Professional Documents
Culture Documents
Automobile Industry
of Pakistan
Group Members
Talha Rizwan (10016)
Muhammad Anas (10628)
2012
1
LETTER OF TRANSMITTAL
08th December, 2012
Mr.Shahid Hameed
Course Instructor, Pakistan Studies
Institute of Business Management
Karachi.
We are students of Analysis of Pakistan Industries at IoBM and have been
authorized by our course instructor Mr. Shahid Hameed to prepare a term report
on Automobile Industry of Pakistan.
We would like to thank our course instructor Mr. Shahid Hameed for such
practical knowledge that he has imparted throughout the semester. We would
also like to request to kindly accept this report.
Sincerely,
Group Members:
Talha Rizwan 10016
Muhammad Anas 10628
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ACKNOWLEDGMENT
First and Foremost we would like to thank The Almighty Allah who gave us
enough strength to fulfill this task. We are also extremely grateful to Sir. Shahid
Hameed for his immense cooperation for this project.
We would like to acknowledge Institute of Business Management for all the
support and proving such opportunity of learning, through the agony of bearing
with your demands and expectations, we truly got to discover our potentials.
Making this report has immensely helped us in understanding the industry
dynamics of Automobile Industry of Pakistan and it impact on the countrys
economy.
Thanking You,
Talha Rizwan 10016
Muhammad Anas 10628
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Contents
EXECUTIVE SUMMARY .................................................................................................. 5
INTRODUCTION ................................................................................................................ 6
OVERVIEW OF AUTOMOBILE INDUSTRY .............................................................. 7
Background.................................................................................................................................. 7
Growth......................................................................................................................................... 8
STRUCTURAL COMPOSITION................................................................................... 11
PRODUCT MIX OF THE INDUSTRY......................................................................... 11
Major Product Segments ....................................................................................................... 11
Product Mix of Major Motorcycle Brands in Pakistan........................................................... 11
Product Mix of Major Car Brands in Pakistan........................................................................ 12
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EXECUTIVE SUMMARY
This report critically analyzes the present situation of Pakistans Automobile
Industry mainly focusing on the cars and motorcycles sector. The report provides
brief information about the history and the evolution of the auto sector in the
country.
The report also presents 5 years of data on the production and sales of the auto
industry and discusses the various active tax and duty policies. The report also
discusses the installed capacity and the capacity utilization of the overall industry.
The report includes information about the installed capacity of the various major
players of the industry.
We have also conducted a demand/supply analysis to analyze whether or not the
local manufacturers are meeting the surging demand for vehicles efficiently. We
have also taken reference from a research study conducted by the EDB and have
tried to show a direct relationship that exist between per capita income and
demand for vehicles. The report also talks about the manufacturing process of
cars and lists the generic raw materials that are required for production.
The report also discusses the product mix of the cars and motorcycles sector and
presents brief information about the various models and designs available in the
market. We also presented market share breakdown highlighting the major share
holders of the industry.
The report also analyzes the auto sector on the basis of Porters 5 forces
framework and finally highlights some of the major problems the industry is
currently facing.
We have tried our best to ensure that all the figures included in this report are
relevant and authentic.
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INTRODUCTION
Automobile industry comprises of the companies which are, in one way or the
other, involves in the designing, development, manufacturing, selling and
marketing of motor vehicles. It excludes all the deliverers and retailers of the
motor vehicles as well as the fuel companies.
Globally, it is one of the most significant industries in terms of the human capital
employed and revenues. Global Automobile industry earns over five thousand
billion dollars annually ($5,132Billion in the year 2011).
The first petrol power motor vehicle was invented by Carl Benz of Germany, who
later had it patented and began its production. After sometime another German
Gottlieb Daimler invented a motor vehicle from scratch by removing the horsedrawn carriage, which was also patented and commercially produced and sold.
But, it was not far when an Italian Enrico Bernardi invented a motorcycle, which
he later modified and made it a two seater which was able to carry two adults.
