THE ROLE OF AUTOMOBILE SECTOR IN THE

GROWTH OF PAKISTAN’S ECONOMY

PRESENTED BY
MUHAMMAD ATIQUE 28S-608
BILAL JAMIL 28S-601

PRESENTED TO
MR. GHULAM MUSTAFA

SAN INSTITUTE OF MANAGEMENT SCIENCES

AFFILIATED WITH
RIPHAH INTERNATIONAL UNIVERSITY
ISLAMABAD
(AUG, 2009)
 ACCEPTANCE LETTER

It is to certify that I have gone through this project

submitted by;

MUHAMMAD ATIQUE 28S-608

Bilal Jamil 28S-601

In my judgment, this project is up to the standards.

_________________________
Subject Coordinator

SAN INSTITUTE OF MANAGEMENT SCIENCES

AFFILIATED WITH
RIPHAH INTERNATIONAL UNIVERSITY
ISLAMABAD
(AUG, 2009)
 TABLE OF CONTENTS

1. Introduction 1

1.1 A Review OF Pakistan’s Economy.......... 6

1.2 Statement............................... 13

1.3 Objectives of the Study................. 13

1.4 Significance of the Study............... 13

1.5 Research Questions...................... 14

1.6 Procedure of the Study.................. 14

2. Review of Related Literature 15

2.1 Automobile Segments in Pakistan......... 15

2.2 Automobile Manufacturers in Pakistan.... 16

2.3 History of Pakistan’s Auto Sector....... 16

2.4 Analysis of Automobile Sector........... 24

2.5 SWOT Analysis of Pakistan’s Auto Sector. 31

2.6 Pakistan’s Auto Sector at present....... 36

3. Data Collection and Analysis 38

3.1 Procedure of Data Collection.... ....... 38

3.1.1 Research Variables............... 38

3.2 Population.............................. 39

3.3 Sampling................................ 39
 3.4 Data Analysis........................... 39

4. Analysis and Interpretation of Data 40

4.1 Graphical Presentation.................. 41

4.2 Frequencies............................. 42

4.2.1 Frequency Tables................. 46

4.2.2 Pie Charts....................... 47

4.2.3 Histogram........................ 48-49

4.3 Descriptive Analysis.................... 50

4.4 Regression Analysis..................... 51

5. SUMMARY, CONCLUSION AND RECOMMENDATIONS 40

5.1 Summary................................. 55

5.2 Conclusion.............................. 56

5.4 Recommendations......................... 59

REFERENCES

APPENDIX
 CHAPTER I

INTRODUCTION

Auto market is one of the largest segments in world

trade. Changing models, improving fuel efficiency,

cutting costs and enhancing user comfort without

compromising quality are the most important challenges of

the auto industry in a fast global world. The automotive

industry rightly prides itself on being recognized as the

mother of all industries. In its folds it carries many

different kinds of vehicles to provide mobility to people

and goods. While they may appear to be simple machines,

their design and manufacturing, have much deeper roots in

all the known technologies. In-depth knowledge and

skillful application of mechanical, electrical,

electronics, chemical and a host of other technologies

culminate in achievement and improvement of the

manufacturing base of a country, by focusing on a single

product the automobile. This then provides an opportunity

to produce a large number of goods and services for

consumption of the entire international community. Use of

the word mother for automotive industry is therefore the

most appropriate description to define the nature and

importance of the industry.

1
 In recent years, we have witnessed that the

industrialization of South East Asian countries greatly

depend on the development of their automotive industry.

Similarly, automotive industry acted as a catalyst in the

overall growth of the industry in Japan and Korea and the

consequent well being of their citizens.

This project report explains “The Role of Automobile

Sector in the Growth of Pakistan’s Economy”. Pakistan is

an emerging market for automobiles and automotive parts

offers immense business and investment opportunities. The

total contribution of Auto industry to GDP in 2007 is

2.8% which is likely to increase up to 5.6% in the next 5

years. Auto sector presently, contributes 20% to the

manufacturing sector which also is expected to increase

25% in the next 7 years. The Automobile industry has been

an active and growing field in Pakistan for a long time,

however not as much established to figure in the

prominent list of the top automotive industries. Pakistan

has a large range of motorbikes which are used throughout

the whole of the country for terms of transportation. In

the past, there have been talks about expanding the

industry however nothing has been heard till now. Cars

are imported to the country in large figures from Japan

and people buy mostly manual cars rather than automatic.

2
ƒ Pakistan - The regional business hub

Pakistan - the land of numerous unexplored

opportunities has recently earned a good name in the

international market for being a vibrant and progressive

developing country in the world. The Government of

Pakistan has adopted a liberal investment policy to

attract maximum foreign investment, where foreign

investors can hold up to 100% equity in several economic

sectors. As a result, the foreign direct investment in

the Country has increased substantially over the past few

years, thus differentiating Pakistan from many other

countries of the region. Also, the vital indicators of

Pakistan's economy have shown extraordinary improvement

such as enhanced GDP and GNP, increased foreign exchange

reserves, skyrocketing stock market performance, stable

Pakistani currency and improved balance of payments. Per

capita income has crossed US$ 925 in 2007.

Pakistan's economy is gaining more strength with

each passing year, underpinned by a buoyant private

sector. The world is witnessing the real GDP of Pakistan

maintaining a steady growth at one of the fastest rates

in the history of the Country and among the highest in

the economies of the world. The international trade is

increasing owing to revolutionary changes in tariff

3
structures, better international relations and growing

domestic demands, both at the industrial as well as

consumer levels. The foreign exchange reserves are

maintained at a respectable level. Major investments are

underway in Engineering & Automobile manufacturing

sector, ports and communication infrastructure,

telecommunication, information technologies, developing

newer sources of energy and power generation to meet the

increasing demands. The current pace of development in

Pakistan is no miracle but is the result of a dedicated

and continuous effort by the Government of Pakistan

through implementing policies for deregulation,

liberalization and privatization.

Pakistan’s automotive industry is continuing in a

slump which began in the previous financial year and

according to BMI’s recently published Pakistan

Automotives Report, the industry’s performance this year

will be even worse. In FY08, which ended in June 2008,

total vehicle sales fell by 6.2%. The down turn has been

carried over into FY09, with sales for the first half of

the year (July to December 2008) down by 48%year-on-year

(y-o-y) to 52,927 units for cars and light commercial

vehicles (LCVs), while compared with November, sales for

December were down 55%. These results concur with BMI’s

forecast for a drop in sales of cars and LCVs to around

4
112,000 units in FY09. We expect the total market to

contract by over32%, with the worst damage done in the

car and bus segments, which we forecast to fall by 45%

each. Measures are being considered to arrest the

industry’s decline. Pakistan’s Economic Co-ordination

Committee (ECC) is to consider a tax cut of 10% for

domestic carmakers, which has been suggested by the

Ministry of Industries and Production. However, the plan

is not without its opposition, as the Federal Board of

Revenue is reportedly against supporting individual

sectors as this would prompt other industries to seek

help. Moreover, with just five carmakers producing

locally, the automotive industry is relatively small. On

the other hand, the industry is also largely self-

sufficient as the majority of its output is sold within

Pakistan; this reduces the country’s reliance on imports

and raises issues such as the protection of local jobs

and the industry’s contribution to the overall economy.

