"Less Features, Poor Quality and High Prices" Critics on Pakistani Automobile Industry - The Backstage
Reasons why the "Made in Pakistan" Automobile Consumer remained unsatisfied till date!
If you are consumer of locally produced Pakistani vehicles, the title have surely resonated with your heart and emotions. These critics never fade despite the heavy investment and long maturing time Pakistan’s Automobile Industry had been given. If you want to just know some of the major points why, here they are:
Inconsistent, non-comprehensive and short term facilitation and growth policies by Government for Automobile sector
Political and economical instability
Lack of competition (Monopoly/Oligopoly never favors consumer)
Lack of technology for extracting and processing raw material locally
Lack of advancement in Manufacturing technology
Unavailability of high skilled labor
Government’s lack of interest in quality and safety standardization and regularization of locally produced vehicles
Disruption in global supply chain due to COVID-19
If you are still reading, you do found them interesting and want to read some analysis.
Auto Development Policies and Economic and Political Instability
The main goal of a country’s Auto development policy (ADP) is to provide feasible environment, benefits, support and guidelines to transfer technology and localize manufacturing as much as possible so that the industry can stand on its feet and become independent from imports. Pakistan received its first comprehensive (sort of) Auto development policy (also referred to as “Deletion Program”) in 1985, remaining in effect till 2005. One would think that 20 years seems to be enough for the industry to mature but that was certainly not the case. Although the policy did encourage OEMs to localize parts, it didn’t force the local vendor industry for quality improvement to an extent which was required in such crucial phase. Further, addressing the lack of competition seriously did not seem to be the aim.
Moreover these 20 years were full of political instability and economic crisis for Pakistan including multiple regime changes including a Martial law in 1999. In 2006, the Statuary Regulatory Order (SRO) system was introduced, modifying the benefits as well as increasing pressure needed for localization and most importantly producing quality local parts. However, it still has its flaws related to technology transfer of crucial parts such as engine, transmission, sensors etc. which Pakistan still does not have the technology to produce. It is a discussion topic for a later newsletter.
Another ADP was introduced in 2008 for next 5 years however it also failed to attract competition and addressing other rising issues of Automotive industry. Furthermore, the global recession converted pain to a serious injury.
In 2016, ADP 2016-21 was introduced with framework of attracting automakers to invest in Pakistan. Attractive tax incentives and benefits were provided and many global names including Kia, Hyundai, Changan, Stellantis, Proton, DFSK, MG, BAIC, GWM, Chery and others entered Pakistan. A healthy competition is finally becoming a reality for Pakistani Automotive industry.
In 2021, a new policy called “Auto Industry Development and Export Policy (AIDEP) 2021-26” was framed adding incentives for Hybrid and Electric powered vehicles and for starting and increasing export of locally manufactured vehicles. However, GOP didn’t remain consistent with the policy and made various amendments including taking back several tax and duty incentives even on Hybrid and Electric vehicles. Another interim regime change had happened in the country and with the new government taking over, future of automotive policy still remains uncertain.
Economic and political condition of the country is worsening day by day. Dollar exchange rate has reached all time high with foreign exchange reserves rapidly depleting, leading to bankruptcy if effective and timely measures are not taken. All industries of Pakistan are effected by this alarming condition including Automotive industry resulting in huge and unexpected price hikes. The situation is so worse that State Bank of Pakistan is not even allowing Automakers to open LCs for foreign payments. I have written a newsletter dedicated to this topic. You can read it here: "Pakistan's booming Automotive industry now moving towards halt?" - The Backstage
Lack of Competition
For the longest time, Pakistan’s Automotive industry only had three dominating players in passenger and light commercial market namely Suzuki, Toyota and Honda. The fourth one, FAW entered the passenger segment with the introduction of V2 hatchback car in 2017, about 12 years after the automaker was established in Pakistan. The car was not well received and the share of FAW in passenger market remained irrelevant. Hence all this time till the entrance of new manufacturers under ADP 2016-21, there was the oligopoly of these three automakers. As a business making entity, such environment is second most favorable (behind Monopoly off course).
