Taxes, used car imports drive up car prices

Islamabad:

Indus Motor Company (IMC) CEO Ali Asghar Jamali has pointed to issues such as high taxation, inflation, used car imports and exchange rate volatility as drivers of higher prices for locally produced cars in Pakistan. In a meeting with journalists in Islamabad, Jamali stressed the need for a comprehensive import policy to support the development of the local auto industry while addressing the challenges posed by the large import of used cars. He also urged the government to review the taxes levied and take steps such as signing free trade agreements (FTAs) with various countries to reduce tariffs and other restrictions, to open markets for car exports.

The CEO of IMC revealed that over 6,500 used cars were imported in the financial year 2022-23 and more than 7,500 units have already been imported in the first three months of the current financial year. He expressed concern that these imports of used cars are not only undermining the progress achieved through the local automotive industry, but also hindering the possibility of further localization in Pakistan.

Despite these challenges, Jamali acknowledged the recent relaxation in the opening of letters of credit (LCs) for imports, which has helped the local industry in sourcing raw materials. He pointed out that Original Equipment Manufacturers (OEMs) saw improved passenger and light commercial vehicle sales in September 2023 due to these relaxations, although sales were still down 26% year-on-year.

In response to current challenges and in an effort to contribute to a more sustainable future, Jamali has announced the imminent launch of Pakistan’s first local hybrid C SUV. He emphasized that hybrid electric vehicles (HEVs) are not only a more environmentally friendly solution but also have positive economic effects, including employment opportunities and export possibilities.

Jamali also highlighted the investment made by Toyota, stating that Toyota has invested $100 million in the production of HEV vehicles in Pakistan. The adoption of hybrid technology is expected to reduce Pakistan’s import bill and save about $37 million annually with 30 thousand HEV units.

Discussing the issues of production and low demand facing the auto industry, Jamali praised the government for its policy based on localization and expressed IMC’s commitment to overcome the challenges and work towards a brighter and more sustainable future for the automobile industry in Pakistan.

Jamali’s concerns about second-hand car imports nullifying the achievements of the local auto industry were expressed in an earlier meeting with reporters last month. He stressed that the government should prioritize supporting local auto industry policy, given the country’s meager foreign exchange reserves, and avoid allowing imports of used cars.

Despite the uncertainty surrounding the supply-side recovery, IMC has not resorted to layoffs, demonstrating its commitment to the country and the welfare of its workers.

Regarding the restrictions on opening letters of credit at the time, Jamali noted that the auto industry had been dealing with this issue for some time, which made it difficult to maintain sales. IMC experienced a 58% drop in its sales volume from January to June 2023 due to these restrictions.

Speaking on HEVs, Jamali highlighted Pakistan’s vulnerability to climate change, stressing that HEVs are a viable solution to economic problems. He stated that Toyota has invested $100 million for HEV production in Pakistan and Corolla Cross, Pakistan’s first locally made HEV SUV, will be launched soon.

Published in The Express Tribune, November 9^u2023.

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