Automotive market in Pakistan worth US$ 11.42B by 2025

The market size of the Pakistan automotive sector is estimated to be USD 7.02 Billion in 2018 and is expected to grow at a healthy CAGR of 7.2% to reach a market size of USD 11.42 Billion by 2025

Definition / Scope
Market Overview
Market Risks
Top Market Opportunities
Market Trends
Industry Challenges
Technology Trends
Pricing Trends
Regulatory Trends
Other Key Market Trends
Market Size and Forecast
Market Outlook
Distribution Chain Analysis
Competitive Landscape
Competitive Factors
Key Market Players
Strategic Conclusion
References
Appendix

Definition / Scope

The automobile industry in Pakistan includes companies involved in the production/assembling of passenger cars, light commercial vehicles, trucks, buses, tractors and motorcycles.

The auto spare parts industry is an allied of the auto industry. The auto & allied industry form a major sector in Pakistan. Pakistan’s auto industry is enjoying a boom as all leading automobile brands such as Suzuki, Toyota and Honda have reported high profits.

The automobile sector plays pivotal role in the development of a country in terms of revenue generation, foreign exchange, employment creation, and technology transfer.

The share of Auto Sector to GDP is around $ 7.4 Billion. The automobile sector of Pakistan was deregulated in the early 90s after which major foreign automakers, through Joint ventures with local partners, made investments in Pakistan. Currently the major automakers in Pakistan include:

Pak Suzuki Motor Company Ltd.
Indus Motor Company Ltd.
Honda Atlas Cars (Pakistan) Ltd.
Dewan Farooque Motors Ltd.
Sigma Motors (Pvt) Ltd.
Hinopak Motors Ltd.
Ghandhara Nissan Ltd

The automotive sector has deep forward and backward linkages: backward linkages in the form of reliance on a number of vendors for the supply of various components. It has forward linkages in the form of dealership networks and agents for the provision of after sales services. According to the Automotive Industry Development Programme (AIDP) the auto industry economic and job multiplier in the Pakistani context is 1:3 and 1:8 respectively.

The Automotive industry is one of Pakistan’s growing industries dominated by Japanese-manufacturer’s, most of whom have assembly plant’s in the country. Pakistan’s market is considered among the smallest but the fastest growing in South Asia, with 180,000 cars were sold in the 2014-15 fiscal year, rising to 217,392 units 2017-18 fiscal year.

The market is dominated by three Japanese automobile companies, Toyota, and Suzuki, each of the two has assembly plant’s in Karachi and Honda has its plant in Lahore , all co-owned with local partners.

The auto policy passed on March 19, 2016, which offers tax incentives to new entrants to help them establish manufacturing units. In response, Renault-Nissan and Audi have expressed interest in entry into Pakistan’s automobile industry.

Market Overview

The automotive industry in Pakistan is the one of the fastest growing industries of the country, accounting for 4% of Pakistan’s GDP and employing a workforce of over 1,800,000 people

The automotive sector of Pakistan is set to grow at a healthy CAGR of 7.2% in the forecast period 2018-2025.

Currently there are 3,200 automotive manufacturing plants in the country, with an investment of Rupees 92 billion (US$870 million) producing 1.8 million motorcycles and 200,000 vehicles annually. Its contribution to the national exchequer is nearly Rupees 50 billion (US$470 million).

The sector, as a whole, provides employment to 3.5 million people and plays a pivotal role in promoting the growth of the vendor industry.

The Penetration of automotive in Pakistan is relatively lower with approximately 13 cars per 1,000 inhabitants and a rapid urbanization is witnessed with 40.5% being the urbanization rate. These two factors are expected to drive the growth of the automotive sector of Pakistan

Pakistan’s auto market is considered among the smallest, but fastest growing in Asia. Over 180,000 cars were sold in the fiscal year 2014-15, rising to 217,392 units in fiscal year 2017-18

At present, the auto market is dominated by Honda, Toyota and Suzuki. However on 19 March 2016, Pakistan passed the Auto Policy 2016-21, which offers tax incentives to new automakers to establish manufacturing plants in the country.

There are 15 companies in production of which 5 are automotive producers and 10 are commercial vehicle producers.

Pakistan has not enforced any automotive safety standards or model upgrade policies

Market Risks

High rate of duties and tariffs

There are several value added taxes and tariffs implemented in addition to the actual cost of the automobile which includes the duties put on the imported CKD kits and other parts, and the Capital Value Tax.

Lower Production inspite of Higher Production Capacity

Although the automobile industry, on the whole, has a production capacity of approximately 100,000 units, current production levels hover at about 40,000 units

Dependence on International Suppliers

Almost the entire car manufacturers depend on international suppliers for spare parts. A limited number of spare parts are available locally; however, there have been complaints of low quality and sub-standard parts.

