A Closer Look at the Automobile Industry in Pakistan

The automobile industry in Pakistan has a long and varied history, with cars being imported into the country at the time of independence. Over the decades, the industry has grown significantly and is home to a range of local and international automobile manufacturers.

Graana.com gives an overview of the industry below, including a list of the top manufacturers operating in the country. 

 

Latest Updates on the Automobile Industry in Pakistan

Currently, Pakistan’s automobile industry is facing multiple challenges, which are making it difficult for manufacturers to remain profitable. One of the primary issues is the continued import restrictions on Completely Knocked Down (CKD) kits. This import of kits is leading to reduced capacity and plant closures. 

Additionally, the depreciation of the Pakistani rupee, rising inflation, and tighter fiscal and monetary measures have a negative effect on the industry, along with decreased consumer demand. Furthermore, the pending LCs (Letters of Credit) and the high value of the US dollar against the Pakistani rupee are leading to financial losses for the industry.

All these factors have contributed to the recent decline in car sales. According to the latest data from the Pakistan Automotive Manufacturers Association (PAMA), carmakers who are members of the association collectively sold only 5,762 vehicles in February 2023. This represents a 47% month-over-month decrease and a massive 73% year-over-year decline. 

According to the data, Toyota Indus Motor Company (IMC) sold 1,803 cars, reporting a 49% decline in sales compared to the previous month. Honda Atlas Cars Limited (HACL) sold 1,636 cars, seeing a 39% decline in sales, while Pak Suzuki Motor Company (PSMC) sold only 978 cars, observing a significant decline of 67% in monthly sales.

 

Automobile Manufacturers in Pakistan

Following are some of the top automobile companies that are operating in the country.

 

Toyota Indus Motors

 

 

One of the major players in the automobile industry in Pakistan is Indus Motors, which is a joint venture between Toyota and the House of Habib.

Indus Motors has been operating in the country since 1989 and is the country’s exclusive distributor of Toyota and Daihatsu vehicles. The company has a manufacturing plant in Karachi and a network of dealerships and service centres across the country.

 

Pak Suzuki Motor Company

 

 

In addition to Indus Motors, the Pak Suzuki Motor Company is the exclusive distributor of Suzuki vehicles in Pakistan. The company has a manufacturing plant in Karachi, plus a number of dealerships and service centres scattered across the nation.

 

Honda Atlas Pakistan

 

 

Another major player in the Pakistani automobile market is Honda Atlas Cars Pakistan Limited, which is a joint venture between the Honda Motor Company and the Atlas Group. The company is the exclusive distributor of Honda vehicles in Pakistan.

 

Hyundai Nishat Motors

 

 

In 2017, Hyundai made its return to Pakistan through a partnership with Nishat Mills, a subsidiary of Nishat Group. Prior to this, Hyundai had been assembling cars in Pakistan until 2004. However, the company exited the market when its local partner Dewan Farooque Motors went bankrupt.

As part of its reentry into the Pakistani market, Hyundai Nishat Motor signed an investment agreement with the Ministry of Industries and Production under the Automotive Development Policy 2016-21.

 

KIA-Lucky Motor Corporation

 

 

Lucky Motor Corporation (LMC) is a Pakistani automobile manufacturer that is a subsidiary of South Korean automobile manufacturer Kia Motors.

LMC was formed through a joint venture between Lucky Group and Kia Motors. The manufacturing plant for LMC became operational in September 2019.

 

MG Motors Pakistan

 

 

MG JW Automobile Pakistan is a company owned by JW Auto Park, which is owned by Javed Afridi. The company has signed a Memorandum of Understanding (MoU) with Morris Garages (MG) Motor UK Limited, owned by SAIC Motor, to launch electric vehicles in Pakistan. 

The company plans to establish an electric car manufacturing plant in the country. In 2020, MG Motors launched two models, the MG HS and MG ZS, as well as the MG ZS EV, in Pakistan.

 

Salient Features of Auto Policy 2021-2026

This policy outlines the tax incentives and support offered to automakers seeking to establish manufacturing operations in the country. The government proposed tax exemptions for locally produced cars with engines up to 800cc in the 2021-2026 auto policy.

