Margalla (1300CC) to
strengthen its costumer base. Since its inception, Suzuki has enjoyed the position of a
market leader in car and LCV (Light Commercial Vehicle) segment.
In 1993, Indus Motor Company (Toyota), and in the succeeding year (1994) Honda Atlas
Motors commenced their operations in Pakistan as the main competitors to Suzuki in the
high price segment of the market, i.e., 1300-2000CC range.
During the last two years, with induction of Cuore (850CC) by Indus Motors and Kia
classic (1300CC), Kia Spectra (1500CC), Kia Sportage (2000CC diesel), Santro Plus
(1000CC) by Dewan Farooque Motors has intensified the competition among the local
assemblers.
In commercial vehicles segment, Pak Hino started assembling operations in 1986 and is
the market leader in the commercial vehicles segment, currently possessing 65% market
share.

Overview of Auto Industry
Since its independence in 1947, Pakistan has been able to transform itself to a large
extent, from a completely agrarian economy to a fairly developed techno-industrial base.
Besides textiles, Pakistan’s exports are largely manufactured items such as consumer
durables and engineering products. However, it is also a fact that Pakistan has not been
able to realize its true potential due to internal and external compulsions and thus it lags
behind many developing countries of the world.
The automobile industry is one the largest manufacturing industry in the country and is a
major contributor to the national economy in terms of large-scale employment, providing
billions in taxes to the national exchequer and GDP.
The industry in Pakistan started with objectives of fulfilling the requirements of the
country, creating manufacturing base, import substitution, foreign exchange saving and
employment generation, human resource development along with foreign and local
investment. The industry is essentially an import substitution industry catering to rapidly

3
http://www.brecorder.com
4
Courtesy of Mr. Asim Ayaz, Engineering Development Board, Govt. of Pakistan
205-001-6
The Automobile Industry of Pakistan
4
growing domestic market. The sector basically comprises of original equipment
manufacturers (OEMs), component manufacturers (vendors) with sales and services
provided by the authorized dealers of the OEMs. The OEMs in Pakistan are engaged in
producing cars, LCVs, trucks, buses and tractors. The OEMs also have the manufacturing
facilities for producing some components and the remaining components are acquired
from the vendors or through imports.
In 2000 automotive sales were worth Rs 48bn (US $895m), equivalent to 1.5% of GDP.
The sector employed 1.1% of the total workforce—450,000 people—in 2002. Imported
cars are expensive because of high import duties, but substantial cuts in import duties on
passenger cars, introduced in the fiscal year 2002-03 budget
5
, look set to boost the
number of imported cars sold in Pakistan.
New passenger car registrations rose by almost 50% in 2002. The rise largely resulted
from the provision by banks of cheap financing packages for car purchases. The increase
in domestic demand triggered a dramatic increase in production. In 2003-04 passenger car
production rose by 53% year on year, to reach 62,073 units. Japanese car brands dominate
sales. Most foreign companies have established a presence in Pakistan through joint
ventures with state-owned or private companies.
6
A list of these joint ventures is given in
Exhibit 2.
Industry Structure and Product Characteristics
Catering to Pakistan’s requirements of automobile industry, there are some 20 auto
engineering industries and thousands of ancillary and vendor units. Pakistan is currently
engaged in the manufacture/assembly of cars, trucks, buses, van/pick-ups, three-wheelers,
4-WD vehicles and tractors. In the automobile line, two units namely Pak Suzuki and
Indus Motors have set up their units for cars of various ranges, whereas two other units
namely Honda Atlas Motors and Ghandhara Nissan are in the process of automobile
units. About 850 vendors are engaged in the manufacture of different parts and
components of these vehicles employing over 100,000 persons directly and about 300,000
indirectly.
The indigenization process in the automobile industry in Pakistan is proceeding
satisfactorily and the local content in the automotive vehicles range from 45% to 85%.
During the
7
Eighth Five Year Plan, a rational tariff policy, indigenization through vendor
development and quality control measures were followed for the development of
automotive sector to meet the future national demand.
Presently there are 32 assemblers including multinationals with their equity participation
(Toyota, Honda, Suzuki, Hino, Nissan, Kia and Hyundai) engaged in progressive
manufacturing/assembling of different automobiles under the approved deletion program
of the Ministry of Industries and Production, Government of Pakistan. As per the
approved deletion program they are required to use specific local contents on an annual
basis.
As the production of automotive vehicles is based on foreign joint ventures of Japanese,
Korean and European origin, the product quality is of international standard. The quality
standards being followed are mainly:

• Japan Industrial Standards (JIS)
• Society of Automotive Engineers, United States, (SAE)

5
In Pakistan, the annual budget is announced in the month of June
6
http://www.eiu.com
7
1993-1998
205-001-6
The Automobile Industry of Pakistan
5
• International Standards Organization (ISO)
The Auto Parts Industry
The entire philosophy behind developing the automotive industry is to promote auto parts
manufacturing. In majority of the developed countries the automotive industry play an
important role in the economic and technological development as it is a major organ of
engineering sector involving many technologies like metal working and use of plastics.

The production of a vehicle incorporates all industrial activities and this cycle gives a
strategic advantage and continuity to the local parts manufacturing industries that in turn
develop their capabilities in their respective fields. The automotive sector is well known
to have brought with it revolutionary changes in the steel, rubber, plastics, glass and
textile area and introduction of good management practices such as Total Quality
Management.