The poor state of the industry is reflected in BMI’s

Business Environment Rating for the automotive industry

in Asia Pacific, where Pakistan is in last place on a

score of 42.4 out of a possible 100. The market is held

back by low production growth potential and an average

rating for sales growth. However, as a signatory to the

Trade Related Intellectual Property Rights Agreement

5
(TRIPS) under the auspices of the World Trade

Organization, the country’s regulatory environment scores

well. A number of free trade agreements also contribute

to this criterion, although forming FTAs with non-Asian

countries would improve this rating further. Despite low

marks for bureaucracy and corruption, the market does

score well for its long-term economic risk and policy

continuity.

With just a handful of manufacturers, Pakistan’s

competitive landscape remains narrow. Japanese car

manufacturers control most of the country’s passenger car

production and sales. Figures for FY08 show that Suzuki-

brand models represented 62% of total Pakistani passenger

car production and 51.7% of sales. Toyota is gaining,

however, as its Corolla became the country’s best-selling

model in the first half of FY09.

1.1 A short review of Pakistan’s economy

The economy of Pakistan is the 26th largest economy

in the world in terms of purchasing power, and the 47th

largest in absolute dollar terms. Pakistan's economy

mainly encompasses textiles, chemicals, food processing,

agriculture and other industries. In 2005, it was the

third fastest growing economy in Asia.

6
 The economy has suffered in the past from decades of

internal political disputes, a fast growing population,

mixed levels of foreign investment, and a costly, ongoing

confrontation with neighboring India. However, IMF-

approved government policies, bolstered by foreign

investment and renewed access to global markets, have

generated solid macroeconomic recovery the last decade.

Substantial macroeconomic reforms since 2000, most

notably at privatizing the banking sector have helped the

economy.

GDP growth, spurred by gains in the industrial and

service sectors, remained in the 6-8% range in 2004-06.

Due to Economic Reforms of the Year 2000 by the Musharraf

government. In 2005, the World Bank named Pakistan the

top reformer in its region and in the top 10 reformers

globally. Pakistan's then Prime Minister Shaukat Aziz

stated Pakistan grew at a rate of 8.4% making it the 2nd

Fastest Growing Economy in the World, after China, in the

same year. However, this assertion is disputed by figures

from other authorized sources.

Inflation remains the biggest threat to the economy,

jumping to more than 9% in 2005 before easing to 7.9% in

2006. In 2008, following the surge in global petrol

prices inflation in Pakistan has reached as high as

25.0%. The central bank is pursuing tighter monetary

7
policy while trying to preserve growth. Foreign exchange

reserves are bolstered by steady worker remittances, but

a growing current account deficit - driven by a widening

trade gap as import growth outstrips export expansion -

could draw down reserves and dampen GDP growth in the

medium term.

Since the beginning of 2008, Pakistan's economic

outlook has taken stagnation. Security concerns stemming

from the nation's role in the War on Terror have created

great instability and led to a decline in FDI from a

height of approximately $8bn to $3.5bn for the current

fiscal year. Concurrently, the insurgency has forced

massive capital flight from Pakistan to the Gulf.

Combined with high global commodity prices, the dual

impact has shocked Pakistan's economy, with gaping trade

deficits, high inflation and a crash in the value of the

Rupee, which has fallen from 60-1 USD to over 80-1 USD in

a few months.

8
 Economic Comparison of Pakistan 1999 ~ 2008

Indicator 1999 2007 2008

GDP $ 75 billion $ 160 billion $ 170 billion

GDP Purchasing Power

$ 270 billion $ 475.5 billion $ 504.3 billion
Parity (PPP)

GDP per Capita Income $ 450 $ 925 $1085

Revenue collection Rs. 305 billion Rs. 708 billion Rs. 990 billion

Foreign reserves $ 700 million $ 16.4 billion $ 10 billion

Exports $ 7.5 billion $ 18.5 billion $ 19.22 billion

Textile Exports $ 5.5 billion $ 11.2 billion -

KHI stock exchange (100- $ 5 billion at 700 $ 75 billion at $ 56 billion at

Index) points 14,000 points 9,000 points

Foreign Direct Investment $ 1 billion $ 8.4 billion $ 5.19 billion

Debt servicing 65% of GDP 26% of GDP -

Poverty level 34% 24% -

Literacy rate 45% 53% -

Development programs Rs. 80 billion Rs. 520 billion Rs. 549.7 billion

9
ƒ Major economic sectors

Pakistan’s major economic sectors are as follows;

1. Agriculture

2. Industry

• Automobile Industry

• CNG Industry

• Cement Industry

• IT Industry

• Textile Industry

3. Service

• Communication

• Aviation

• Wholesale and retail trade

• Finance and Insurance

• Ownership and dwellings

• Public administration and defense

• Social, community and personal services

• Electricity

ƒ Exports

Pakistan's exports increased 100% from $7.5 billion

in 1999 to stand at $18 billion in the financial year

2007-2008. Pakistan exports rice, furniture, cotton,

10
fiber, cement, tiles, marble, textiles, clothing, leather

goods, sports goods (renowned for footballs/soccer

balls), surgical instruments, electrical appliances,

software, carpets, and rugs, ice cream, livestock meat,

chicken, powdered milk, wheat, seafood (especially

shrimp/prawns), vegetables, processed food items,

Pakistani assembled Suzuki (to Afghanistan and other

countries), defense equipment (submarines, tanks,

radars), salt, marble, onyx, engineering goods, and many

other items. Pakistan now is being very well recognized

for producing and exporting cements in Asia and Mid-East.

ƒ Imports

Pakistan's imports stood at $30.54 billion in the

financial year 2006-2007, up by 8.22 percent from last

year's imports of $28.58 billion. Pakistan's single

largest import category is petroleum and petroleum

products. Other imports include: industrial machinery,

construction machinery, trucks, automobiles, computers,

computer parts, medicines, pharmaceutical products, food

items, civilian aircraft, defense equipment, iron, steel,

toys, electronics, and other consumer items.

11
 Structure of Production

Share of Various Sectors in GDP

Sector 2000-01 2001-02 2002-03 2003-04 2004-05

Goods (1+2+3+4+5) 48.2 47.3 47.1 47.4 47.6

1. Agriculture 25.1 24.4 24.2 23.3 23.1

2. Mining 1.3 1.4 1.5 1.5 1.4

3. Manufacturing 15.9 16.1 16.4 17.6 18.3

4. Construction 2.4 2.4 2.4 2.1 2.0

5. Energy Distribution 3.4 3.0 2.5 2.9 2.7

Services (6+7+8+9+10+11) 51.8 52.7 52.9 52.6 52.4

6. Transportation & Comm. 11.7 11.5 11.5 11.4 11.1

7. Trade 18.1 18.0 18.2 18.5 19.1

8. Finance & Insurance 3.1 3.6 3.3 3.3 3.7

9. Ownership of Dwellings 3.2 3.2 3.2 3.1 2.9

10. Public Admin. & Defense 6.3 6.5 6.7 6.5 6.0

11. Other Services 9.4 9.9 10.0 9.9 9.6

Note: GDP is estimated at constant factor cost. Figures are in percentage.