The Ministry of Industry has recommended ending additional customs duty on small cars. Besides the customs, the ministry recommended ending excise duty on locally assembled cars. Also, the withholding tax on cars with engine capacity up to 800cc will be removed.

According to the Auto Policy 2021-2026, the import duty on electric vehicles will be reduced from 25% to 10% for one year. The regulatory duty on Completely Built Up (CBU) imports of hybrids (15% for above 1,800cc, 0% for 1,800cc and below) are also reduced.

Other salient features of the Auto Policy 2021-26 are mentioned below.

• If a car manufacturer delays a car for over 60 days (2 months), the company will pay KIBOR + 3%.
• The tax exemption on imported vehicles will be reviewed every year.
• Car manufacturers are required to set a 10% export target by 2026.
• There will be tax incentives for the export of vehicles and spare parts.
• Customs duty on spare parts for electric vehicles will be fixed at 1%.
• One percent of customs duty will be levied on electric parts of motorcycles.
• Sales tax on hybrid electric vehicles will be reduced to 8.5%.
• Locally manufactured/imported vehicles that are not compliant with shortlisted WP 29 regulations were banned after June 30, 2022.

 

Auto Policy 2016-2021

 

 

In 2016, a new auto policy was passed, offering tax incentives to automakers to establish manufacturing plants in the country. This policy attracted the attention of several companies including Proton Holdings, Kia, MG JW and Hyundai. Apart from these companies many other companies expressed interest in entering the Pakistani market.

The Auto Policy 2016-21 offered several incentives to new investors in the automotive industry. One major incentive was the reduced customs duty on non-localised parts for five years. Moreover, the customs duty was lowered from 32.5% to 10%. For existing investors, the duty was reduced by 2.5% to 30% from the new fiscal year of 2016-17.

The policy also allowed for the import of localised parts at a duty of 25% for five years. Previously, the rate was 50%. For existing players, the duty on the import of localised parts was reduced to 45%.

Additionally, the policy allowed for a one-time duty-free import of plant and machinery for the purpose of setting up an assembly and manufacturing facility. It also permitted the import of 100 vehicles of the same variants in the form of Completely Built Units (CBUs) at 50% of the prevailing duty for test marketing after the groundbreaking of a new project.

In the CBU category, customs duty on cars with engine capacities up to 1,800cc was reduced by 10% for two years – 2017-18 and 2018-19 – which applied to both new and existing investors and encouraged the reduction of car prices. After five years, a single duty rate was applied to both localised and non-localised parts. The current duty structure was maintained for seven years for new investors.

 

Auto Financing in Pakistan

To curb the demand, the State Bank of Pakistan (SBP) revised the Prudential Regulations for Consumer Financing (PRCF) by amending Regulation R-11. The amendment specifically pertains to auto loans and financing. It involves reducing the maximum tenure of auto loans provided by banks to customers.

The maximum tenure for auto finance facilities has been reduced from five years to three years for vehicles. This is for the engine displacement above 1,000 cc. Similarly, for vehicles of up to 1,000 cc, loan tenure has been reduced from seven years to five years.

This change in regulation and several factors, such as a significant increase in car prices, import restrictions and rising interest rates, have caused potential buyers to postpone their purchasing decisions.

 

Challenges Faced by Automobile Industry

In May 2022, the SBP announced that it would exercise administrative oversight over the import of CKD units of cars into the country. This came after the government imposed an import ban on luxury items to reduce foreign exchange outflows. 

The SBP required auto assemblers to seek permission before importing CKD units and assembling them in Pakistan. This gave it control over the number of cars imported and the outflow of dollars. The automotive industry, which makes up 15% of Pakistan’s large-scale manufacturing, was affected by this decision as the CKDs depend on imported parts and accessories. 

Despite attempts to implement localisation policies, the Pakistani automobile industry has not been able to achieve complete self-sufficiency as crucial components, such as engines, are still imported.

The industry has mainly focused on producing minor accessories and parts while relying on imports for major inputs. As a result, the costlier parts of locally manufactured cars are still being imported.

 

Conclusion

In recent years, the industry has benefited from a number of government initiatives. The benefits include tax breaks and incentives for local manufacturers, which have helped boost production and sales. However, the current economic situation has impacted the industry, with experts expecting a further decline in demand and sales of the cars. 

For more information about the auto industry in Pakistan, visit Graana.com.