THE DAWN 18TH AUG. 2008 By Nasir Jamal Most of the small to medium auto parts vendors, who invested heavily to increase their production capacities and upgrade technology on the back of a robust annual growth of above 20 per cent in car sales during the six years to the fiscal 2007, now find themselves in deep waters as the domestic car industry faces slowdown in sales. “Most factories running three shifts until a few months back have been forced to lay off labour and slash the number of shifts to two due to reduction in demand for cars,” Syed Nabeel Hashmi, a leading auto parts maker in Lahore, tells Dawn. “We may soon have to work with one shift alone if the conditions prevail for long. He estimates that at least 1,50,000 workers have been laid off by the auto vending units in the recent months. The auto vending industry, when running at full capacity, provide 5,00,000 direct jobs, mostly skilled. “I cannot give you absolute numbers of lost jobs. But I think nearly 20 to 30 per cent workforce has either already been fired or would be in next few months if the current slowdown in the car industry lingers for long,” says another top auto parts manufacturer, Syed Almas Haider. The domestic cars sales have dropped by 42 per cent on a year-on-year basis to 7,418 units this July, the first month of the current financial year of 2008-09, from 12,830 sold during the same period last year. The Pakistan Automotive Manufacturing Association (PAMA) says auto sales fell alarmingly by 58 per cent from 17,583 units sold this June on a month-on-month basis. “I guess the domestic auto sales would fall by 30 to 50 per cent this year if the existing market conditions don’t change and improve,” says Almas. “The auto sales are feared to drop to almost 1,30,000 units this year from the peak of around 2,00,000 units a couple years ago,” says Nabeel. The major factor for the huge decline in demand is said by the industry to be the sharp increase in prices by assemblers to pass on the impact of imposition of the five per cent federal excise duty (FED) and one per cent increase in sales tax to 16 from 15 per cent announced in the budget for the current fiscal. Moreover, implementation of the fixed rates of withholding tax (WHT) on the purchase of cars in the budget has also added to the cost of cars and other vehicles. “The total impact of various taxes and fees as announced in the current year’s budget is calculated to be in the range of Rs30,000 to Rs1,25,000 per unit depending on the make and engine capacity of the vehicle,” Almas contends. He says the assemblers had also raised the prices on an average of 10 to 20 per cent to factor in inflation and increases in their other costs. “The rising prices of cars, galloping inflation, escalating cost of leasing and imposition of taxes — which will generate little revenue for government but destroy the industry — are responsible for the slowing demand for cars,” says auto parts exporter Tahir Javed Malik. But the drop in car sales isn’t the only worry for the auto vendors. “We invested in the industry when real interest rates were low, rather negative, and economy was growing rapidly and car sales touched record highs. Now the situation is reversed — economy is slowing down, demand for cars is fast losing momentum and interest rates are going up as inflation moves up making car leasing expensive. That means the auto vending industry is being squeezed both ways as their production falls and their financial charges go up on account of rising credit cost,” says another vendor, who asked not to be named. He claims that most of the vendors are in trouble. “Even some motorcycle parts makers are also finding it hard to stay in business because their buyers (assemblers) are also in trouble.” Besides reduction in demand for cars, the vendors’ ability to sell and pass on the impact of the increasing cost of production to domestic car assemblers was severely hampered due to replacement of the deletion programme for the auto industry with tariff based system from the financial year 2006. “The assemblers either import the components or offers very reduced price to its local suppliers for the same,” the vendor who wants to remain annonymous says. “Our cost has risen enormously on account of galloping steel and energy prices but assemblers are not ready to absorb that increase,” he says. Nabeel says the vendors don’t mind in-house development or production of parts by assembers — as in case of Millat Tractors — if and where they are facing availability or capacity issues. But some car makers have gone into in-house production of or importing parts due to tarrif-based system being produced by vendors and thus shunting off suppliers and hurting their business interests, he says. He, however, says the falling rupee is making imports expensive and has begun to injure such assemblers’s sales. “That is a positive development for suppliers,” he says. “The assemblers must understand that localiastion of components is also in their best interests,” he adds. Meanwhile, an executive of a car assembler, who refused to give his name, says they were facing quality issues that made them turn to in-house production of some parts and/or imports. Moreover, he says, the assemblers are moving towards consolidation. “That means we are trying to reduce the number of our suppliers and asking some to become second tier suppliers by supplying their parts/components to other vendors who supply to us. That is critical for quality assurance and reduction in cost,” he says. Nabeel says the auto vending industry has changed a lot in last five years. “We have invested heavily in capacity and technology and need volumes to sustain,” he says. “The government should understand this fact and help us in our difficult times. The auto industry needs a stimulus to prevent further downturn and to grow at sustainable rate. This isn’t critical for our industry but also for the economy in general. Once we get sick or die the revival will be a hell of a job,” he warns.