United States of America had always been the leader in automobile
manufacturing because of the excessive demand for automobile in the North
American region, until it was overtaken by Japan in the 80s by Japan. Japan
became the hub of auto manufacturing and had produced millions of cars and
sold them to the various parts of the world. Automobile remained the most
important sector of Japanese economy and played an important part in the
economic development of Japan.
Production By Countries (2011)
Rank
Country
Production
1
2
3
4
China
USA
Japan
Germany
18,418,876
8,653,560
8,398,654
6,311,318
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linkages with various other industries. Backward linkages includes, links with
industries such as steel, glass, plastic, rubber, paint etc. Whereas forward
linkages includes, links with industries such as dealerships, retailers, tyre
manufacturers etc. If compared to other vehicles such as cars, trucks, buses etc,
the demand for auto parts is the highest in the motorcycle industry which is 60%.
In 2008-09 the motorcycle production accounted for 75% of the total auto
production. Currently the industry has the capability of producing approximately
2,500,000 motorcycles per annum. The industry has achieved over 90%
localization and this localization has resulted in the growth of the local vending
industry and has created large opportunities for jobs in the country.
Growth
The Global automobile Production for the year 2011 was
80,092,840 units which grew by an average growth rate of
5.5% from 2005-2010. BCG (Boston Consulting Group)
proposes that, by 2014, demand for personal vehicles and
Light commercial vehicles in the four BRIC markets (Brazil,
Russia, India and China) will be the one-third of the global
demand. Other significant automotive demand lies in
emerging economies like Iran, Indonesia and South Korea.
Emerging nations already buy more cars than established
automotive markets like US and Europe. According to a study,
emerging auto markets accounted for 51 percent of the
global light commercial vehicle sales in 2010.
Production Growth
108,850
120,627
11%
175,169
45%
303,383
73%
416,189
37%
520,124
25%
467,267
-10%
660,593
41%
509,054
-23%
736,861
45%
838,665
14%
828,576
-1%
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The motorcycle sector is one of the most rapidly growing sectors of the economy.
This is the only sector that has
Growth in terms of sales
managed
to
maintain
a
60%
sustainable growth rate in the
50%
past decade. The industry has
40%
maintained a growth rate of
30%
15% YoY for the last five years.
20%
The industry has achieved 95%
10%
localization. At the start of the
0%
millennium the production of
1
2
3
4
5
-10%
motorcycles in the country was
-20%
119169 units.
Currently Pakistan is manufacturing almost 2 million motorcycles. The industry is
not only meeting the local demand but has also started exporting motorcycles to
Srilanka, Bangladesh and Afghanistan and is becoming a strong source of foreign
exchange for the country. In 2011 Atlas Honda alone exported 12450 units to
various countries.
MANUFACTURING PROCESS
(For Cars, LCVs, SUVs and trucks)
Assembling Procedure
(Industry Practices for assembling)
10 | P a g e
STRUCTURAL COMPOSITION
PRODUCT MIX OF THE INDUSTRY
Major Product Segments
Cars
Motorcy
cles
Trucks
Buses
Jeeps
(44)
Light
Sports
Comme
Utility
Farm
rcial
Vehicles Tractors
Vehicles
(SUV)
(LCV)
CD70
Pridor (100cc)
CG125
Dawood Yamaha
Junoon (70cc)
Dhoom (100cc)
Mini 100
Pak Suzuki
Raider (110cc)
SPRINTER ECO
(110cc)
SPRINTER
(110cc)
Sohrab
SD70
S100
Deluxe (125cc)
GS 150
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Honda
Toyota
Daihatsu
Mehran
Hyundai
Cuore
Bolan
1000cc
Cultus
Santro
Alto
1300-2000cc
Liana
Civic
Swift
City
Corolla
INSTALLED CAPACITY
At present, in the personal vehicle and light commercial vehicle segments of the
automobile industry in Pakistan, there are only a few companies which are
assembling some of their models in Pakistan. Those models are the ones with the
highest demands. Other prestigious and expensive models are mostly imported.