The “engine” behind the growth of the vendor industry in Pakistan is the vehicles’
assembly plants which consist of three Japanese car assemblers: Suzuki, Honda and
Toyota, the Korean JV Hyundai Kia as well as the two trucks assembly plants JV Nissan
and Hino. It seems that Volvo is also involved in truck assembly through a technical
agreement. Ford and Massey Ferguson are also present through technical agreement for
the manufacturing of farm tractors.
The importance of the vendor industry, which is responsible for producing auto parts
reflected in the fact that even after decades of rolling out a car in the market, the market
demand for spares of the same model remains intact which, keeps moving the wheel of
the engineering industry. On one hand, Pakistan has joined the club of the countries,
which are exporting spare parts, and on the other hand its growth benefiting the
neighboring countries, which are enjoying the market share in Pakistan. According to
roughly estimated figures by the dealers and auto part importers, the per capita
requirements of parts comes to 100-150 per vehicle in Pakistan while the demand for
some fragile parts including accessories exceed the normal demand.
8

There are around 2,400 component manufacturers currently operating in the market most
of them having agreements with the OEMs while some of them have joint ventures or
technical assistance agreements with foreign firms. The government in budget 2004-05
imposed 35% import duty on spare parts mainly varied from 15-25% during 2003-04 (See
Exhibit 3).
Current auto market: status and prospects
The existing population of automotive vehicles in Pakistan is 3.9 million. The annual
demand is estimated at 300,000, two thirds of which is being met from local sources and
imports and the remaining one third is left unmet. The market value of automotive
vehicles in dollar terms is estimated at more than 1 billion, out of which import
constitutes around US$ 200 million. The after market of auto parts is estimated at US$
500 million, imports and local production taken together.
Japanese brands had a 90% share of unit sales in 2003-04. South Korean brands have the
second-largest share of automotive sales. Pak Suzuki Motors is the largest automotive
company, holding a 51.92% share of passenger car sales in volume terms in 2003-04 and
dominating the small-car segment (See Exhibit 4-a and 4-b).

8
“The auto parts business”, http://www.pakistaneconomist.com, October 18-24, 2004
205-001-6
The Automobile Industry of Pakistan
6

Recent Trends
Pakistan’s auto industry has witnessed a number of recent trends for the last couple of
years. Some of them are discussed as follows:
Increase in Competition
Budget 2004-05 reduced the level of protection available to the auto industry by reducing
the differential between the duties applicable on CBU (Completely Built Unit) units and
CKD kits (See Exhibit 5).
These duty reductions are expected to result in large reductions in the price of imported
cars, which will probably increase the level of competition in the auto industry. Applying
the new duty structure to the currently available Chevrolet Exclusive shows us the impact,
with the car’s price likely to drop by about 14% in our opinion once the new structure is
implemented. However, the major impact of this competition will be on the 1300CC and
above segment since the products of the local manufacturers are expected to remain
relatively cheaper.
This is based on the premise that buyers of light commercial vehicles (LCVs) and low
engine capacity cars tend to be more price-sensitive than buyers of larger cars. In the
1300CC and above categories, buyers are likely to choose the imported car in order to
receive delivery immediately and in order to be different. It is projected that over the next
few years, the market share of imports is likely to touch 30%, thereby slowing down the
previously projected growth rate of the local assemblers.
Auto Financing
Auto financing has been one of the biggest growth drivers in the auto industry. Low
interest rates forced commercial banks to focus on consumer financing in order to
supplement their plummeting interest based income. It was estimated that nearly 40% of
all new cars were purchased using auto financing. Even though interest rates are
beginning to rise, the rise is expected to be gradual, leading to expect the growth in auto
financing to continue playing an important role in future auto sales. However, the increase
in interest rates over the medium to long term will negatively affect demand.
Banks enjoying an unprecedented liquidity have find auto loan a highly receptive market
offering attractive returns in a comparative short period of time. The incessant flow of
increased home remittances in fiscal 2002-03, and evincing declining trend during the
first half of the fiscal ended December 31 last year, has resulted in enhanced investment
in the automobile, which offered attractive returns than construction.
9

New passenger car registrations, which have soared since 2001, are expected to continue
to rise in 2004-08, to reach 154,000 in 2008. Car sales rose by 57% year on year to
98,461 in 2003-04, after rising by 46% to 61,955 in 2002-03. Much of this growth has
been a result of plentiful car financing through banks
10
and leasing companies.
11

Increase in Sales
Car sales in the first quarter of the fiscal year (2004-05) rose sharply though the
government has liberalized import of used cars and imposed condition of NTN.