Consumer had no choice but to only buy from them and they had the power to take every step for maximizing profit at expense of features, quality and sale price. However, one can not blame them as it is the responsibility of government to regulate every industry by ensuring the presence of healthy competition and safe products which always favor the consumer.
Lack of advancement in Manufacturing Technology
Believe it or not, our history is full of crucial missteps regarding establishment and growth of an “import independent” local manufacturing industry. For manufacturing industry to stand on its feet, the first thing to pay attention to is the self-sufficiency of local raw material. The primary raw material is indeed Metal (Steel, Cast iron, Aluminum and Copper to be more specific). We are the nation who destroyed our own state of the art Steel Production Plant (From raw material extraction to refining and later, casting and forming), the “Pakistan Steel Mills (PSM)”. How it was destroyed is a whole sperate debate but the bottom line is, Pakistan can not extract and refine it’s own iron ore nor has the technology to produce Automotive and high grade metals for manufacturing and tooling. All we are doing is recycling scrape material to produce iron rebars and some cast iron products (Wheel drums, exhaust manifolds etc.) for specific vehicles. All Automotive and high grade material is imported from other countries, adding huge amount to import bill, strongly binding prices of vehicles to the dynamically changing economic condition, exchange rate and trade deficit.
If a country is not self-sufficient in raw-material, it develops advance Manufacturing and Processing technologies to cope up, adding massive value to its end product as compared to the raw material it purchases (Japan is a prime example).
The situation in this regard unfortunately is also not good. We import most of the crucial tooling, manufacturing technology and equipment. The quality of local tooling and equipment available is not up to the mark to produce critical and consistently high quality parts.
Poor skilled Labor
OEMs in Pakistan have done a good job in training and enhancing skills of their labor and focusing on work ethics, health and safety. However, the vendor industry had not followed suite. Most of the vendor industry consist of low to medium size manufacturers and their leadership is mainly focused on minimizing cost and increasing profits as much as possible, trading skill development and safety of labor leading to poor and inconsistent quality of local parts. Skill development of labor is very crucial to produce consistent and high quality products.
GOP’s lack of Interest
From the beginning, GOP had not forced manufacturers to produce quality products to the extent which was needed. Specially vehicle safety was a topic that was discussed very few times. In early days, made in Pakistan vehicles were even deprived of seat belts (a primary and absolute necessity for passenger’s safety) as a cost cutting measure. GOP’s lack of interest played a crucial part in production of vehicles which didn’t have basic safety features that every car should possess in order to be allowed to move on road globally. There was no regularization and standardization.
However, the previous government took some interest in the matter and enforced WP.29 International Safety Regulations for all locally assembled vehicles in 2021. Engineering Development Board (EDB) is working with Auto manufacturers in Pakistan to implement these regulations.
Impact of COVID-19
COVID-19 is one of the major pandemics in the global history. Its impacts were far greater then just on health. In modern connected world, social distancing puts every thing at halt. People were restricted to their homes and demand for medical equipment, house hold goods, communication and computing devices etc. skyrocketed. The global supply chain could not bear this additional strain to meet the demand resulting in shortage. When the world started to normalize, people’s demand for mobility increased rapidly. The already short in supply components made it harder to almost impossible to manufacture vehicles in the demanded quantity. The impact was also transferred to Pakistan. The shortage of parts, commodities and goods required for manufacturing a vehicles resulted in huge price hikes. Freight and fuel prices have also jumped significantly since 2019. This all added up to result in price increment with much longer delivery times.
All these issues are needed to be addressed if we truly want Pakistan’s Automotive industry to stand on its feet and the first step is an stabilized country both politically and ultimately economically. A comprehensive and consistent policy is needed aiding in true technology transfer from grass root level.
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