THE NEWS Friday, August 15, 2008 By Mansoor Ahmad LAHORE: Trade promotion strategy of the country has not kept pace with the changing global and local environment which has impeded the ability of exporters to fully exploit potential markets. Economic experts regret that the previous government ignored the swelling imports simply because it could manage the trade deficit by selling the ‘family silver’ to foreign investors. What surprises them more is that the present regime has also not taken any step to put a brake on excessive imports. They say if the trade gap in July, the first month of this fiscal year, is an indicator then the deficit might cross $25 billion this year. Faisal Qamar, a chartered accountant, commenting on the issue says the economy will completely slip out of government’s hands if some drastic measures are not taken immediately to reduce imports and accelerate exports. In recent years, he says, the Trade Development Authority of Pakistan and to a lesser extent the Engineering Development Board have been trying to promote exports through participation in international trade exhibitions. On the other hand, he adds, the Ministry of Commerce and the Ministry of Textiles have been striving to resolve the issue of high cost of doing business in the country keeping in view the facilities provided by competing economies for their exporters. He says the TDAP is the changed name of the Export Promotion Bureau and the decision-making process there is extremely slow. Export promotion strategies are basically fine-tuned to benefit textile and other traditional exports, which has impeded the promotion of engineering products’ exports, he points out. However, he adds, the TDAP alone cannot be blamed for this issue. The Authority receives around Rs900 million annually from the government and after covering its operational expenses of Rs450 million, it is left with Rs550 million for export promotion through participation in foreign affairs. The allocated amount has remained the same for the last few years, he says, adding when the dollar was worth Rs55 the amount equaled $100 million and now that the dollar has increased to Rs75 this amount has come down to $73.3 million. With costs rising globally, the ability of TDAP to participate in foreign fairs has weakened, he says and suggests the allocation for promotion of exports should be in foreign currency instead of rupees. An entrepreneur in the engineering sector says exports of engineering goods can only be possible if the engineering industry of the country is introduced in foreign exhibitions in a big way. “For high value-added exports, you need aggressive trade promotion as foreign buyers will not take engineering companies seriously if they participate in international fairs in small cubicles.” He points out that the participation of engineering firms in Hanover fair for three years on funding provided by the EDB has started bearing fruits. However, with the change of guard at the EDB the plan for participation in exhibitions next year is unclear, he says and warns all the good work done by the Board in the past three years will be wasted if Pakistan fails to show up in international engineering fairs next year. Giving his views, a textile exporter says the government should speed up its decision-making process and regrets that a notification on research and development facility for different textile exporters has still not been issued. He says the government should remove the uncertainty in this regard by coming up with a clear policy. The industrial sector says the government should complete its economic team on an urgent basis so that matters impeding exports could be taken up collectively with it and adds the increase in dollar value against the rupee has abnormally enhanced the cost of projects based on imported machines. The industries ministry, it suggests, would have to find a way to reduce the cost of green industrial projects so that the export base could be widened.