9
“Auto Sector”, KASB Securities, June 30, 2004
10
The main banks providing car leasing include Muslim Commercial Bank, Bank Al-falah, Citibank, Askari Leasing, United Bank
11
http://www.eiu.com
205-001-6
The Automobile Industry of Pakistan
7
Higher sales ensued from higher remittances, availability of extensive car financing
schemes and increased consumption propensity of the buyers. On a month-on-month
basis, overall auto sales depicted 9 percent increase to 9,681 units attributable to the high
base effect.
During the period, tractor sales at 9,282 units portrayed a substantial growth of 42 percent
on the back of cheaper and extensive credit availability to farmers.
Indus Motors sales during July-September 2004 soared by 35 percent to 9,086 units
compared to 6,735 units last year. During September 2004 sales depicted a 29 percent
increase to 3,424 units as against 2,662 units during August 2004. Sales of Indus Motors
models Corolla, Cuore and Hilux stood at 2,219, 887 and 318 units, depicting increase of
29 percent, 35 percent and 9 percent, respectively.
Dewan Farooque Motors’ unit sales during the first quarter stood at 3,141 against 1,700
during last year. Santro sales during September 2004 stood at 801 units, 26 percent higher
compared to 586 units during the previous month, whereas overall sales portrayed 50
percent increase to 1,502 units compared to 1,003 units during August 2004.
Pak Suzuki sales volume during the period under discussion depicted a 35 percent
upsurge to 48,622 units against 36,057 vehicles during the corresponding period of last
year. Nonetheless, the company's sales during September declined by 8 percent to 5,255
units as against 5,706 units during August. During the month, sales of Cultus, Mehran,
Alto and Baleno were respectively down by 9 percent, 10 percent, 13 percent and 11
percent.
Honda Atlas Cars sales during the first half of its financial year (April-September 2004)
depicted an impressive 72 percent upsurge to 8,020 units compared to 4,668 units during
the same period of last year. The company's sales during September 2004 marked a 38
percent growth to 1,382 units as against 1,003 units during the previous month. Honda
Civic sales at 778 units portrayed a 75 percent increase compared to 445 units last month.
Moreover, Honda City sales during September 2004 surged by 8 percent to 604 units
compared to 558 units during August 2004.
Going forward, analysts believe that the auto sector still has a growth potential and the
demand outlook is sustained on the back of increased consumption propensity of the
buyers amid improved cash flows coupled with availability of extensive financing.
12

Increase in Production
A record number of cars were produced in the country last fiscal. According to figures
compiled by Pakistan Automotive Manufacturers Association (PAMA), a total of 95,000
cars, 3,000 LCVs, 1,500 buses, 15,000 trucks, 34,000 tractors and 350,000 motorcycles
were to be produced in the country during the fiscal 2003-04. The projected overall
performance of the auto industry based on the available statistics, however, show mixed
trend and overall growth would be lead mainly by the car segment of the industry.
The segment-to-segment analysis of the four-wheeler industry not only highlights the
mixed performance but also shows that the expected growth this fiscal would be lead
mainly by car. On the basis on average monthly production figures during this fiscal, it
would be safe to predict that a record number of around or over 140,000 cars will be
produced in the country 2004-05. This certainly is good because trends of car production
over the years have fluctuated wildly during the last 8 years (See Exhibit 1).

12
http://www.brecorder.com
205-001-6
The Automobile Industry of Pakistan
8
Increase in Investment
As it is evident by the key economic indicators for 2003-04, suggesting investments and
fixed investment of 18.1% and 16.4% respectively of the total GDP are in the automobile
sector, with credit to private sector Rs.224.56 billion in 2003-04 compared to Rs.106.63
billion in 2002-03. The same fiscal period of 2003-04 witnessed an increment in the
KSE
13
index to 61%. Also, foreign investment showed an upward trend, and rose from
US$ 750 million during FY 2002-03 to US$1000 during FY 2003-04.
With the key targets of three-years, 2004-07, investment is targeted to reach 20% with a
rise of 1.9% to add towards the GDP in order to boost the growth rate to 8% by FY 2006-
07.
As during FY 2002-03, the GDP growth was standing at 5.1% when the growth rate of
manufacturing and large-scale manufacturing was 6.0% and 7.2% respectively. Similarly,
when the manufacturing and large-scale manufacturing reached to 13.4% and 17.1%, the
GDP growth rate increased to 6.4%.
With improved per capita income that increased from US$ 492 to US$ 652 during FY
2002-04, and substantially improved remittances, financial institutions have equally
benefited considerably, through offering auto financing that rose from Rs.15,800 million
during FY 2002-03 to Rs.24,500 million during FY 2003-04, with interest rates that
declined from 10.5% to as low as 7% during FY 2002-04.
14

Cost of Local Assembled Car
It has been established that the locally assembled cars are comparatively much cheaper
than the landed cost of same make of cars as shown at Exhibit 6. It is often said that the
local cars are expensive than those assembled in India. This is despite the fact that the car
volume of Pakistan is around 95,000 as compared to 724,000 in India during 2003-04,
which is around eight times higher than in Pakistan. This low price is possible and is
achieved through indigenization of parts. The deletion process is on-going and every year
a certain set number of locally manufactured car parts are incorporated.
TRIMs & Local Auto Industry
Trade-related Investment Measures have been used mainly by developing countries to
promote development objectives. For instance, the growth of domestic ancillary industries
has been sought through the imposition of local content requirements. In many cases,
TRIMs are designed to deal with the restrictive business practices of transnational
corporations and their anti-competition behavior.
In July 2000, Pakistan along with six other developing countries received two-year
extension in the transition period. In November 2001, further extension for two years was
granted for period up to end-2003.
As per requirement of TRIMs Agreement, Pakistan submitted its notifications of
measures inconsistent with the agreement under Article 5.1 on 30th March 1995 vide
document No. G/TRIMS/N/1/PAK/1. Pakistan is currently non-compliant of TRIMs only
on the grounds of ‘Local Content Requirement’ which imposes on the assemblers’ usage
of specific amount of local input. Comparative position of Pakistan with respect to
TRIMs compliance is shown in Exhibit 6.


