Better policies to drive auto industry
Despite the fact that auto sales witnessed a 3.4 percent increase in growth during the fiscal year 2011, volume sales in the sector still remain low as compared to previous years. Individual automotive companies experienced a varied sales performance; Pak Suzuki sustained a major dent of 68 percent followed by Indus Motors with 33 percent decline. Only in the month of June there was a 43 percent decline in automotive sales.
Analysts offer a number of reasons for this pattern. To begin with, the overall recovery in sales primarily stems from an improved rural economy which has benefited from increased farm income as commodity prices of farm products have remained firm. Subdued sales in urban centres throughout the year were due to rising interest rates which has lowered the consumer financing potential. Moreover, natural calamities also kept sales down in the beginning of the year while later the supply disruptions caused by the Japanese earthquake also hampered local production.
As supply chains from Japan recover, output is rising. The car manufacturing sector of Japan was the worst hit by the disaster. A shortage of parts coupled with power supply constraints saw leading manufacturers like Toyota and Honda suspend factory production. The same car-makers were able to recover very quickly from the loss, with their outputs having plunged to 50 percent and 80 percent respectively.
Negotiations between the governments of Pakistan and Japan, over firming up a long-term continuity of automobile policies will further help in the restoration of confidence of foreign investors in the sector. The concerns for Pakistan automotive industry lie in the fact that the increasing prices of cars on account of rapid decline of rupee against international currencies have turned imports into a high-cost financing issue. Moreover, high fuel prices have also hindered the commercial viability of this sector. In these circumstances, the global auto giants are willing to make a big push in the Indian market, where the auto industry is blooming.
Indus Motors is playing a positive role in bridging the gaps which is evident from the visit of the Japanese ambassador to the manufacturing plants at Indus Motors. The ambassador appreciated the efforts of both companies for bringing the latest automotive technology to Pakistan. Indus Motors, in particular, has remained loyal to localization and increased employment prospects in the industry.
The proposal of setting up a Japan-specific Special Economic Zone, presented by the Pakistan Board of Investment is a step towards strengthening bilateral relations between Japan and Pakistan, based on commonality of interests and aspirations for peace and development in the region. The Special Economic Zone has been allotted 1 million acres of government land near Port Qasim in Karachi and offers multiple features. The location advantage for industries would be direct access to the port which would save major inland transportation and time costs.
The allocation of land to the leading Japanese company Yamaha reflects the special incentive plan of SEZ, which is devised to promote the motorbike industry in Pakistan. To further sustain the auto industry, Small and Medium Enterprises Development Authority (SMEDA) and Japan International Cooperation Agency (JICA) have initiated an Industry Support Program.
These two organizations are working together to provide technical assistance to various industrial sectors through senior Japanese experts. Auto manufacturers in Pakistan carry out assembly operations and are heavily dependent on the local auto parts vendors. Improving the vendor industry will directly benefit the assemblers in terms of costs, on-time delivery and quality. Auto industry vendors face major challenges as a result of liberalization of the economy and phasing out of deletion programs. They need to be educated in capacity building, application of TQM and JIT techniques, production and operations management and integrated problem solving