Source: Economic Survey of Pakistan 2005

12
1.2 Statement

“The study was aimed at to explore the role of

Pakistan’s Automobile sector in the growth of Pakistan’s

economy (GDP).”

1.3 Objectives of the study

Following were the objectives of the study:

I. To explore the effects of Automobile manufacturing

on GDP

II. To describe the share of Auto sector in GDP

III. To explore the reasons behind the downfall in this

sector

IV. To describe the strategies to be adapted for the

continuous growth of this sector

1.4 Significance of the study

I. It will help us to know the importance of Auto

sector in the growth of country’s economy

II. It will help our Govt. to keep this sector in the

continuous growth

III. It will help the Govt. to revise there policies

regarding the continuous development of Auto sector

13
1.5 Research questions

I. What is the role of Auto sector in the growth of

country’s economy?

II. Why this sector is facing hurdles in its growth?

III. How to remove those hurdles?

IV. What should be the role of the Govt. in the growth

of this sector?

1.6 Procedure of the study

The population of the study was Automobile Industry

of Pakistan. Data was gathered of last 14 years (1995 ~

2008). After gathering the secondary data, we organized,

analyzed and interpreted the data and concluded the

results.

14
 CHAPTER 2

REVIEW OF RELATED LITERATURE

This chapter deals with the literature review

related to the Automobile Industry of Pakistan. It

includes past and present situations of automobile sector

in the region. Literature review provides an excellent

starting point for researchers to do research in a new

way.

2.1 Automobile segments in Pakistan

In Pakistan, there are following automobile segments:

• Cars and Light Commercial Vehicles (LCVs)

• Two and Three Wheelers

• Tractors

• Trucks, Buses etc

The industry operates under franchise and technical

cooperation agreements with Japanese, European and Korean

manufacturers.

15
2.2 Automobile manufacturers in Pakistan

• Al-Ghazi Tractors Ltd.

• Adam Motors Ltd.

• Dewan Farooque Motors

• Ghandhara Industries

• Ghandhara Nissan

• Ghani Automobile Industries

• Hinopak Motors

• Honda Atlas Cars (Pak) Ltd.

• Atlas Honda Ltd

• Indus Motors Company

• Suzuki

• Nexus Automotive

• Pak Suzuki Motor

2.3 History of Pakistan’s auto sector

ƒ Beginning of auto sector

Pakistan is basically an agrarian economy since its

independence. In 1947, agriculture contributed more than

62% towards GDP whereas contribution of manufacturing

sector toward GDP was only 7%. Pakistan inherited only 5%

of the large scale industrial facilities of British

India. At that time Pakistan hardly had any industrial

16
base and was without any institutional, financial or

energy resources. Besides, basic infrastructural

facilities, technical skill and other pre-requisites for

development were also lacking. There were neither any

automobile assembly plants nor were any industrial

capabilities available for this sector. However, the

development of this industrial sector started soon after

the independence. Peace in the country and development

planning by government resulted in increased economic

growth that sequentially laid the foundation of industry.

First serious effort by government to develop the

industry and engineering sector in particularly was

observed in 1950 when a six-year plan (First Development

Plan) was drafted to guide government investment in

developing the infrastructure. For auto industry, to

overcome the initial difficulties, the government,

besides developing infrastructural facilities established

the Pakistan Industrial Development Corporation (PIDC) in

1950. The main objective of PIDC was to play the

pioneering role of establishing such industries which the

private enterprise was unable to undertake either because

they were technologically complex, needed large capital

or were less profitable. These steps results in growth of

the industrial sector resulting 56.62 % growth of the

manufacturing sector from 1949-1955.

17
 The first phase of automotive assembling in Pakistan

started in 1950 with Bed Ford truck followed by Ford

Prefect, Ford Cortina and Dodge Dart. The indigenized

parts in these vehicles did not exceed 20% with only

exception of Bed Ford trucks with a deletion level of

80%. By the end of 70s practically all automobile

assembling in Pakistan ceased.

The 2nd phase of Automobile assembly started in 1983

with the introduction of FX 800cc Suzuki Car. In 1989

Pak. Suzuki changed the Model of FX 800cc with Mehran

800cc. Pak Suzuki thereafter In 1992 Introduced Khyber

1000cc and 1300cc Margalla but the indigenization levels

from 1983 to 1995 were not significant (i.e. Mehran 30%,

Khyber 20%, and Margalla, 15%).

In 1993, Indus Motor Company Ltd. Karachi introduced

Toyota Corolla. Honda Atlas cars (Pak) Ltd. Lahore

introduced Honda Civic having 1300cc engine capacity in

1994. Indus Motor, Dewan Farooq Motors and Pak Suzuki

introduced smaller Cars i.e. Cuore, Cultus and Santro of

engine capacities 850cc, 1000cc respectively in 2000.

This was known as era of competitiveness. Up to

1995, the deletion cell of Ministry of Industries and

Production (MOIP) was formulating and monitoring the

deletion programs. The industry specific deletion

18
programs were formulated to specify local content

requirements for cars, motorcycles. Buses, trucks and

tractors etc.

The deletion policy finalized in 1996 has the following

features:

• Industry Specific Deletion program

• No roll back from achieved Deletion Levels

• Even handled Tariff Protection at all levels of

processing

The deletion levels were finalized by the sub-committees

for cars, LCVs, motorcycles and tractors etc.,

constituted by indigenization committee of EDB on the

basis of technology levels prevalent in the engineering

industry of Pakistan. The Industry specific deletion

program (ISDP) books were published and distributed

amongst the stakeholders, which resulted in a significant

improvement in indigenization.

ƒ Period of progressive manufacturing

Potentials of industry and high demand of the

products attracted new entrants whereas the existing

players started producing in mass quantities. This mass

production that started in 1964 resulted in the first

ever period of progressive manufacturing in the history

19
of Pakistan. The idea of progressive manufacturing was

first mooted by the Ghandhara Industries and Mack Trucks.

The idea was to start local manufacturing with simple and

non-functional parts and to add more and more complicated

parts in small steps. According to the planning then done

100% local manufacturing was to be achieved in 7 - 10

years. Unfortunately, this period does not last long as

the projects undertaken proved to be over ambitious that

eventually fail.

Clearly the concept of progressive manufacturing has

not added much to technology, self-reliance or economy.

