July 15, 2010

The Meaty Auto Industry of Pakistan

It has become a norm of late to wake up every day and while leafing through the newspapers, see the ads by the PAMA (Pakistan Automotive Manufacturers Association) urging the people to support the local industry as it contributes to the foreign exchequer, employs a lot of people, and contributes to the social development of the country. Really now, I had no idea that Toyota, Honda or Suzuki were contributing to the social development of anything... And in the case of Suzuki particularly, it is more like a case of forcing people to choke on whatever they're eating after they take a look at those things that Suzuki produces with such zeal and fervor.

But fun aside, is there really any truth to the claims made by the PAMA? I have to say that I agree with PAMA on the issue of employment and the contribution. But that does not mean that the auto industry can monopolize the whole sector without taking into account the effects on the general population. The unrealistically high prices of local cars and their spare parts are outrageous. What logic does Suzuki apply when selling a Cultus at a price in excess of Rs. 900,000? And let us not even bother about the build quality, or the safety assurance standards of the cars being rolled out here. In the United States, a locally assembled Toyota Camry costs around 18,00,000 to 19,00,000 PKR. A Honda Accord costs a notch lower than that. But here Pakistan, the same car costs a massive Rs. 69,00,000. 6.9 million rupees!

The claims by the PAMA that the local industry is suffering from high prices and high costs is just an eyewash. Will they mind explaining how their input prices are so high when a brand new imported Porsche Boxster costs less than the Toyota Camry? Rs. 400,000 less than the Camry to be exact. A Porsche Cayenne costs Rs. 70,00,000 which is a colossal 3 million less than a Toyota Prado. The PAMA may claim a lot of things, but the picture that they are trying to paint is a lot different than reality. It just makes no sense for cars that have nothing in them except an engine, wheels and four doors to cost this high. They are not awash with the latest ground breaking technology; on the safety front, their standards are appalling and the after-sales service is simply revolting.

The government needs to relax the controls governing the import of automobiles. The auto industry of Pakistan needs competition and that competition will only be derived if foreign made cars are allowed entry into the local market. Economic laws state that competition leads to efficiency and better price allocation. Well let us then apply those laws and see the magic happen. If a company like Porsche can sell German made sports cars at prices less than the local auto makers can, then I suggest the government invite German car makers to set up their plants here.

All prices are quoted from the carmakers’ websites.
For Toyota, please click here.
For Honda, please click here.
For Porsche, please click here.