13
Karachi Stock Exchange
14
“Factors affecting growth of auto sector”, http://www.pakistaneconomist.com, Sep 13-19, 2004
205-001-6
The Automobile Industry of Pakistan
9
Global-Trends in the Automobile Industry
Rapid Globalization is one of several strong trends driving change and adaptation in the
automotive industry. First, automakers are trying to improve their organizations,
particularly their manufacturing operations, by implementing the tenets of lean
production. Lean production includes lower inventories, just-in-time parts deliveries, high
performance work organization (teamwork, job rotation, etc.), and continuous
improvement programs for quality and productivity. Following the path of continuous
improvement requires a great deal of attention and monitoring. Second, the proliferation
of automotive traffic in developed countries has created a host of serious environmental
quality problems (e.g. air pollution, congestion, waste recycling). With issue of the
environmental impact of motorization looming over the industry, automakers see an
imperative to develop vehicles with low- or zero-emissions. Lastly, markets appear to be
further fragmenting, putting additional pressure on automaker’s design, distribution, and
marketing capacities. All of these forces, globalization, lean production, environmental
concerns, and market fragmentation are increasing development, process, logistics, and
market complexity in the industry.

Key Players in the Industry
Japanese brands had a 90% share of unit car sales in 2003-04. South Korean brands have
the second-largest share of automotive sales. The key players in the auto sector of
Pakistan are as follows:
Pak Suzuki Motors
Pak Suzuki Motor Company Limited (PSMC) is a public limited company with its shares
quoted on stock exchanges
15
in Pakistan. The Company was formed in August 1983 in
accordance with the terms of a joint venture agreement concluded between Pakistan
Automobile Corporation Limited (representing Government of Pakistan) and Suzuki
Motor Corporation (SMC) of Japan. The Company started commercial production in
January 1984 with the primary objective of progressive manufacturing, assembling and
marketing of Cars, Pickups, Vans and 4 x 4 vehicles in Pakistan.
Today, Pak Suzuki Motors is the largest automotive company, holding a 51.92% share of
passenger car sales in volume terms in 2003-04 and dominating the small-car segment
(See Figure 1).
Pak Suzuki is expected to be the least effected of the assemblers by the new duty structure
due to its concentration on the small car segment and its high deletion levels. This
coupled with its recent capacity expansion and its concentration on providing CNG
(Compressed Natural Gas) variants should allow the company to report a CAGR of 7% in
its profits over the next 5 years.
Indus Motor Company
Indus Motor Company (IMC) is a joint venture between the House of Habib , Toyota
Motor Corporation Japan (TMC) , and Toyota Tsusho Corporation Japan (TTC) for
assembling, progressive manufacturing and marketing of Toyota vehicles in Pakistan
since July 01, 1990. IMC is engaged in sole distributorship of Toyota and Daihatsu
vehicles in Pakistan through its dealership network.

15
These stock exchanges include Karachi Stock Exchange (KSE), Lahore Stock Exchange (LSE) and Islamabad Stock Exchange (ISE)
205-001-6
The Automobile Industry of Pakistan
10
The company was incorporated in Pakistan as a public limited company in December
1989 and started commercial production in May 1993. The shares of company are quoted
on the stock exchanges of Pakistan. Toyota Motor Corporation and Toyota Tsusho
Corporation have 25 % stake in the company equity. The majority shareholder is the
House of Habib with 50 % of the equity.
IMC's production facilities are located at Port Bin Qasim Industrial Zone near Karachi in
an area measuring over 105 acres. Indus Motor Company’s plant is the only
manufacturing site in the world where both Toyota and Daihatsu brands are being
manufactured.
Heavy investment was made to build its production facilities based on state of art
technologies. To ensure highest level of productivity world-renowned Toyota Production
Systems are implemented. The recent NTN requirement is likely to have a major impact
on Indus Motors’ revenues. However, a part of this impact may be offset by the
company’s higher trading income and the CNG variant of the Cuore. With the company’s
capacity expansion expected to be completed later this year and the expectation that
among the assemblers, IMC will be best able to increase its trading income, it is expected
that the company will report a CAGR of 13% in profits over the next 5 years.
Honda Atlas Cars Pakistan Limited
Honda Atlas Cars Pakistan Limited is a joint venture between Honda Motor Company
Limited Japan, and the Atlas Group of Companies, Pakistan.
Construction of the factory started on April 17, 1993 and within a record time of 11
months, construction and erection of machinery was completed. The first car rolled off
the assembly line on May 26, 1994. Official inauguration was done by President of
Pakistan, Sardar Farooq Ahmad Khan Leghari. Mr.Kawamoto, President Honda Motor
Company Limited Japan was also present.
On July 14, 1994, car bookings started at six dealerships in Karachi, Lahore, and
Islamabad. Now the dealership network comprises 13 dealerships in 7 major cities of
Pakistan and almost 40,000 cars have been sold till June 2002. All dealerships are
constructed in accordance with the standards defined by Honda World over.
Honda Atlas Car’s continuous upgrade strategy is likely to allow the company to compete
strongly in its new environment. Honda’s strong global product portfolio is likely to boost
the company’s trading revenues, leading to expect a 25% CAGR in the company’s profits
over the next 5 years.
Dewan Farooque Motors Ltd.
Dewan Farooque Motors is a progressive automobile company with diversified range of
vehicles catering all the transportation needs of Pakistan with state of the art technology
and industry standards. The company is heading forward with 3S (Speedy, Secure, Sweet)
concept to provide the best of the best after sales service.
The company was formed by Dewan Group of Pakistan and Hyundai Corporation of
South Korea by entering into a technical cooperation agreement in July, 1999.
Dewan Farooque Motors is now a key player in the automobile industry of the country
offering an impressive line up of passenger cars and commercial vehicles. Its state-of-the-
art plant has a capacity of 10,000 vehicles per annum on single shift basis and is equipped
with the latest facilities which include CED paint system and robots for the final coat.
205-001-6
The Automobile Industry of Pakistan
11
The liquid nature of DFML’s stock has made it a speculator’s dream, with fundamentals
taking a back seat in the stocks price movements. At the same time however, the company
has begun to make some important fundamental changes by rationalizing its product
portfolio in order to focus on its more successful products. Given the company’s tie-in
with Hyundai and Kia Motors, it is trying to expand its trading business to include new
models offered by these firms.