For example, as against the targets set of manufacturing

100% of local contents in maximum 10 years actually

achieved deletion in 18 years is 45.78% for trucks &

buses, 43.17% for trucks & buses engines, 16.50% for 4x4

jeeps and zero percent for cars. Furthermore, no new

units for manufacturing passenger cars, 4x4 vehicles,

LCVs, buses and trucks were established under this

concept, but still few new units for producing tractors,

jeeps and specialized vehicle were established. New units

established were Atlas Honda, Khawaja Autos, Rana

Tractors, Jaffar Industries, and Bela Engineers. A more

market oriented approach was observed by Honda

motorcycles and Vespa scooters during this period, as

they introduced light motorcycles for the first time in a

20
market dominated by heavy motor bikes like BSA, Triumph

and Lamberetta scooters.

ƒ Nationalization of Industries

Following the progressive manufacturing period,

nationalization of industries under Economic Reforms

order had a profound impact on automobile industry in

Pakistan. In early 1972 under Martial Law Regulation, the

Government took over the control of 32 industrial units,

including eight automobile plants, under the officially

appointed Board of Industrial Management with the

Minister for Production as its Chairman. Out of the units

taken over by the Government were included iron and

steel, heavy engineering, heavy chemicals, assembly and

manufacturers of motor vehicles.

Initially, the management of these industries was

taken over by the government, but in August 1973, the

President promulgated the Economic Reforms (Amendment)

Ordinance after which the Federal Government acquired

majority ownership of shares of these industrial units.

After nationalization, these units were renamed, their

functions were redefined and Pakistan Automobile

Corporation (PACO) was created in 1973 as a holding

corporation under the administrative control of the

Federal Ministry of Production.

21
ƒ Formation of PACO

In order to manage the automobile units and to

advise the Government (in developing policy guidelines

for growth and development of auto industry), Pakistan

Automobile Corporation (PACO) was formed in 1973 under

the administrative control of the Federal Ministry of

Production. It was a major public industrial conglomerate

of 15 companies including four joint ventures. For the

first time in Pakistan emphasis was given to develop the

nationalized units under took local manufacturing

facilities and the development of parts in an organized

manner and the system of standardization, regulations and

monitoring was established. This requires the industry to

assemble from Complete Knock Down (CKD) and then go on to

manufacture components and to achieve a local content of

75% over a five year period. A number of small and large

industrial units that were mostly functioning in the

unorganized sector were canalized into a more formal

pattern of production management under the PACO control.

The direction for achieving quality standards as laid

down by the "Principals" was also established. The MOI

was entrusted the responsibility of allowing any waiver

for non-performance, and was applicable if CBR also

concurred.

22
ƒ Privatization of Industries

The policy of de-nationalizing public sector units

was adopted once the change in government took place.

Privatization brings in foreign companies. This results

in a number of joint ventures. Due to these ventures,

Pakistan auto industry enters into assembly/progressive

manufacture of passenger cars, commercial vehicles and

motorcycles. Once the new management of cars and

motorcycle assemblers took over the control they entered

into joint ventures with foreign companies mostly

Japanese, for further development. Most important joint

venture that took place was of Atlas with Honda and Indus

Motor with Toyota.

The process of privatization is still on and

fortunately every government has adopted the policy of

privatization and opening of the markets for foreign

investors. Although, process is on but still many object

that this process is not crystal clear and has many short

comings.

23
2.4 Analysis of automobile sector

The automobile sector has been registering high

growth for the last four or five years due to the

country's business friendly policies along with lower

tariff rates, persistent growth in GDP, and per capita

income. Globally considered as the mother of all

industries, the auto industry in Pakistan is fast

evolving as a robust industry. Some sub-sectors of this

fast growing industry, like motorcycle production, have

already achieved economies of scale.

The tremendous rise in automobile production has

resulted from increased domestic demand, giving a healthy

impetus to the industrial output and generating over

150,000 direct employment opportunities besides

contributing substantially in duties and tax revenues to

the national exchequer. Since 2001-02, the automobile

market has grown by over 40 per cent per annum and if an

average growth of 30 per cent is maintained during the

coming years, the country's auto market will cross the

milestone of 500,000 units by the year 2010. During the

financial year 2005-06, the sale of locally assembly cars

posted an impressive growth of 22 per cent, rising to

155,514 units as against 127,309 units during the

previous year. To ease the pressure on rising demand and

24
to curb the evolving culture of premium on the factory

price, some 40,000 vehicles were also imported during the

said period.

The increase in demand for automobiles can be traced

to rising income levels, creation of new job

opportunities and liberal auto financing by financial

institutions. As a result, on an average, some 13,000

vehicles are assembled and marketed every month. The

country has also started importing vehicles. The result

is a quantum jump in car registrations, primarily due to

bank leases. In the capital city of Islamabad alone, some

2000 vehicles are registered every month. While all this

is leading the motorization of the country, it can't be

ignored that this influx of new vehicles has made the

existing road infrastructure insufficient, giving rise to

the need to improve and widen the national roads network.

And yet, this will lead to the creation of more jobs

thereby accelerating the pace of economic activities in

the country.

Meanwhile, auto financing and other such schemes

have given rise to lucrative consumer banking. Though the

main objective of consumer financing is to solve some of

the immediate or short-term problems of the customers, it

is resulting, at the macro level, in giving a push to

large-scale manufacturing, creating new jobs and

25
positively impacting the GDP growth. When the government

undertook restructuring of the economy, it was expected

that bulk of excess liquidity available in the market

post 9/11 would go towards the development of the

corporate sector. However, this did not happen, while the

banks faced a dilemma of excess liquidity. Therefore,

they started diverting their funds towards the more

lucrative consumer financing.

One hopes that the cycle of rise in demand and

supply in the auto sector would have a healthy effect on

the national economy as a whole, ensuring continuity in

its growth. It has already led to the growth of a strong

auto-parts manufacturing/ vending industry, which is not

only meeting the demand of the local assemblers in a

sizeable number of auto-parts, but also competing in the

international market for a share in the global auto-parts

market.

Pakistan Association of Automotive Parts Accessories

Manufacturers (PAAPAM) was formed in 1988 to represent

and to provide technical and management cooperation to

its members. PAAPAM, with its almost a decade old

history, has attained a level of an indispensable and

extremely effective link between the policy-making

echelons at government and the whole entity of its member

firms. The Association achieved recognition form the

26
Government of the Pakistan in 1999 and today is

represented in many Government and semi government as

well as Private Institutions by its members. PAAPAM is

the member of the Federal of Pakistan Chamber of Commerce

& Industry (FPCCI). With a registered membership base of

over top line tier one 278 members and general

manufacturers base of over 1200 companies, PAAPAM has

under its wings manufacturing companies making parts for

Pakistan, Cars, Motorcycle, Tractors, Trucks and Buses

assemblers. Investments in place now exceed US$ 1.5

billion.

