Many countries, including India, have been trying to make in-road in the rising demand for electric vehicles (EVs). Meanwhile, in Pakistan, headlines blare the meteoric rises in car and bike prices due to the high landed cost of imported parts owing to rupee depreciation and low localisation.

The issue of localisation is so complex that it is hard to judge it by the value of imported parts or by the number of parts in vehicles. Despite claiming higher localisation, assemblers have been giving multiple shocks in a month, citing rising raw material prices on account of the rupee’s fall against the dollar.

No serious efforts have been made towards localising hi-tech engine parts as stakeholders focused more on cosmetic changes in the designs of bumpers and grills in the name of new models.

A renowned financial consultancy firm hired by the Pakistan Association of Parts and Accessories Manufacturers (PAAPAM) has stated that car prices have jumped by 100-149 per cent in the last five years despite the 71pc rupee devaluation and the rise in parts’ prices by 33pc to 112pc.

For example, as per the firm’s presentation, Toyota Altis 1.6 price saw a jump of 149pc during 2019-2023 while forging parts prices rose by 91pc after remaining unchanged from 2019-2023.

A policy needs to be devised to increase the localisation of parts to help the vendors’ businesses and improve the current account deficit

The iconic Honda CD-70 bike, which its manufacturer/vendors claim has achieved 96pc localisation, recorded a price jump of 65pc from 2019-2023 as against a hike in forging and rubber parts of 84pc and 72pc, while the rupee shed value by 71pc.

However, CEO Indus Motor Company Ali Asghar Jamali said, “I am shocked and surprised over the misleading data. Too bad, vendors should have checked the data of the presentation.”

An executive in Pak Suzuki Motor Company Limited said parts vendors’ claim does not seem correct as assemblers, specially Pak Suzuki, has fair price management mechanism in which the majority of things such as forex, national and international raw material, and other materials cost, utilities, overheads, labour rates are periodically transferred to all suppliers uniformly.

Vehicle and parts manufacturers are working hard to improve and restart normal businesses in this crucial time prevailing since last year. “I do not know where and how these isolated studies come out. It is better that if any party has an issue, they can sit jointly and resolve the matter,” he added.

In an analyst briefing of Pak Suzuki held in May 2022, Top Line Securities said that Swift’s localisation had reached 35pc, Cultus 51pc, Wagon-R 60pc, Alto 62pc, Bolan 72pc and Ravi 68pc.

Allowing new entrants to assemble vehicles with low localisation rates has taken up the country’s import bill to $4.7 billion for import of completely knocked down (CKD) kits in the last five to six years.

General Manager of Marketing and Sales, MG Motors, Asif Ahmed, said the new entrants need to match the localisation levels of existing players otherwise their prices will remain high compared to old players in future.

New entrants roll out locally assembled vehicles while paying 10pc import duty on CKD kits. As per government policy, they will have to gradually increase the presence of local parts over their five-year concessionary tenure. Existing assemblers make vehicles while paying 35-40 per cent CKD duty, he said.

“I believe that localisation should be hi-tech rather than low-tech. Our company believes in using locally made parts and cars for exports,” he said.

MG started the assembly of MG HS vehicles at a plant in Lahore some four months back. He said the company would focus on bringing localisation at par with existing competitors in the next four years.

CEO of Baluchistan Wheels Limited Irfan Ghani, claims that auto assemblers have not localised parts in the last five years. As a result, consumers will continue to pay high prices for vehicles because of exchange rate parity on imported parts.

He claimed that the local parts content in Alto is 30-35pc while Suzuki Swift is being rolled out with 20pc local parts. Decades-old Suzuki Ravi and Bolan have 50pc local parts.

The government should impose a heavy fine on those assemblers who can make parts with the help of vendors but prefer to import, he added.

Auto part maker/exporter Mashood Ali Khan said low localisation is certainly one of the main reasons for the continuous price increases.

Whatever deletion occurred, it was only because of the deletion programme of the government. After replacing the deletion program with the Tariff Base System (TBS), the government’s objective of deletion could not get the results of higher localisation.

He said the government must carefully chart out a road map for the auto sector. Industrial raw materials must be locally produced, enabling vendors to make parts at a lower cost. This is a more realistic way to control prices. “In Pakistan, we have no vision from the government and the Engineering Development Board,” he added.

Another vendor said that the government needs to bring major changes to the Auto Industry Development and Export Plan (AIDEP) 2022-2026, making it mandatory for assemblers to export a certain percentage of vehicles and parts. He demanded the execution of the deletion programs in letter and spirit with monitoring mechanisms be brought back through amendments in AIDEP.

PAAPAM’s consultant presentation asked the vendors to urge the assemblers to increase their prices with the same frequency, timing and percentage that the assemblers do for their own products. The payment pattern should be the same as the original equipment manufacturers follow for their own customers. A material bank needs to be created to provide vendors with materials for production.

There is a need to devise a policy to increase the localisation of automobile parts to help the vendors’ businesses and improve the current account deficit.

Published in Dawn, The Business and Finance Weekly, April 25th, 2023