Permission to import used cars makes Pakistani buyers happy, assemblers displeased

14:11, December 12, 2010      

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Pakistani government's recent decision to import used cars raising the "age limit" to five years made common buyers happy and local assemblers displeased whereas market analysts showed mixed reaction over the decision.

Pakistan's federal ministry of commerce on Thursday, considering the proposal by the All Pakistan Motor Dealers Association, allowed importing cars used for five years under all schemes of personal baggage, gift and transfer schemes.

Government sources told Xinhua on Saturday that the step was taken to send a strong message of displeasure to domestic car assemblers for their constant ignorance to the government's demand to lessen car prices.

According to data complied by the authorities, during last two years (Jan. 2008 to March 2010) local car manufacturing companies, Honda, Suzuki and Indus Motors, raised the prices of their products almost 10-15 times up to 68 percent.

Local assemblers only in the period from Sept. to Nov. 2010 raised the car prices twice by 5 percent. People think that the unstopped rise in prices has snatched the right from middle class to purchase even a small car.

Local assemblers and other people attached to them criticized the decision, saying the move will reduce local volume, employment and investment opportunities.

Shafiq Ahmad Sheikh, spokesman Pak Suzuki, criticized the decision and termed it illogical and "big failure" for the industry in the past as it had not provided any incentive to the industry and consumers.

"Surge in local prices is with some logic as the high prices of raw material, appreciation of dollar and Japanese yen versus the local currency have caused many problems for the assemblers," Sheikh told Xinhua.

Market experts believed that the decision would not only hurt the local Original Equipment Manufacturers (OEMs) but local vendors as well in the country.

The representatives of the local industry declared the government responsible for rise in prices of the autos as it failed to implement the Auto Industry Development Program.

Rao Muhammad Saeed, Islamabad based dealer in used cars, was happy hoping the move will boost up their business and was assured to see slightly negative impact on local assemblers.

This decision will not only affect volume sales but also restrict companies to increase car prices frequently to maintain their margins, analysts believed.

It is being expected that almost 5000 additional cars could be imported in Fiscal Year 2011 if this decision is implemented within a few weeks coming weeks. In the last year of FY10, total sale of local and imported vehicles was 150,000 units while the imported cars can go up to 10000-13000 units in coming days especially in low-end car segment of 1000-1300cc.

The current decision is not new as it has been practiced in the past. Almost 72,000 used cars and other vehicles were imported in 2005-06 when the government allowed import of 10 years old vehicles.

In the fiscal year 2006-07, the age limit was reduced to five years and imports fell to 42,000 units and finally government further slashed the age limit to three years in 2007-08.

While in 2008-09, the government imposed 50 percent regulatory duty and 12.5 per cent increase in customs duty and cut in depreciation to one per cent from two percent.

Although these schemes were for overseas Pakistanis but the commercial importers jumped into import cars on bulk basis using passport details of overseas Pakistanis. It would be once again a hard task for the authorities to stop the overseas Pakistanis selling their documents to commercial importers.

Some analysts said that the decision would not only generate revenue but would also discourage the smuggling of cars from neighboring Afghanistan.

Other than the local assemblers another party of automotive parts and accessories manufacturers considered the move as killing tool which will destroy the industry already on the verge of closure.

They demanded to reverse the decision immediately as it is one of the factors driving away foreign investment in Pakistan auto industry.

People are happy with the opportunity but in past consumers who purchased used cars had to face problems of getting their parts in the markets.

Source: Xinhua(by Jamil Bhatti)
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