ƒ Buyer power

In Pakistan automobile market, the buyer power is

limited. It is only effective with no powerful lobbying

group. This has tended to lead the government to favor

other side then consider their aspect on issues. The

recent changes in liberalization were made after a lot of

protests by people and that too after a period of 3 years

of consisting paying almost premiums of 10% prior to

import liberalization. Now with more choice with models,

premium affecting the buyers is limited to certain models

out of which maximum premium is of Rs. 60,000 is on

Corolla XLI. In our analysis the major reason for lack of

buyer power is lack of consumer groups in our country. As

27
our country is still progressing, hopefully in the future

with the development of consumer groups in the country

will lead to similar formations in the automobile sector.

ƒ Supplier power

The power of manufacturing companies is immense in

our country. All companies have their CKD kits imported

from abroad through their parent companies. This

situation offers little room for local suppliers. Another

aspect which might have been useful to supplier is the

deletion program. The government has not been able to

implement it due to lobbying power of the manufacturing

companies. As a result suppliers tend to toe the line of

the manufacturers. This scenario is present in all

segments of the auto industry in Pakistan.

ƒ Factors stopping growth

• Heavily reliance on imported Completely Knocked Down

(CKD) Kits.

• Ineffective implementation and monitoring of the

deletion program has resulted in lesser deletion in the

car industry as compared to 84 per cent in Tractors and

an average 50 per cent in Bus and Truck manufacturing.

28
• Tariffs of 35% for import of CKD by the OEMs and

commercial importers have eliminated the attraction for

deletion.

• Lack of spare parts market for vendors as they are

bound to sell parts to the assemblers only.

• Delays in inspection and approval of parts by the

parent company. A part developed locally has to be sent

to Japan or Korea for approval.

• Small size of the market resulting in under capacity

utilization. The vending industry, which comprises 400

units, is operating at just 30 per cent of its

capacity.

• Indifferent attitude of the assemblers i.e. a component

developed for one assembler is not accepted by others.

ƒ Major policies after year 2005

1. Tariff Based Systems (TBS)

2. Auto Industry Development Program (AIDP)

July 1st 2006, the deletion programs for the

Automotive Sector have been replaced by the Tariff Based

System (TBS). The deletion programs have gradually been

phased out under the WTO regime to become TRIMs

compliant. The TBS is the outcome of a long drawn

consultative dialogue between all stakeholders including

29
OEMs and Vendors, belonging to different sub-sectors of

the Automobile Industry.

The TBS had been developed with the following overriding

objectives;

• Preservation & promotion of technologies that have been

developed in the country

• Protection to the present job structure in the auto

sector

• Promote job creation

• Protect the existing & planned investment by the OEMs &

Vendors

• Promote new investment

• Expand the consumer base to create economies of scale

The basic framework of Tariff Based System is as under;

• Imports in CKD condition would be allowed only to

assemblers having adequate assembly facilities and

registered as such by the concerned Federal Government

Agency.

• Parts / components indigenized by June 2004 have been

placed at higher rate of Customs Duty.

• Parts not indigenized would be allowed at CKD rate of

Custom Duty.

30
Introduction of Statutory Regulatory Order (SRO);

• SRO 656 (I) / 2006 dated June 22. 2006 (For OEMs)

• SRO 693 (I) / 2006 dated July 1. 2006 (For OEMs)

• SRO 655(1) / 2006 dated June 22, 2006 (For Vendors)

2.5 SWOT analysis of Pakistan’s auto sector

Strengths

ƒ Demand for cars

In Pakistan context there are 9 cars in 1000 persons

which is one of the lowest in the emerging economies

which itself speaks of high potential of growth in the

auto sector and more so in the car production. Rising per

capita income with changing demographic distribution and

an anticipated influx of 30 to 40 million young people in

the economically active workforce in the next few years

provides a stimulus to the industry to expand and grow.

ƒ Resale of local assembled cars

Resale of locally assembled cars is better due to

availability of spare parts and after sales services and

warranty. Used imported cars have been selling below

their cost at the show rooms for the last six months but

31
consumers are not inclined to buy because of their low

re-sale value and problems in parts availability.

ƒ Quality of local cars

Initially when the import of cars was liberalized,

the quality of local assembled cars was unsatisfactory.

Therefore, the people of high-income level group started

buying imported cars and the sales of the local assembled

cars started decreasing. In that situation, local

assemblers started enhancing the quality of their

vehicles so we can say that the quality of local cars is

becoming the strength of the auto industry.

Weaknesses

ƒ WTO—Deletion program

The World Trade Organization (WTO) has rejected

Pakistan's request for the extension of the deletion

program, which enabled it to lay down the condition of

the local content requirement (LCR). Under LCR, the

automobile and other engineering industry was required to

use locally manufactured parts and accessories in terms

of government's deletion policy. WTO's decision for not

extending its deletion program / LCR condition has varied

impact on Pakistan's vendor industry, automobile

assemblers, car users and the government as well.

32
ƒ Input cost

In Pakistan as the inflation is increasing so as the

input costs and for manufacturers it is becoming harder

to produce at lower cost. Increasing cost of energy and

its unreliable and inconsistent supply adds-up the cost

of manufacturing and wastage of resources. It is

estimated that by the year 2012, auto industry

consumption of electricity will cross 500 - 600 MW from

around 250 - 300 MW, as of now.

ƒ Protection level

Before the TBS was introduced the auto industry was

well protected by the government but now as the import of

CKD and CBU is liberalized, the protection level to

industry by the government is decreased.

ƒ Lack of skilled manpower for modern machinery

In Pakistan conventional machines are not able to

meet the precision manufacturing and the available labor

is not familiar with modern technology it caused by lack

of coordination and linkages with the Govt. / Semi Govt.

Supporting Bodies and Technical Training Institutes.

33
ƒ Scarcity of raw material especially steel

Through previous years, the world prices are rising

and causing costly inputs and Pakistan has faced scarcity

of iron and steel. Therefore, the manufacturers are

facing difficulties in producing cars with low prices.

Opportunities

ƒ Import German technology and skills

EDB wanted to build a Pakistan-German automotive

supply network, providing opportunities to Pakistani

automotive vendor enterprises to get the benefit from

German know-how and technology to improve quality,

productivity, developing and marketing of value-added

products.

ƒ Foreign investment and setup production facilities

China National Heavy Duty Truck Corporation

(CNHDTCJ) one of the largest heavy duty truck

manufacturers in China, has shown interest for investment

in the automobile sector of Pakistan. The study is

required to attract players from Germany as well as from

other countries to start business with the Pakistani

counterpart.

34
Threats

ƒ Smuggling of auto parts

The auto industry is generally faced by multiplicity

of taxes; the presumptive tax regime has led to increase

in prices of imported inputs and the finished goods.

Component manufacturers arc struggling to compete with

under-invoicing, miss declaration and smuggling. Import

of used parts is still continuing at a large scale.

Smuggling, under-invoicing and dumping of auto parts.

ƒ Competition from imported cars

Auto industry is facing a threat from the import of

cars, which is already liberalized. Further, it is said

that government will cut about 15% of duties till 2011.

ƒ Tariff structure

Tariff structure is a big threat for automobile

industry. So the government should develop policies to

keep the tariff’s figures within the range that can play

a vital role in the growth of this sector.