Hinopak Motors
Hinopak Motors Limited began its operation in 1986. In the last fourteen years, Hinopak
Motors not only established itself as the "Market Leader" but has also grown from
strength to strength and commands over 65% of the truck and bus market in Pakistan.
Today, Hinopak's success is the result of the concerted efforts to achieve total customer
satisfaction through quality control system covers all aspects of marketing, production
and after sales service. These efforts have resulted in Hinopak's reputation for its
professional management, technical expertise and financial performance. Hinopak is the
first automotive company in Pakistan and the first Hino affiliate world wide to achieve
ISO 9001 certification and is now marching towards ISO 14000.
Automotive Forecast
In the budget for 2004-05 then Finance Minister,
16
Mr. Shaukat Aziz, slashed import
duties on new cars from 50% to 25%, which should stimulate demand further—the
effective duty on popular small cars (800-1,300CC) has been reduced to 15% if engines
are imported separately from chassis, which, given the tax benefits, is now likely.
However, this measure has been negated to some extent by the imposition of a new rule to
the effect that consumers will have to prove that they pay income tax to be eligible to buy
a new car. In a country where tax evasion is rife, this is likely to rule out many
prospective buyers.
However, in relation to Pakistan’s population, which is projected to reach 163m by 2008,
the number of new cars registered will be small. Although Pakistan’s population will
grow at around 2% per year, the stock of passenger cars will increase only slightly. The
main impetus for demand will be provided by the availability of financing schemes from
banks and lending institutions and the increasing affordability of car prices. Smuggling of
cars into Pakistan from Afghanistan is commonplace. Although attempts are currently
being made to clamp down on this, a resurgence of smuggling could lead to a downward
revision in our forecast for new car registrations. At present, vehicles are assembled in 18
units, and 850 units manufacturing automotive parts support these. There are five main
car assemblers in Pakistan.
Leading foreign banks and leasing companies are financing car purchases under various
schemes. The government is pressing car manufacturers to increase the local content in
cars assembled in Pakistan. In order to do this, the government slashed tariffs on
components and parts in the budget for 2004/05. At present, locally produced parts
account for 30-60% of the total used. The government wants to increase this figure to
around 80-85% by 2006, but is currently in dispute with the World Trade Organization
(WTO), which has ruled that the government must scrap plans to force an increase in the
use by manufacturers of locally produced car parts. The government is preparing to seek a
two- or three-year postponement from the WTO of implementation of the ruling. The
maximum tariff on car imports stands at 150%.

16
Mr. Shaukat Aziz is now the Prime Minister of Pakistan
205-001-6
The Automobile Industry of Pakistan
12
After widespread complaints from consumers that local car manufacturers were charging
large premiums for immediate delivery of cars and that prices were continually on the
rise, the Ministry of Industries and Production set up a task force in September 2003 to
examine the industry. The task force was asked to make recommendations on how prices
could be reduced, delivery schedules improved, and premiums and profiteering curbed.
The task force submitted its report to the Cabinet in October 2003. The report
recommended that the government lift the ban on imports of reconditioned cars in order
to put pressure on local carmakers to cut prices. The task force asked local car
assemblers—including Indus Motors (which assembles Toyotas), Pak Suzuki and Honda
Atlas—to cut prices and raise output. However, the manufacturers said that cutting prices
was impossible; instead, they said they would ensure timely delivery, but this did not
happen either. As a result, the government has slashed duties on imported new cars.

2003 2004 2005 2006 2007 2008
New Passenger car registrations(‘000) 62 107 118 129 144 155
Stock of Passenger cars (per 1,000
population)
9 9 9 10 11 11
Source: Economist Intelligence Unit

WTO: The Challenge Ahead
Pakistan inked WTO in 1995 and it will come into operation on 1
st
January, 2005. The
implementation of WTO regime will drive the world trade into an era of liberalization,
free market, and quota abolition. This new system will have both threats and
opportunities, and the fittest will survive. The developed countries, which actually
initiated WTO, are well-prepared to get benefit of the upcoming conditions of the world’s
economy. While, on the other hand, most of the developing countries are not in a position
to stand against the upcoming challenges. Although these countries were given the lead
time to prepare themselves for the new regime, they actually could not.
17

By the end of 2003, Pakistan is committed to follow the WTO mandate. When applied,
the bulk of Pakistani industry will be affected in one way or another. Under the WTO
regime, the most vulnerable will be the value-added basic industries. Engineering and
more so, automobile industry will be the hardest hit as it is not included in the discipline
of IFIs. This industry is not yet prepared for a free-for-all economy that the WTO
espouses.
18

The Pakistani industry thus needs some more time to become internationally competitive,
particularly the automobile industry, which is exempt from the discipline of the IFIs. No
tariff regime of WTO will get a huge influx of imported cars that will test real mettle of
the industry. Therefore, the engineering sector should continue to be protected as is the
case in the rest of the world.