Hence, the capacity available in this segment doesnt reflect the sales of the car.
However, it necessarily reflects the production of cars within the economy. Table
below shows the capacity available for producing cars and light commercial
vehicles.
Capacity unit/annum
150,000
50,000
20,000
6,000
25,000
251,000
12 | P a g e
Manufacturer
Installed Capacity
Atlas Honda
800,000
50,000
DYL Motorcycles
150,000
D.S. Motors
125,000
125,000
Memon Motors
125,000
Metro Hi-Tech
50,000
CAPACITY UTILIZATION
In 2011-2012, Personal vehicle segment of the industry had the capacity
utilization of 61.5%. 154,255 units of cars and LCVs were produced from the
available capacity of 251,000.
In the motorbike segment of the industry the capacity utilization for the year
2011-12 was 64 percent.
13 | P a g e
DUTY STRUCTURE
Earlier this year the Economic Coordination Committee (ECC) decided to slash
duty on imported CKDs to 5 percent from 15 percent, on locally manufactured
CKDs to 25 percent from 47.5. Import duty on CBUs was reduced to 35 percent
from 65 percent. Import duty on import of raw materials was proposed to be
maintained at 0 percent and sub-components and components at 5.0 percent.
For the new entrants the duty on the imports of parts was cut down to 10% from
15%. It was also announced that for new entrants the duty on locally
manufactured CKDs will be 10 percent for three years. Concession for new
entrants is linked with indigenization and they will be required to achieve 20%
15 | P a g e
localization in the first year, 30% in the second year and 50% by the third year.
Duty on engine and automatic transmission will be 5 percent.
Reduction in the import duty on CBUs came as a surprise for the local
manufacturers. Pakistan Association of Automotive Parts Accessories
IMPORT DUTY STRUCTURE
Imported CKDs
5%
25%
40%
Raw Materials
0%
Sub-components
5%
Engine
and
transmission
automatic
New pneumatic
rubber
tyres
5%
of
25%
Manufacturers
(PAAPAM)
heavily
criticized the tariff reduction measures
taken by the ECC claiming that due to
adverse policy measures and the import
of used vehicles, the industry is already
suffering from excess capacity and such
reductions will further damage the local
manufacturers.
PAAPAM also claimed that the
motorcycle
industry
recorded
tremendous growth rates in the last ten
years and with proper focus the auto
sector can single handedly revive
Pakistan's industrial sector and that the
auto industry is one of the top five
industrial sectors of the country in
terms of contribution to tax revenue.
Critics also believe that the tariff
reduction measures are taken only to
accommodate
one
particular
manufacturer i.e. Yamaha, since it is
planning to invest $150 million in the
local industry.
16 | P a g e
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
75%
75%
75%
75%
65%
65%
65%
65%
65%
CKD's 25%
20%
30%
30%
30%
25%
The government has also discontinued the duty drawback facility and this has
negatively impacted the exports of motorcycles. Pakistan mainly exports to
Afghanistan and due to the withdrawal of the duty drawback the country is
experiencing a decline in exports. Atlas Honda exported 13000 units to
Afghanistan in the fiscal year 2011-12, but due to discontinuation of the policy
they only managed to export 1000 units in the first three months of the fiscal
year 2012-13. Chairman of Association of Pakistan Motorcycle Assemblers
(APMA), Mohammad Sabir Shaikh claimed that exporters used to ship 70cc bike
at $360 to $390 per unit and that the withdrawal of duty drawback caused the
bike assemblers to raise prices to $400 to $450 per unit, which Afghanistan
deemed expensive. So, the exports of bikes to Afghanistan have suspended and
Afghanistan has started manufacturing
bikes locally.
Taxation/Duty Structure-Used
Cars
Under special regime taxes levied
covering Custom Duty, Sales Tax,
Income Tax and Capital Value Tax
based on engine capacity.