35
2.6 Pakistan’s auto-sector at present

Pakistan's Auto Sector continues to under-perform as

end-FY09 (ending June 30) approaches, but as BMI points

out, some segments are showing signs of recovery.

Although passenger car sales for the first 10 months of

the fiscal year are still significantly, lower than the

same period in FY08. Sales for the last three months

achieved month-on-month (m-o-m) growth. However, year-to-

date sales have been impacted by a particularly bad

December, when only 2689 cars were sold. In order to

further support sales, the Federal Board of Revenue (FBR)

has forwarded a proposal to the government recommending

that it allows imports of cars over 10 years old. It is

suggested that brands with local production facilities

have a monopoly, as imports of used cars are restricted

to those of three years old or under. It adds that this

gives the manufacturers the opportunity to hike prices,

which is adversely influencing the market. There appears

to be little advantage for the local manufacturers at

present, however, as production remains almost 50% lower

than the same period of FY08.

Given the poor prospects in the short term, Pakistan

brings up the rear in BMI's Business Environment Ratings

for the Asia Pacific auto industry on 42.4 out of a

36
possible 100. Low production growth potential and an

average rating for sales growth hold the market back.

However, as a signatory to the Trade Related Intellectual

Property Rights Agreement (TRIPS) under the auspices of

the WTO, the country's regulatory environment scored

well. A number of free trade agreements also contribute

to this criterion, although forming free trade agreements

(FTAs) with non-Asian countries would improve this rating

further. Despite low marks for bureaucracy and

corruption, the market does score well for its long-term

economic risk and policy continuity.

Japanese manufacturers still control most of

Pakistan's passenger car production and sales. Figures

for FY08 show that Suzuki Motor-brand models represented

62% of total passenger car production and 51.7% of sales.

The Suzuki Mehran also won back its place as Pakistan's

best-selling model after losing out to the Toyota Corolla

in the previous financial year. The Corolla struck back

in the first 10 months of FY09, however, selling 20,626

units compared to 11,142 for the Mehran. Honda Motor,

which ranks third for car sales, dominates the motorcycle

segment with a market share of 70% in FY08, which rose to

72.5% for 10M FY09.

37
 CHAPTER 3

DATA COLLECTION & ANALYSIS

This chapter deals with the methodology and

procedures for the collection of data. This descriptive

research aimed to find out the role of Auto Industry in

the growth of Pakistan’s economy. For our research, we

collected secondary data.

3.1 Procedure of secondary data collection

We collected secondary data through internet

resources. We collected annual automobile manufacturing

and annual GDP figures of last 14 years (1995 ~ 2008)

from Pakistan Automotive Manufacturing Association (PAMA)

& State Bank of Pakistan’s websites.

3.1.1 Research Variables

In our research, we have defined two variables, one

is dependent and the other one is independent.

1. Automobile Manufacturing – Independent Variable

2. Gross Domestic Product – Dependent Variable

38
3.2 Population

Population is the group of people or units under

investigation. The population consisted of the whole

automobile sector of Pakistan.

3.3 Sampling

sample is a representative unit of the population

you are attempting to say something about, and of course

the researcher will need to take into account his/her

affordability. Our sample is last 14 years (1995 ~ 2008).

3.4 Data analysis

After collection of data, it was analyzed and

interpreted by using SPSS software.

39
 CHAPTER IV

ANALYSIS AND INTERPRETATION OF DATA

This chapter is concerned with the analysis and

interpretation of data. Presentation and analysis of data

is the hub and heart of a research work. It needs immense

care and precision to interpret and present the data

gathered from hard toils, the researcher have used.

Analysis are performed through SPSS software and these

analysis are presented in tabular form in this chapter.

Interpretation is also given below of each table. These

analysis provide researchers with a clear picture of the

effects of automobile sector on the growth of annual GDP

of Pakistan in the last 14 years from 1995 ~ 2008.

40
4.1 Graphical presentation

Graphical presentation is a unique way to present

your data. You need to select the appropriate graph type,

which can present your data effectively. Here we have

selected scatter graph to present our data.

8000000

6000000
GDP

4000000

2000000

0 200000 400000 600000 800000 1000000

Manufacturing

Note: GDP figures are in Millions and Mfg. figures are in Lakhs.

The resulting scatter plot shows that the

relationship between variable is nonlinear. As you can

see that in the start (1995 ~ 2002) there were ups &

downs in GDP figures while manufacturing sector didn’t

show any considerable growth. But from 2002 to onward the

relationship of both the variables is showing tremendous

growth. But in the end GDP is falling down while

manufacturing is still increasing.

41
Here is the above graph has been showed in the line

format;

Dot/Lines show Means

6000000
GDP

4000000

2000000

200000 400000 600000 800000

Manufacturing

4.2 Frequencies

Frequencies simply refer to the number of times

various sub-categories of a certain phenomenon occurs,

from which the percentage and cumulative percentage of

their occurrence can easily be calculated. The

Frequencies procedure produces frequency tables that

display both the number and percentage of cases for each

observed value of a variable.

42
There are many summary measures available for scale

variables. Some are as follows;

ƒ Measures of central tendency

It is often useful to describe a series of

observations in a data parsimoniously, in a meaningful

way, which would enable individuals to get an idea of or

“a feel” for the basic characteristics of the data. There

are three measures of central tendency: the mean, the

median and the mode.

ƒ Measures of dispersion

These statistics measure the amount of variation or

spread in the data. The three measurements of dispersion

connected with the mean are the range, the variance and

the standard deviation.

43
Our results are as follows;

Statistics

Manufacturing GDP
N Valid 14 14
Missing 0 0
Mean 390550.57 4691643
Median 238181.50 4846500
Mode 57936a 1014000a
Std. Deviation 283382.636 2048120
Minimum 57936 1014000
Maximum 888067 7667000
a. Multiple modes exist. The smallest value is shown

The Mean: The mean or the average is the measure of

central tendency that offers the general picture of the

data without unnecessarily inundating one with each of

the observations in a data set. Annual average production

of automobile is 3,90,550 and annual average GDP is

46,91,643.

The Median: The median is the central item in a group of

observations when they are arrayed in either an ascending

or a descending order. The median of manufacturing is

2,38,181.50 and of GDP is 48,46,500.

The Mode: In some cases, a set of observations would not

lend itself to a meaningful representation through either

the mean or the median, but can be signified by the most

frequently occurring phenomenon, which is called the

mode. The mode of manufacturing is 57,936a and of GDP is

10,14,000a.

44
Standard Deviation: The standard deviation offers an

index of the spread of a distribution or the variability

in the data. It can also be defined as how much value has

been increased or decreased by the mean. It is a very

commonly used measure of dispersion and is simply the

square root of the variance. The standard deviation of

manufacturing is 283382.63 and of GDP is 20,48,120.