Foreign Investment in Local Auto Market
Foreign investment in Pakistan during first quarter of current fiscal year was $201.8
million, which was double of this period the last year. According to State Bank of

17
“Industry in Focus: Auto”, http://www.imt.edu.pk, May 2003
18
WTO and the Pakistani Industry”, http://www.pakissan.com
205-001-6
The Automobile Industry of Pakistan
13
Pakistan statistics, during the July to September, last year, foreign investment was
recorded $88.9 million. Private foreign direct investment during first quarter of current
year was $181.8 million while portfolio investment remained $20.7 million
19
.
Growth in automotive demand has led to increased interest from other foreign vehicle-
makers. A Malaysian vehicle-maker, Perusahaan Otomobil Nasional (Proton), is planning
to set up a production facility in Pakistan, while some local investors are planning to enter
into joint ventures with Chinese vehicle-makers, such as the Fa Group, to manufacture
cars domestically.
Recently, the Chinese automaker Shanghai Automotive Industry Corp (SAIC), newly-
crowned as one of the world's top 500 multinationals, has offered Pakistan to enhance
cooperation in the automobile sector.
The biggest and most profitable passenger carmaker, the SAIC in July 2004, signed a
memorandum of understanding with creditors of Ssangyong Motors to buy a majority
48.9 percent stake in the South Korean Automaker. In late 2002, the SAIC paid US 59.7
million dollar to acquire 10 percent stake in General Motors' venture in South Korea, GM
Daewoo Automotive and Technologies Co Ltd, marking the first overseas acquisition by
a Chinese vehicle company. The company, the joint ventures partner of the GM and
Germany's Volkswagen in China, is also reportedly in merger talks with the MG Rover,
the biggest British Automaker. The Company aims to increase its annual output to four
million units and become one of the world's six biggest Automakers by 2020. It sold
782,000 vehicles last year
20
.
Moreover, the Russian auto companies have keen interest in the auto sector of Pakistan to
meet the local demand by introducing a best quality small car for common man and
manufacturing of tractors through joint venture project. As there is growing demand of
automobiles in Pakistan so Russia can benefit from it
21
.
The Indian company, Mahindra and Mahindra Limited (MML), attracted by the effective
demand for automobiles, is engaged in discussions with four to five local business houses
in a bid to strike a deal with a company for its vehicle production in Pakistan. However,
there is a glitch as everything depends on the green signal from the Pakistani government.
It is still not clear if the government would allow the Indian company to take the plunge
in over heated domestic automobile market, dominated by Japanese assemblers.
Besides Mahindra, many Indian auto assemblers have now set their eyes on the further
improvement of regional and political relations as they are keen to see their vehicles
plying on the roads of Pakistan. another Indian auto giant, Bajaj Auto, has decided to set
up a manufacturing base in joint venture with Saigol family for bike, scooters and auto
rickshaws. Initially, Bajaj will have a technology deal where Saigol Company will
assemble completely knocked down kits exported from India. Later, as political relations
improve, it will set up a manufacturing facility.
22







19
http://www.geo.tv, October 24, 2004
20
http://www.brecorder.com, October 21, 2004
21
http://www.paktribune.com , June 10, 2004
22
“Giant Indian auto maker exploring local market”, http://www.dawn.com, October 13, 2004
205-001-6
The Automobile Industry of Pakistan
14
Conclusion
The automobile industry can act as a catalyst for the development of engineering and
other supporting industries. Malaysia has obtained temporary exemption from Asian Free
Trade Areas till 2005 and the import duty is as high as 200 percent. Though India has
lately allowed import of second hand cars, the import duty is the same as applicable on
the import of new cars (105 percent plus other levies).
With a view to develop local manufacturing base, Pakistan provided tariff-based
protection to the auto industry, which led to large investments by the auto assemblers and
vendors to the tune of US$ 1.707 billion, providing thousand of jobs and contributing
billions in duties & taxes to the national exchequer and to GDP over the years. Moreover,
the surging demand in recent years has encouraged the industry to plan major capacity
expansions to increase their volumes, that would help bring down prices.
The presence of auto assemblers has led to the development of an internationally
competitive vendor industry in the country as indicated by the fact that exports of auto
parts have increased to $ 24.7 million and is expected to touch $ 31 million in 2003-04.
The policy shocks such as import based yellow scheme, permission to import
reconditioned cars, etc were the major causes for relatively low investment growth in 90’s
and relatively inefficient production.
Further, the industry also argues that current shortage in supply is artificial, due to
speculative demand. Accordingly, it has demanded administrative measures such as
delivery of cars only in the name of initial buyers and impose restriction on transfer of
ownership within six months.
The government, therefore, will have to strike a very delicate balance between consumer
welfare and the need to develop engineering industry and foster investor confidence by
avoiding abrupt policy shifts. The phenomenol growth recorded by the domestic auto
industry warrant some breathing room to adjust for the international exposure. The
automobile sector of Pakistan promises a greater industry competition and a brighter
future. It will not be wrong to say that Pakistan will soon prove itself to be the next
automobile hub of the world.













