Says Parvez Ghias, Chief Executive Officer ,Special Interview to BM
The auto sector is on the way of recovery and will be showing much better indications with the passage of time and the worst time came to the sector due to global economic recession will be over soon.

Parvez Ghias, Chief Executive Officer Indus Motors Company said in an interview that the improvement in economic situation on the back of IMF support, healthy farm income and the government's decision to remove 5 percent FED on cars above 850cc gave partial relief and contributed to the industry growth.

The operating environment for six months ended December 2009 remained challenging for the local auto industry. Overall nationwide sale of the locally assembled Passenger Cars (PC) and Light Commercial Vehicles (LCV) grew 16 percent to 61,515 units, compared to 53,052 units sold for the same period last year.

The combined sales of Toyota and Daihatsu brands (CKD and CBU) for the first half ended December 2009 grew by 53 percent to 21,300 units as compared to 13,927 units last year. On full calendar basis 2009 (Jan-Dec), the company achieved a new record in Corolla sale of 36,000 units, which is also the highest in Toyota's Asian market outside Japan.

He said that the recent increase in prices by the company has been made with immediate effect to partially offset cost increases it has been forced to absorb owing to the depreciating rupee and other inflationary conditions affecting the economy that have pushed up the CKD (complete knock down) and the local vendor parts costs despite efficiencies and strong efforts in reducing own operating expenses.

He said that currently there is a misconception that the local auto industry is continuously and unjustifiably increasing prices this is unfortunate and far from reality. The Corolla prices have remained unchanged since October 2009, while during this period the Pakistan rupee has depreciated 5 percent against yen, which translates to over Rs 30,000 per vehicle on imported CKD and over Rs 10,000 in local vendor parts.

The company is currently working at full capacity and doing overtime to meet the market demand. It is also working closely with the vendors to expedite supplies, which at times become serious bottleneck for the OEMs.

CEO IMC was of the view that the steps should be taken by the governing bodies and the local manufacturers to encourage healthy competition between the local automobile manufacturers, so that the consumers can have a better variety of choice in cars.

He was of the view that the local auto market has a wide capacity of more foreign manufacturers and the government including good law and order, better investment opportunities should provide other incentives in order to attract more foreign manufacturers' to set up plants in the country or to the local manufacturers to extend their operations.

About a query regarding OWN money on cars he said that this is very unfortunate and the misconception has arisen that the auto manufacturers are involved in it. The forces of demand and supply determine the level of OWN money in the market. Due to a surplus demand on certain models of car the dealers charge a premium on faster delivery of the vehicle. As production capacity increases, and supply and demand reach equilibrium, this practice gradually fades away.

All local parts are approved by the Original Equipment Manufacturers' (OEMs) foreign principals and local cars are built on international standards of quality. However, poor road conditions in Pakistan play a major role in early defects and short operational life of cars, he said.

About the localization of vehicles he said smaller vehicles have a high level of localization (70 percent), larger vehicles could be as low as 30 percent. This is because of technology differences, frequent model changes, lead time differences for transfer of technologies, etc.

On the query about high prices in local industry as compared to regional countries, he said that the cars are more expensive in Pakistan compared to India and other countries because of current exchange rates (Indian rupee being costlier there is almost 40 percent value difference between the two currencies, which usually creates this misconception), Pakistan prices are generally lower.

Regarding the import of used cars, Chief IMC said that used cars are generally junk, with no after sales service or parts availability. It also discourages expansion plans of local OEMs, which in turn deprives the country of employment, industrialisation and technology transfer.

He said that all OEMs have invested heavily and are further investing towards capacity expansions to meet the local demand. Capacity expansion requires reasonable lead-time and must be encouraged by banning import of used cars.

He said the world class infrastructure, utilities, consistent & investment promoting government policies, law & order, low interest rates, non-interference through elimination of bureaucratic inspections in day-to-day running of business etc are the minimum requirements from the government, for the local auto manufacturers to be the global suppliers.

No country in the world makes its own 100 percent cars. Pakistan should continue to aim towards maximum localization through encouragement of growth and technology transfer in Auto industry by maintaining consistent policies, Parvez Ghias said.

Regarding the continuous opposition of entry of European car manufacturers in the market, he said that in principle, we are not against entry of any European car manufacturers as long as they come at existing industry level of deletion.