Minimum & Maximum: The minimum production of automobile

is 57,936 and the maximum is 8,88,067. Same as the

minimum value of GDP is 10,14,000 and the maximum is

76,67,000.

45
4.2.1 Frequency tables

Frequency tables are shown below;

Manufacturing

Cumulative
Frequency Percent Valid Percent Percent
Valid 57936 1 7.1 7.1 7.1
153388 1 7.1 7.1 14.3
153572 1 7.1 7.1 21.4
162964 1 7.1 7.1 28.6
163738 1 7.1 7.1 35.7
189720 1 7.1 7.1 42.9
196294 1 7.1 7.1 50.0
280069 1 7.1 7.1 57.1
456610 1 7.1 7.1 64.3
616360 1 7.1 7.1 71.4
656771 1 7.1 7.1 78.6
725754 1 7.1 7.1 85.7
766465 1 7.1 7.1 92.9
888067 1 7.1 7.1 100.0
Total 14 100.0 100.0

GDP

Cumulative
Frequency Percent Valid Percent Percent
Valid 1014000 1 7.1 7.1 7.1
1982000 1 7.1 7.1 14.3
2550000 1 7.1 7.1 21.4
3224000 1 7.1 7.1 28.6
3660000 1 7.1 7.1 35.7
4260000 1 7.1 7.1 42.9
4846000 1 7.1 7.1 50.0
4847000 1 7.1 7.1 57.1
4963000 1 7.1 7.1 64.3
6000000 1 7.1 7.1 71.4
6381000 1 7.1 7.1 78.6
6920000 1 7.1 7.1 85.7
7369000 1 7.1 7.1 92.9
7667000 1 7.1 7.1 100.0
Total 14 100.0 100.0

46
4.2.2 Pie charts

Here the frequencies have been presented in the form of

Pie Chart;

Manufacturing

57936
153388
153572
162964
163738
189720
196294
280069
456610
616360
656771
725754
766465
888067

GDP

1014000
1982000
2550000
3224000
3660000
4260000
4846000
4847000
4963000
6000000
6381000
6920000
7369000
7667000

47
4.2.3 Histogram

Here data has been presented in the form of Histogram.

Manufacturing

6
Frequency

Mean =390550.57
Std. Dev. =283382.636
N =14
0
0 200000 400000 600000 800000 1000000
Manufacturing

The above showed histogram is normal but skewed to

the right side. Though during this period there is some

increase in manufacturing but growth of this sector is

still declining. This is known as “Decreasing Return”.

48
 GDP

3
Frequency

Mean =4691642.86
Std. Dev. =2048119.648
N =14
0
2000000 4000000 6000000 8000000
GDP

The above showed histogram is normal and equal

skewed to both the sides. There are two multi-collinear

points, that’s why the histogram didn’t show a column.

During this period of 14 years GDP growth is normal.

49
4.3 Descriptive analysis

Descriptive analysis of our data are as follows;

Descriptive Statistics

N Range Minimum Maximum Mean Std. Deviation Variance

Manufacturing 14 830131 57936 888067 390550.57 283382.636 8E+010
GDP 14 6653000 1014000 7667000 4691643 2048119.648 4E+012
Valid N (listwise) 14

ƒ “N” represents the number of years, from which the data

has been gathered.

ƒ Range refers to the extreme values in a set of

observations. Manufacturing range figure is 8,30,131

and of GDP is 66,53,000.

ƒ The minimum production of automobile is 57,936 and the

maximum is 8,88,067. Same as the minimum value of GDP

is 10,14,000 and the maximum is 76,67,000.

ƒ The mean or Annual average production of automobile is

3,90,550 and annual average GDP is 46,91,643.

ƒ Standard Deviation is that, how much value has been

increased or decreased with by the mean. The standard

deviation of manufacturing is 283382.63 and of GDP is

20,48,120.

ƒ Variance is the absolute change in the values by the

mean. Manufacturing variance is 8E+010 and GDP variance

is 4E+012.

50
4.4 Regression Analysis

The goal of regression analysis is to determine the

values of parameters for a function that cause the

function to best fit a set of data observations that you

provide. In regression analysis we examine the effect of

one variable (Independent) on the other one (Dependent).

The resulting scatter plot shows a nonlinear

relationship between both the variables. As you can see

that in the start the automobile sector was in crises and

GDP figures were in ups & downs state but in the middle

the sector showed reasonable growth. And at the end the

automobile sector is still growing while GDP has fallen

down. An appropriate model for this kind of pattern is

the asymptotic regression model.

The asymptotic regression model has form

y=b1+b2eb3x. When b1>0, b2<0, and b3<0, it gives

Mistcherlich's model of the "law of diminishing returns".

This model initially increases quickly with increasing

values of x, but then the gains slow and finally taper

off just below the value b1.

ƒ Choosing starting values

The Nonlinear Regression procedure requires that you

supply starting values for the parameters in the model.

51
This seems a daunting task at first, but becomes easier

with some familiarity with the model.

ƒ b1 represents the upper asymptote for GDP. Looking at

the chart, even the largest sales values fall just

short of 80, so that's a reasonable starting value.

ƒ b2 is the difference between the value of y when x=0

and the upper asymptote. A reasonable starting value is

the minimum value of y minus b1. Looking at the chart,

say that's about 7-80=-73.

ƒ b3 can be roughly initially estimated by the negative

of the slope between two "well separated" points on the

plot. Looking at the chart there are a few points about

x=2, y=10, and about x=6, y=36. The slope between these

74 − 20
points is = 13.5 thus a rough initial estimate for
6−2

b3 is -13.5.

Our results are as follows;

Parameter Estimates

95% Confidence Interval

Parameter Estimate Std. Error Lower Bound Upper Bound
b1 4691643 595068.1 3381906.890 6001378.824
b2 -73.000 .000 -73.000 -73.000
b3 -13.500 .000 -13.500 -13.500

The parameter estimates table summarizes the model-

estimated value of each parameter. Parameters in a

52
nonlinear regression model usually do not have the same

interpretation as linear regression coefficients, and

often vary from model to model.

ƒ b1 (Intercept) = 4691643 shows that, this level of GDP

does not depend on automobile manufacturing. If

automobile manufacturing will be zero in some period,

then GDP standard will be like this.

ƒ Std. Error = 595068.1 is small with respect to the

value of the estimate. So it suggests that we can be

confident in the estimate.

ƒ Confidence interval shows the variation of the points

from the line of interception.

ƒ Lower bound shows that how much points are below the

intercept line.

ƒ Upper bound shows that how much points are over the

intercept line.

ƒ b2 (Coefficient of GDP) is the difference between

maximum possible GDP and GDP when there is no

manufacturing. Its standard error is “zero” and

confidence interval is equal to the value of the

estimate, so there is no uncertainty.

ƒ b3 (Exponent of GDP) controls the rate at which the

maximum is reached, the so-called "rate constant". Like

b2, there is no uncertainty in the estimate.

