Auto industry has embarked on a journey of revival during the last few years with rising consumer demand, higher capacity expansions by leading car manufacturers and entry of foreign players. Original Equipment manufacturers (OMEs) have predicted auto production in the country to reach 500,000 units annually, by 2022. Indus Motors Company (IMC), one of the largest car manufacturer in the country, has announced to invest Rs4.19 billion to enhance its production capacity by 200,000 units to tap this growing consumer market.
Currently IMC, with Toyota as its well-known brand, has a production capacity of 54,800 units, and after capacity enhancement the production levels would go up to 75,000 units per annum.
Some of the big names in the industry including CEO of Indus Motors Company, Ali Asghar Jamali and former chairman Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) Amir Allahwala have stated that Pakistan is expected to produce 500,000 units per year by 2022 amid expansion plans and entry of international manufacturers.
Unprecedented growth in consumer demand resulting in capacity expansions
OMEs are continuously investing in capacity expansions to cater rising demand. Moreover, they also hope that the government makes policies to attract more foreign direct investment in the sector. The auto industry suffered tremendously in 2008 when the government adopted relaxed policies for imported used cars. Consequently, many OMEs had to shut down their plants and suffered losses.
The auto experts believe that the industry is dealing with Auto Industry Development Plan with resolve. This plan includes provision for import of 3 years old used cars. Import of high end used cars such 1300 cc is decreasing. In addition, it is expected to reduce further after the launch of Fortuner. Currently, the small segment used car market is flourishing as there is no new version of a small segment car.
Adding further they said:
“New investments are on the horizon in automobiles. Most of the vendors are not only increasing capacities but are also upgrading technologies. Some new entrants have also announced investment plans. The addition of a European and two Korean brands would add variety in the car section and create healthy competition. Soon, six of the top ten global car brands would be operating in Pakistan. In addition, a Chinese brand ranked 20th largest car producer globally is already active in the country”
Furthermore, most of the products in Pakistan are meeting global quality standards and most of them are cheaper as compared to similar products internationally.
The CEO of Indus Motors Company, Ali Jamali showed his concern regarding the premium charged on cars and said:
“IMC takes utmost care to tackle this issue by keeping a close eye on its dealers. The company believes that this menace of the premium could be curbed only by the consumer, however, this issue could also be resolved administratively by slapping a heavy tax on the transfer of car within 6 months of purchase”
Young population: A lucrative target market for auto manufacturers
Pakistan is considered a very lucrative market for auto manufacturers with roughly 50 percent population falling below the age of 30. There are only two other countries which with similar demographics i.e. Indonesia and Brazil. These two countries have an annual car production of 1.3 million and 3.2 million respectively. Comparatively, Pakistan has a yearly demand of 283,000 units only.
Young population in Pakistan has been the driving force behind increasing motorcycle production in the country. As a result, now this population is set to boost auto industry as well. This population chunk will now reach out for small cars and eventually small sized car owners will reach out to a level above i.e. towards medium segment cars, in their efforts to raise their social standing.
Whereas, Indonesia’s car production numbers were almost at par with Pakistan back in 2000, but it has seen a huge growth in its car production during the last 15 years. Although Pakistan was marked with severe instability in the past but industries have gained momentum post poor law and order situation. Going forward, AIDP expects auto production to attain a figure of half a million by 2025.