Ja­panese-dom­i­nated car mar­ket of Pak­istan is set for new en­trants

The China Post - - BUSINESS - BY MAS­ROOR GI­LANI

Pak­istan’s car mar­ket has been dom­i­nated by Ja­panese au­tomak­ers for decades, but a mini-eco­nomic re­vival looks set to at­tract new play­ers from Europe and Korea into the mix.

De­spite heavy tax­a­tion on im­ported ve­hi­cles, en­thu­si­asm for own­ing a car in Pak­istan has re­mained un­dented — thanks in part to un­der­de­vel­oped public trans­port in the coun­try’s sprawl­ing cities, but also the so­cial sta­tus it brings.

Toy­ota, Suzuki and Honda car assem­bly plants al­ready work around the clock in the south­ern port city of Karachi and eastern La­hore — yet cus­tomers can still wait for up to four months for new ve­hi­cles to be de­liv­ered.

Now de­mand for cars in the South Asian gi­ant of 200 mil­lion peo­ple is ac­cel­er­at­ing even more quickly, as eco­nomic growth has reached its fastest pace since 2008 while re­newed in­vestor con­fi­dence and eas­ing in­fla­tion have spurred con­sumer spend­ing.

Keen to cash in, a del­e­ga­tion from Ger­man auto gi­ant Volk­swa­gen vis­ited the coun­try in re­cent weeks, ac­cord­ing to Pak­istani of­fi­cials and Ger­man diplo­mats.

Com­pany spokesman Christoph Ado­mat told AFP that while “Volk­swa­gen is con­stantly eval­u­at­ing mar­ket op­por­tu­ni­ties on a world­wide ba­sis ... there are no de­ci­sions for an in­vest­ment from Volk­swa­gen side in Pak­istan.”

Mif­tah Is­mail, the chair­man of Pak­istan Board of In­vest­ment who took part in the talks, said Volk­swa­gen was not the only com­pany ex­press­ing an in­ter­est.

“There are a num­ber of other com­pa­nies from (South) Korea and Europe that we are talk­ing to who are think­ing of set­ting up assem­bly plants in Pak­istan,” he said, with­out nam­ing the firms.

Ja­panese Stran­gle­hold

U.S. and Euro­pean cars dom­i­nated Pak­istan’s roads in the early years af­ter it gained in­de­pen­dence from Bri­tain in 1947.

But fuel prices made their com­pact, ef­fi­cient Ja­panese ri­vals more pop­u­lar and from the 1960s on­wards man­u­fac­tur­ers like Toy­ota, Suzuki and Honda gained a stran­gle­hold on the mar­ket.

Italy’s Fiat made a brief foray in the 1990s, while South Korea’s Hyundai as well as Dae­woo-owned Chevro­let tried — and failed — to gain a foothold in the 2000s be­fore the fi­nan­cial cri­sis forced them to exit.

Be­cause Pak­istan charges heavy du­ties on im­ported cars less than three years old, Ja­panese com­pa­nies with in-coun­try assem­bly oper­a­tions can set prices sig­nif­i­cantly above the re- gional av­er­age.

The bot­tom-of-the-range Suzuki Mehran costs the equiv­a­lent of US$6,300 in Pak­istan but sells for around US$3,900 in neigh­bour­ing In­dia. The most pop­u­lar Corolla 1.3 sedan starts at 1.6 mil­lion ru­pees ( US$16,000), but buy­ers have to wait months or pay US$1,500 for prompt de­liv­ery.

The news that Volk­swa­gen was ex­plor­ing op­tions to en­ter the Pak­istani mar­ket has ex­cited car en­thu­si­asts, who are tired of high prices and lim­ited choices.

“I think it is a great idea be­cause Volk­swa­gen cars are value for money and re­li­a­bil­ity,” said Ro­mano Karim, a fan of the clas­sic Volk­swa­gen Bee­tles from the 60s and 70s that can of­ten be seen on Pak­istan’s roads.

Haji Mo­ham­mad Shahzad, chair­man of the All Pak­istan Mo­tor Deal­ers As­so­ci­a­tion, added that hav­ing Volk­swa­gen in the mar­ket would help drive costs down.

“The mo­nop­oly of big three could be bro­ken if Volk­swa­gen pro­duces at least 20,000-25,000 cars an­nu­ally,” Shahzad told AFP.

Re­newed Con­fi­dence

Global auto giants are at­tracted by Pak­istan’s boom­ing econ­omy, which the In­ter­na­tional Mon­e­tary Fund pre­dicts will grow by 4.5 per­cent in the next fi­nan­cial year.

In­vestor con­fi­dence in the medium-sized econ­omy of US$232 bil­lion has im­proved since a new busi­ness- friendly gov­ern­ment led by Nawaz Sharif took power in 2013, with Karachi’s share mar­ket among the world’s top 10 per­form­ers in the past year.

The coun­try is also un­der­go­ing a ma­jor con­struc­tion boom driven by Chi­nese in­vest­ment af­ter main­land au­thor­ity head Xi Jin­ping vis­ited Is­lam­abad in April to un­veil a US$46 bil­lion in­vest­ment plan known as the Chi­naPak­istan Eco­nomic Cor­ri­dor.

Car sales have also boomed thanks to the growth of car leas­ing and fi­nanc­ing fa­cil­i­ties. Sales in the 11 months to May this year rose 30 per­cent from a year ear­lier, ac­cord­ing to in­dus­try group the Pak­istan Automotive Man­u­fac­tur­ers As­so­ci­a­tion.

Baber Kaleem Khan, editor of Pak­Wheels. com mag­a­zine, said Volk­swa­gen would be well poised to tap into the lower to mid-range mar­ket.

“Pak­istani au­tomak­ers haven’t re­ally had much com­pe­ti­tion be­cause their re­spec­tive do­mains are well pro­tected by mo­nop­o­lis­tic busi­ness prac­tices,” Khan told AFP.

“But given VW’s im­pres­sive small-range of ve­hi­cles, the Ger­man au­tomaker can take the mar­ket from the ground up and start work­ing to the top.”

AFP

In this pho­to­graph taken July 26, Pak­ista­nis gather around cars at the Sun­day car mar­ket in Karachi. Pak­istan’s car mar­ket has been dom­i­nated for decades by a tri­umvi­rate of Ja­panese au­tomak­ers, but a mini-eco­nomic re­vival could soon be at­tract­ing new play­ers from Europe and Korea — with Volk­swa­gen clos­est to en­ter­ing the fray.

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