Tuesday, August 12, 2008 By By Mansoor Ahmad THE NEWS LAHORE: Current turmoil in the automobile industry has claimed jobs of around 150,000 workers, mostly from auto-vending industries which are now operating at around 40 per cent of their installed capacity. A survey of the auto-vending sector by The News reveals most of the vendors increased their capacity substantially in the wake of sustained growth of over 20 per cent in automobile production during 2001-2006. This capacity is now lying idle as instead of registering some growth the automobile production is on the decline. Most of the auto-vendors, which were running three shifts a day two years ago, are now meeting their orders by operating one shift only. These small and medium industries, which have been forced to reduce their workforce, are in deep trouble as they earlier went for expansion on low-interest loans when the industry was moving on a sustainable growth path. Then the demand for automobiles started declining with increase in mark-up rates on car finance while vendors are now forced to service their loans on current interest rates as they had borrowed money at floating rates. At the same time, the vendors allege the deletion policy of the government is in doldrums. Even in vehicles with a deletion level of 70 per cent, they point out, the cost of imported components is much higher than the price paid to vendors for local components. In fact, for 70 per cent local parts the auto-vendors get only 30 per cent of the total cost of vehicle parts while the foreign exchange component for 30 per cent imported parts comprises 70 per cent of the total cost. The vendors also deeply regret losing their skilled workforce due to low production as these workers were provided in-house training at a substantial cost in various skills. The workers, they say, would divert to other fields as currently there is no work for them in the auto industry, adding they would have to retrain fresh workers when the automobile industry resumes its growth in future. “There are no chances of resumption of a growth cycle in automobile in the next two years,” says Syed Mansoor Abbas, an auto vendor. “By that time, most of the vending industries would go sick,” he says, adding many vendors would soon default on their bank loans and might be liquidated by bankers. He says the cost of production has increased enormously due to high steel and energy prices and auto assemblers are not prepared to increase the rates of parts corresponding to the rise in the cost of production. Even operating vendors, he fears, will close down if prices of parts are not increased by the manufacturers in line with the increase they have made in their cars and tractors. The News has found that motorcycle manufacturers are also in trouble. Prices of motorcycles are going down while cost of production is increasing. Some vendors say many assemblers of various Chinese brands are in deep trouble as those producing 400 to 500 motorcycles a month are operating much below the economies of scale and some might close down. The minimum survival level, according to industry experts, is production of 2,000 bikes per month or above. However, some vendors are still operating comfortably despite a negative growth in the automobile industry. They are few in number and their survival depends on finding new markets other than local original equipment manufacturers. Pakistan Association of Automotive Parts and Accessories Manufacturers’ former chairman Syed Nabeel Hashmi says many vendors have opted for exports, developing stable markets after years of hard work. Moreover, he says, many vendors have entered the local after-sales auto market that until now has been monopolised by Korean and Taiwanese auto part producers. He says local vendors have expertise to produce auto parts of international standards. They now produce parts for many foreign brands and models that are not assembled in Pakistan.

Dawn August 12, 2008 By Our Staff Reporter KARACHI, Aug 11: The sale of locally-produced cars fell by 55 per cent to 4,744 units in July as compared to 10,516 units during the same month of last year and 13,967 units sold in June 2008. Levy of five per cent federal excise duty, increase in sales tax by one per cent and fixed rates of withholding tax (WHT) have contributed to the decline of car sales. According to analyst Bilal Hameed of JS Global Capital Limited, car sales fell by 11 per cent in 2007-08 to 147,441 units as compared to 165,268 units in 2006-07. He linked the decline in sales in 2007-08 to uncertain political and economic conditions, halt in auto financing facilities by banks due to loan defaults, increase in interest rates resulting in expensive auto financing, increase in prices due to imposition of WHT and excise duty, further increase in prices and continued influx of used cars.

ISLAMABAD: The government has allowed the private sector to set up Liquefied Petroleum Gas (LPG) Auto-Gas station throughout the country, a government notification said. An official said, “the federal government has finally decided to allow setting of LPG auto-gas stations like CNG stations in the country by allowing use of LPG as auto fuel as a replacement of oil.” It would be a new sector for investment by the private sector as the LPG would be an alternate fuel for the auto sector as against the existing costly oil. In this regard, the government has made regulatory framework for use of LPG in auto sector, which has been made part of the LPG (Production and Distribution) Rules 2001 making amendments in the SRO 256 (1) 2007. The federal government in a meeting held on September 21, 2005 considered the Ministry of Petroleum and Natural Resources summary and approved in principle the use of LPG in motor vehicles, subject to Oil and Gas Regulatory Authority (OGRA) providing a regulatory frame work ensuring comprehensive safety standards. In this regard, the OGRA has devised a regulatory framework to ensure effective regulation, efficient monitoring and public or consumer safety. The Regulatory Framework for the use of LPG in the auto sector has become a part of LPG (Production and Distribution) Rules 2001 as an Appendix V by an amendment through SRO 256 (I)/ 2007. The Regulatory Framework provides general criteria for installation of LPG auto-gas stations. Now OGRA has prepared guidelines or layout plans in accordance with the approved Regulatory Framework, showing details, including the minimum required inter distances for the equipment, storage tanks and built-up areas etc. The Regulatory Framework contains the following criteria to setup LPG auto-gas stations: stand alone LPG auto-gas station, LPG auto-gas station co- located with CNG, gasoline and diesel. The LPG auto refueling or dispensing station shall only be located on roads and highways having minimum 60 feet width. The LPG auto refueling or dispensing station