53
 ANOVA a

Sum of Mean
Source Squares df Squares
Regression 3.1E+014 3 1.0E+014
Residual 5.5E+013 11 5.0E+012
Uncorrected Total 3.6E+014 14
Corrected Total 5.5E+013 13
Dependent variable: GDP
a. R squared = 1 - (Residual Sum of Squares) /
(Corrected Sum of Squares) = .000.

The ANOVA table provides a breakdown of the sum of

squares, a measure of variability in the dependent

variable, for this model.

ƒ The Regression row displays information about the

variation accounted for by your model.

ƒ The Residual row displays information about the

variation that is not accounted for by your model.

ƒ The Uncorrected Total represents the entire variability

in the dependent variable.

ƒ Corrected Total is adjusted to only reflect variability

about "average" GDP.

ƒ “df” represents the “degree of freedom” which means

that “ the x number of values are free to vary”. 1%

means 1° of freedom.

54
 CHAPTER V

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

The topic of the research was “The role of

Automobile Manufacturing sector in the growth of

Pakistan’s economy”. The major objectives of the research

were to explore the major reasons behind the downfall in

this sector. Its significance is for Pakistan’s Govt. to

adopt such policies that can contribute in the growth of

this sector. In the second chapter, the researcher

reviewed the related literature regarding the automobile

sector of Pakistan. In this connection different related

terms have been defined and discussed in detail. In the

third chapter data collection procedure has been

described, research variables, population and sample have

been defined. In the forth chapter, the data was analyzed

with the help of SPSS software, in terms of frequencies

and percentages. Descriptive and regression analysis have

been added in the report with their explanation. In the

fifth chapter, the conclusion was drawn and

recommendations were given on the basis of results and

conclusion.

55
5.2 Conclusion

Based on the results of the study, the following

conclusion is drawn:

In the light of our research we can say that the

automobile sector is a very important element as far as

the country’s economical growth is concerned. The local

automobile industry has experienced impediment and

decline in its different segments as compared to earlier

where the industry observed tremendous high growth in

terms of production and sales. After a significant growth

spurt in 2002-2006, the auto sector in Pakistan is

feeling the pain of economic slow-down. The industry is

continuing in a slump which began in the previous

financial year. Pakistan is an emerging market for

automobiles and automotive parts offers immense business

and investment opportunities. The total contribution of

Auto industry to GDP in 2007 was 2.8%. Automobile grew

from 2001-2007, the industry and the government of

Pakistan fixed a target of over half million units’

production by the year 2011-12 that now seems out of

reach.

The most recent statistical data issued by Pakistan

Automotive Manufacturers Association explains that the

arrival of the imported vehicles and rising interest

56
rates situation has decelerated the over manufacturing

all sales figures of the automobile industry which is

considered as a large scale-manufacturing sector of

economy. The vast import of used cars has affected demand

of locally manufactured automobiles. The only way forward

for the assemblers is either by expansion in their

production capacity along with brand extension or through

inclusion of updated and better quality vehicles in their

trading portfolio. However in today’s fast globalizing

world changing models, improving fuel efficiency, cutting

costs and enhancing user comfort without compromising on

quality are the most important challenges of the

industry. Following international trends, the auto

industry in Pakistan is also quickly evolving and may

soon begin materialize the dream of achieving economies

of scale.

On the contrary the Pakistani auto market has grown

up around 30 percent in the last 10 years. Almost all

major automobile units in Pakistan either are running on

double shifts or planning to go into double shifts to

meet the growing demand. This phenomenal growth in demand

is amazing especially in the face of increased financial

charges by the leasing or bank financing. It may be

mentioned that over 70 percent of the cars enrooted

either through leasing or bank financing in Pakistan.

57
 However, Government of Pakistan had undertaken two

major initiatives in the form of National Trade Corridor

Improvement Program (NTCIP) and Auto Industry Development

Program (AIDP) for the development of the automotive

industry in Pakistan. Engineering Development Board (EDB)

is actively implementing the AIDP to increase the GDP

contribution of the automotive sector. Automotive

engineering is a driving force of large scale

manufacturing, contributing US$ 3.6 billion to the

national economy and engaging over 192,000 people in

direct employment.

58
5.3 Recommendations

From the conclusion of the study the researcher

feels obliged to give the following suggestions and

recommendations.

ƒ A consistent policy should be declared by the

Government every 7-10 years in order to make the local

manufacturer more focused and more certain.

ƒ The current deletion policy should be maintained and

officially announced to lessen the uncertainty created

by the WTO agreement.

ƒ The duty on parts should be increased from 35 percent

to 45 per cent to create a gap between CKD which is

also 35 per cent.

ƒ Deletion level should be increased specially of high

tech and major engineering parts.

ƒ Market expansion measures should be taken which will

definitely benefit the industry, government and general

public in terms of employment and price.

ƒ Volume of production should be increased in order to

achieve the economies of scale.

ƒ Localization should be increased and investments should

be made to increase localization.

ƒ Financing options such as leasing and car finance

scheme in collaboration with banks and financial

59
 institutions should be extended on a wider basis so as

to increase the purchasing capacity of the buyers.

ƒ The car manufacturers should also encourage the use of

CNG as an alternative to fuel in order to stimulate the

demand of the cars despite the rise in fuel prices.

ƒ The government should also keep a close watch on new

entrants so as to prevent Foreign Firms from dumping

there vehicles to the Pakistan market.

In short, Pakistan is geographically an ideally

located region for the foreign manufacturers to invest in

this market, aiming to supply to the domestic and

regional markets i.e. Middle East, African and CIS

states. In this regard, the Govt. of Pakistan should

formulate conducive and investment friendly policies for

foreign investors and it will also encourage local

manufacturers to implement joint ventures with their

foreign counterparts. The Govt. should define such

policies which can efficiently contribute towards the

economical growth of the country.

60
 REFERENCES

Economy of Pakistan (2009) Retrieved July, 2009 from

http://Wikipedia, the free encyclopedia/Economy of

Pakistan

History of Automobile Industry in Pakistan Retrieved

July, 2009 from http://PakWheels.com

Automotive Market Research Reports - Pakistan Autos

Report Q3 2009 Retrieved July, 2009 from

http://just-auto.com

PAMA - Pakistan Automotive Manufacturers Association /

Production & Sales.mht Retrieved July, 2009

61
 APPENDIX

Annual Automobile Mfg. & GDP Figures

Automobile Mfg. GDP (Rs)

Sr. No Year
(Ind-Var) (Dep-Var)

1 1995 57,936 49,63,000

2 1996 1,62,964 48,47,000

3 1997 1,53,572 10,14,000

4 1998 1,63,738 25,50,000

5 1999 1,53,388 36,60,000

6 2000 1,89,720 42,60,000

7 2001 1,96,294 19,82,000

8 2002 2,80,069 32,24,000

9 2003 4,56,610 48,46,000

10 2004 6,16,360 73,69,000

11 2005 7,66,465 76,67,000

12 2006 7,25,754 69,20,000

13 2007 8,88,067 63,81,000

14 2008 6,56,771 60,00,000

62