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192,000
16,000
Tractors
700,000
Motorcycles
1,500,000
18 | P a g e
117,254.80
2009
133,040.50
2010
150,186.50
2011
187,578.60
2012
199,125.50
Year
Per
capital Annual
income us$
demand
Population
in 000
New motorcycle %
per person
change
decrease`
units
2001-2002
492
120,627
143,825
1193
2002-03
579
175,169
146,845
838
30%
2003-04
657
371,007
149,929
404
52%
2004-05
742
570,085
153,077
269
33%
2005-06
847
751,667
156,291
208
23%
19 | P a g e
140,000
120,000
100,000
80,000
Production
60,000
Sales
40,000
20,000
-
2008
2009
2010
2011
2012
Production
164,710
84308
121647
133972
154255
Sales
164650
82844
123957
127944
157325
6,000
5,000
4,000
3,000
Production
2,000
Sales
1,000
-
2008
2009
2010
2011
2012
Production
6,139
3,792
4053
3391
3165
Sales
6545
3821
4277
3457
3,003
20 | P a g e
Tractors
80,000
70,000
60,000
50,000
40,000
Production
30,000
Sales
20,000
10,000
-
2008
2009
2010
2011
2012
Production
53,256
59,968
71607
70770
48120
Sales
53,203
60351
71512
69203
49,745
20,000
15,000
Production
10,000
Sales
5,000
-
2008
2009
2010
2011
2012
Production
22,944
17,090
16940
20025
21380
Sales
22,769
16463
17697
18553
21,814
21 | P a g e
Category of Manufacturer
2006-07
2007-08
2008-09
2009-10
2010-11
424629
503278
487321
758038
904797
415221
550824
430307
622366
705884
156
Total production
839850
1054102
917628
1380404
1610681
Table below presents the production and sales figure for the last five years. These
figure indicates that the production level have always managed to exceed sales.
This indicates existence of excess capacity and that the local manufacturers are
efficiently meeting the surging demand for motorcycles.
1800000
1600000
1400000
1200000
1000000
800000
600000
400000
200000
0
2006-07
2007-08
2008-09
2009-10
2010-11
22 | P a g e
23 | P a g e
Manufacturer
Market
Share
Atlas Honda
71%
Dawood Yamaha
10%
Hero
5%
Sazgar
6%
3%
5%
3rd quarter report from july to September shows a net loss of 193265000
compared to a profit of 392,666 last year
24 | P a g e
25 | P a g e
Moderate
Unfavorable
Favorable
Moderate
Favorable
Favorable
Access to
distribution
channels
Government Policy
Unfavorable
Unfavorable
Moderate
Favorable
Favorable
Favorable
Moderate
Favorable
Moderate
26 | P a g e
Buyer switching
costs
Buyer information
Favorable
Moderate
Impact of quality /
performance
Unfavorable
Favorable
Fixed costs
Unfavorable
Number of
competitors
Unfavorable
Threat of Substitutes
Switching cost
Favorable
Buyer propensity to
substitute
Favorable
Result
Threat of Substitutes
27 | P a g e
2011 the prices per bundle increased to PKR 2500. The glass sheets used in
the manufacturing of head lightts, tail lights and indicators currenty costs
PKR 450 per bike. The pair of rear view mirrors used to costs PKR 750 back
in 2007 but in 2011 the prices have increased dramatically to PKR 1500.
Increase in manufacturing costs has also resulted in an increase in the price
of motorcycle. The price of Honda motorcycles has goneup from 58000 to
68500. The appreciating value of Yen against the Pakistani rupee is also
another factor that forces manufactures to increase prices.
29 | P a g e
30 | P a g e
BIBLIOGRAPHY
http://www.wikipedia.org/
http://www.pama.org.pk/
http://www.competitiveness.org.pk
http://www.motorcycleexport.com/
http://www.cbr.gov.pk/
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