Auto vendors seek cut in tariff on new cars

Say retail prices of cars in Pakistan 60-90pc higher than competing economies

LAHORE: Automobile experts have said that in order to reduce car prices in Pakistan, prime minister should reduce the tariff on new cars instead of allowing import of “junk in the shape of used-cars.”

They pointed out that prices of cars in Pakistan were high because the automobile industry in the country enjoyed high tariff protection that was given to them on the understanding that ultimately the manufacturers/assemblers would produce 100 per cent parts in Pakistan.

The proponents of lower tariff on new cars, mostly auto vendors, have been dismayed by the reluctance on the part of the original equipment manufacturers (OEMs) to transfer technology to them for the deletion of critical engine parts. They claim that the auto-vending industry has the capability to produce any car part provided the OEMs facilitate them with the drawings and technical details of the parts that they are currently importing.

All the vendors spoke to The News on condition of anonymity because they fear reprisal from the OEMs by withdrawing orders for some of the parts that they currently produce.

They pointed out that even the 800cc car model first assembled in Pakistan in 1984-85 under the deletion programme was heavily dependent on imported components. “Only the surface and the skin of the car is produced in the country,” said one auto vendor, adding: “Critical parts such as engine, gear box and steering systems were imported. He said this was the reason that even for a car model with a deletion level of 70 per cent the cost of 30 per cent imported components was much higher. He said for some famous models the cost of imported components was about 80 per cent of the total cost of the vehicle.

Another vendor said: “Both the government and the OEMs re responsible for high car prices in the country.” He added that under the Auto Industry Development Plant (AIDP), the government was supposed to implement a tariff-based system for import of car components that were not produced in the country. He said under the plan, the tariff for imported components were to be progressively increased to encourage their local production. He said the tariff was to be increased for these components from 30 to 50 per cent last year but it was deferred due to pressure from OEMs. He expressed doubts if the tariff would be increased even in the next fiscal.

He said under the AIDP, the OEMs were to facilitate local vendors in transfer of technology and its acquisition for producing high-tech car parts in the country. The ministry of industries and the Engineering Development Board, he added, were to act as watchdogs to ensure progress in deletion of new components through transfer of technology. He said the OEMs were not pushed because the tariff on imported parts was not increased while the EDB also did not pressure them to increase deletion of local parts.

Another auto vendor claimed that the pricing of imported parts also was not transparent. He said the controlling shares of all major car brands assembled in Pakistan were with their Japanese principals.

He said the Japanese enjoying high duty protection effectively discouraged import of all other brands.

He said that if we see at the balance sheets of the auto assemblers, their profit margins are 4-6 per cent of the total sales. He said the retail prices of cars in Pakistan were 60-90 per cent higher than in competing economies. He said these facts made a case for inquiring into transfer pricing through imported components as the beneficiaries were foreign principals having controlling shares in Pakistan as well.

Most auto vendors asked the government to reduce the duties on new cars to force the assemblers to go for more localisation of parts instead of allowing import of used cars.