205-001-6
The Automobile Industry of Pakistan
15
Production of Automobiles
Exhibit 1
TYPE 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03
2003-04
(
23
Proj.)
2004-05
(Proj.)
Car 31,079 33,741 33,684 38,682 32,461 39,573 40,601 62,073 95,000 140,000
Truck 2,994 2,917 1,683 1,083 913 912 1,134 1,299 15,000 18,000
Bus 474 456 591 1,124 1,460 1,326 1,086 1,296 1,500 2,200
LCV 9,108 10,609 10,543 8,701 7,036 7,424 9,055 12,548 3,000 3,500
Tractor 10,093 10,417 14,144 26,644 34,559 31,635 23,801 26,832 34,000 40,000
Source: Pakistan Automotive Manufacturers Association


List of Joint Ventures in the Automobile Industry
Exhibit 2
Assembler Plant
Location
Parent Company/Joint
Venture/Technical
Collaboration
Products Producti
on
Capacity
(p.a.)
Hinopak Motors Ltd. Karachi Joint venture between Bibojee
Group, Pakistan Al-Futaim
Industries, Dubai (59% shares),
Hino Motors, Japan and Toyota
Tsusho Corp., Japan
Hino buses
Hino trucks
Hino mini-buses
2,600
units
Ghandhara Nissan Diesel
Ltd. (GNDL)
Karachi Technical collaboration with
Bibojee Group, Pakistan and
Nissan Diesel, Japan
UD/Nissan
buses
UD/Nissan
trucks
1,800
units
Ghandhara Industries
Ltd.
Karachi Technical cooperation agreement
between Bibojee Group, Pakistan
and Isuzu Motors, Japan
Isuzu buses
Isuzu trucks
2,400
units
Sind Engineering (Pvt.)
Ltd.
Karachi Technical cooperation agreement
with Mazda Corporation, Japan
Mazda mini
trucks
Mazda mini
buses
3,000
units
Pak Suzuki Motor Corp.
Ltd.
Karachi 72.82% shares and management
held by Suzuki Motor Corp.,
Japan
Suzuki cars
Suzuki
motorcycles
50,000
units
Indus Motor Co. Ltd. Karachi Joint venture between Habib
Group, Pakistan and Toyota
Tsusho Corp., Japan
Toyota cars and
LCVs
Daihatsu Cuore
cars
20,000
units
Ghandhara Nissan Ltd.
(GNL)
Karachi Technical cooperation agreement
between Ghandhara Group,
Pakistan and Nissan Motor
Company, Japan
Nissan Sunny
cars
10,000
units
Daihatsu Motors Ltd. Karachi Joint venture between Indus Motor
Company, Pakistan and Daihatsu
Motors, Japan
Daihatsu Cuore
cars
10,000
units
Dewan Farooq Motors
Ltd.
Karachi Technical cooperation agreement
between Dewan Group, Pakistan
and Hyundai Corp., South Korea
Hyundai cars and
LCVs
Kia cars and
LCVs
10,000
units

23
Projected
205-001-6
The Automobile Industry of Pakistan
16
Raja Motors Ltd. Karachi Technical cooperation agreement
between Raja Group, Pakistan and
Fiat Auto Spa, Italy
Fiat cars 10,000
units
Millat Tractors Ltd Lahore Technical collaboration with
Massey Ferguson, UK
Massey Ferguson
tractors
15,000
units
G.M. Tractors Ltd. Karachi Universal
tractors
3,000
units
Atlas Honda Ltd. Karachi Joint venture between Atlas Group,
Pakistan and Honda Motor
Company, Japan
Honda
motorcycles
100,000
units
Dawood Yamaha Ltd. Karachi
and
Islamaba
d
Technical cooperation agreement
between Dawood Group, Pakistan
and Yamaha Corp., Japan
Yamaha
motorcycles
50,000
units
Suzuki Motorcycles (Pvt.)
Ltd.
Karachi Joint venture with Suzuki Motor
Corp., Japan
Suzuki
motorcycles
12,000
units
Assembler Plant
Location
Parent Company/Joint
Venture/Technical
Collaboration
Products Producti
on
Capacity
(p.a.)
Sohrab Motorcycles Ltd. Lahore Sohrab
motorcycles
25,000
units
Saigol Qingqi Motors Ltd. Lahore Joint venture between Saigol
Group, Pakistan and Qingqi, China
Qingqi
motorcycles
Qingqi 3-
wheelers
40,000
units
Raja Autocars Ltd. Karachi Technical cooperation agreement
between Raja Group, Pakistan and
Vespa, Italy
Vespa scooters
Vespa 3-
wheelers
15,000
units

List of Technical Agreements in the Auto Parts Industry
Exhibit 3
Components Vendors in Pakistan Collaborating Partners
Shock absorbers M/S Honda Atlas Ltd. Showa, Japan
Radiators M/S Allwin Engg. U.E. Radiators, Japan
Car A/C M/S Sanpak Sanden, Japan
Shock Absorber M/S Agri Auto Ind. Kayaba, Japan
Radiator M/S Loads Pvt. Ltd Toyo Radiator, Japan
Radio Cassette Player M/S Automate Ind. Panasonic Thailand
Car A/C M/S Thal Engg. Denso, Japan
Lamps M/S Techno Pak Koito, Japan
Spark Plugs M/S Shaigan Electric NGK, Japan
Air conditioners M/S Thal Engg. Denso, Japan
Glass M/S NGS Pak NGS, Japan
Steering case set M/S Polymer & Precision I.S. Seiseki, Japan
Brake Drum Assembly M/S Alsons Auto Ltd. Nissin Kogyo, Japan
Source: Engineering Development Board, Ministry of Industries and Production
205-001-6
The Automobile Industry of Pakistan
17

Market Share of Japanese Brands Being Assembled in Pakistan
Exhibit 4-a
Cars
Buses/
Trucks
LCVs Tractors LCVs
90% 80% 50% 0% 50%
Suzuki Nissan Suzuki Suzuki
Toyota Hino Toyota Toyota
Honda Mazda
Nissan
Daihatsu (Cuore)
Source: Pakistan Automotive Manufacturers Association
Market Share of Non-Japanese Brands Being Assembled in Pakistan
Exhibit 4-b
Car Maker
(Brand)
Buses/Trucks LCVs Tractors
10% 20% 50% 100%
Hyundai Dong Feng Hyundai Massey Ferguson
Kia Volvo Kia Fiat
Fiat Zabardast Universal
Source: Pakistan Automotive Manufacturers Association
The demand in the auto sector in Pakistan is skewed towards small cars. Due to this trend, Pak
Suzuki Motors enjoys a monopoly in the small-car market.


Market Share of Cars
Figure 1
Suzuki
(Pak Suzuki)
51.92%
Toyota
(Indus Motors)
28.10%
Honda
(Honda Atlas)
13.53%
Kia–Hyundai
(Dewan Farooque Motors)
6.37%
Nissan
(Ghandhara Nissan)
0.08%
Honda
Kia-
Hyundai
Nissan
Toyota
Suzuki

Source: Pakistan Automotive Manufacturers Association

The market share of LCVs of Pak Suzuki Company (Bolan and Ravi) is about 50 per cent,
followed by Dewan Farooque Motors (Shazore) with a share of 38 per cent.





205-001-6
The Automobile Industry of Pakistan
18
Market Share of LCVs

Figure 2
Suzuki Pick-up/Van
(Pak Suzuki)
50%
Kia Pick-up
(Dewan Farooque Motors)
37.5%
Toyota Hilux
(Indus Motors)
12.5%
Kia Pick-
up
Toyota
Hilux
Suzuki
Pick-
up/V an

Source: Pakistan Automotive Manufacturers Association

The market share of the three major brands of tractors assembled/manufactured in Pakistan
as follows:

Market Share of Tractors
Figure 3
Fiat
(Al-Ghazi Tractors Ltd.)
50.9%
Massey Ferguson
(Millat Tractors Ltd.)
48.1%
Universal
(G.M. Tractors Ltd.)
1.0%
Massey
Ferguson
Universal
Fiat
Source: Pakistan Automotive Manufacturers Association

Mazda brand trucks enjoy major market share of 46 per cent followed by the Hino brand with a
market share of 32 per cent.



Market Share of Trucks
Figure 4
Hino
(Hinopak Motors)
41.0%
Mazda
(Sind Engineering)
26.5%

Nissan
(Ghandhara Nissan)
32.5%
Nissan
Hino
Mazda

Source: Pakistan Automotive Manufacturers Association

Mazda brand commercial buses manufactured by Messer Sind Engineering Limited captured
the major market share of up to 59 per cent in the year 2000-2001, followed by Hino brand
buses with the market a share of 33 per cent.



205-001-6
The Automobile Industry of Pakistan
19

Market Share of Buses
Figure 5
Hino
(Hinopak Motors)
58.3%
Mazda
(Sind Engineering)
37.1%
Nissan
(Ghandhara Nissan)
4.6%
Mazda
Nissan
Hino

Source: Pakistan Automotive Manufacturers Association


Duty Structure

Exhibit 5
Type Engine Size CBU (old) CBU (new) CKD
Motor Vehicle Upto 1000CC 75% 50% 35%
1000-1300CC 100% 50% 35%
1300-1600CC 100% 70% 35%
1600-1800CC 125% 80% 35%
1801 and above 150% 100% 35%
Source: Budget 2004-05

Cost Break-Up for Different Automotive Segments
Exhibit 6
Cost Factor
Cars
(%)
CVs
(%)
Tractor
(%)
Motorcycle
(%)
Raw- Material & Parts 53 60 57 49
Overheads 15 19 14 13
Labour 5 3.5 10 9.5
Utilities 2 0.5 3.5 3.5
Sales & Marketing 1.5 1.5 1 2.5
Research &Dev. 0.5 0 0.5 0.5
Financial Cost 2 2 1 2
Profit 4 2 8 4
Govt. Levies 17 12 5 15
Source: Pakistan Automotive Manufacturers Association
205-001-6
The Automobile Industry of Pakistan
20
1.

Local content requirements:
Impose the use of certain amount of local inputs in production.
Non-
Compliant
2. Trade balancing requirements:
Oblige imports to be equivalent to a certain proportion of exports.
Compliant
3. Foreign exchange balancing requirements:
Stipulate that the foreign exchange made available for import should
be certain proportion of the value of foreign exchange bought in by
the firm from exports and other sources.
Compliant
4. Exchange restrictions:
Restrict access to foreign exchange and hence restrict imports.
Compliant
5. Domestic sales requirements:
Require a company to sell a certain proportion of its output locally,
which amounts to a restriction on exportation.
Compliant
6. Manufacturing requirements:
Require certain products to be manufactured locally
Compliant
7. Export performance requirements (EPRs):
Stipulates that a certain proportion of production should be
exported.
Compliant
8. Product mandating requirements:
Oblige an investor to supply certain markets with a designated
product or products manufactured from a specified facility or
operation.
Compliant
9. Manufacturing limitations:
Prevent companies from manufacturing certain products or product
lines in the host country.
Compliant
10. Technology transfer requirements:
Require specified technologies to be transferred on non-commercial
terms and/or specific levels and types of research and development
(R & D) to be conducted locally.
Compliant
11. Licensing requirements:
Oblige the investor to license technologies similar or unrelated to
those it uses in the home country to host country firms.
Compliant
12. Remittance restrictions:
Restrict the right of a foreign investor to repatriate returns from an
investment
Compliant
13. Local equity requirements:
Specify that a certain percentage of a firm’s equity should be held
by local investors.
Compliant




An Illustrative List of Trims
Exhibit 6
S. No. TRIMS
Compliance
Status

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