Top Market Opportunities

Lower Penetration

The penetration of automobile is extremely low with approximately 13 cars per 1000 inhabitants compared to 809 people per 1000 in the USA, 519 people per 1000 in the UK, and 101 people per 1000 in China, thus the automotive market in Pakistan is poised to attain higher growth.

Rapid Urbanization A rapidly growing urbanization rate of 40.5% in Pakistan, through increased urbanization that subsequently translates into travel demand. While on one side demand for travel is escalating, Additionally in Pakistan, private automobiles grow at an exponential rate compared to public transport which is expected to drive the demand for automobiles thereby fueling the growth of the Automotive Sector.

Presence of limited number of OEMs

The presence of only three OEMs presents an opportunity for new OEMs to enter the market and satisfy the unmet need of end-customers. With the passing of Automotive Development Policy (ADP) 2016-21 it is expected that major international players including Renault, Kia Motors, BAIK Motors are set to enter the Pakistan Automotive market with an investment totaling USD 800 Million.

Market Trends

Change in the Government’s Automotive Policy

The Government of Pakistan has introduced the Pakistan Auto Policy 2016-21 which offers tax incentives to new entrants to help them establish manufacturing units. and trucking policy which provides sustainable measures for the modernisation of trucking sector.

This change in the government’s automotive policy is expected to spur local OEM investment in the country in terms of assemblers and thereby contribute to an increase in sales. This is expected to further propel growth in downstream industry activities, especially automotive servicing and parts.

Actually the government is actively considering broadening of the industrial base by offering attractive incentives to the global players in the auto sector and the initiative taken by the government are likely to yield tangible results.

Rising Demand

The rise in middle class income, young population and greater availability of credit and financing options, have resulted in strong demand for automotives in Pakistan. The automobile financing options start at an attractive interest rate of 6% per annum which enables the middle class to opt for auto loans thus fuelling the demand for automotives in Pakistan.

Favorable macroeconomic factors

With Exports (in US$ terms) growing by over 15 percent in FY 2018, Investment as a share of GDP increasing to 17 percent in FY 2018, A wide-ranging program of economic reforms launched which includes privatization of production.

The external environment of low interest rates, abundant liquidity, and robust external demand, has also been favorable for the country’s growth. These factors in addition to the rising demand is fueling the growth of the automotive sector of Pakistan.

Foreign Direct Investment

In order to accelerate the pace of investment, the government has offered to support both existing car assemblers and the new entrants with the promising incentives, which will be in addition to those provided in the Pakistan Auto Policy 2016-21.

So far more than 12 automakers have announced to collaborate with different companies in Pakistan, under the Greenfield as well as Brownfield investment categories. These automobile companies have collectively made an investment of more than $800 million in the country.

Poor Vehicle Quality

Vehicles sold in Pakistan are degraded way beyond international standards and are sold at higher prices than the international market.

And this practice is quite common in top-end companies including Toyota Indus, Honda Pakistan, and Pak Suzuki which remove features and accessories, that are present in international-grade counterparts, for the discriminated Pakistani market. Disconcertingly, these degraded units are sold at higher prices too and allow the company to make extra profit in return.

Inferior Technology

Pakistan’s automotive industry is dominated by 3 japanese majors including Toyota Indus, Honda Pakistan, and Pak Suzuki produce sub-standard products at higher price thereby pricking the growth of the automotive market.

Outdated Model Designs

In a country where used cars are preferred by the citizens, the manufacturers are still producing obsolete and outdated model designs. As high cost of financing is still prevalent customers are bugged from buying new cars, because of lack of growth the OEM’s are forced to produce old models

Industry Challenges

Infrastructure challenges Insufficient road infrastructure and traffic congestion could be a bottleneck in the growth of the automotive industry.Increased private transport on urban roads has caused severe congestion.With only 262,256 Kms of roads the road network of Pakistan is ill-connected to support the demand from the automotive sector.

Poor Fuel Quality The fuel available in Pakistan is low in quality with the manganese rich fuel which damages the automobile engines by choking its catalytic converter and also releasing toxic gases in addition to the usual carbon content.Other than significantly polluting the air, these gases also leave an adverse effect on human health. OGRA, after its tests, confirmed that the local fuel actually does have undesirable quantities of manganese.

Lack of Availability of Spare Parts The Spare parts of some auto manufacturers such as Honda are not available in the open market.It is also found that companies charged a high mark up on spare parts due to lack of competition. Due to these reasons Consumers of car makers, whose spare parts are not available in the open market, have no choice but to purchase them and get their vehicles serviced through the company’s authorised service stations only.

Poor After-Sales Service It is believed that the After-Sales service offered by the service providers are set to drive the automobile buying decision of the Consumers.The Car-maintenance Service and After-Sales service offered by most service providers are poor in quality hence it deprives the growth of the automotive sector of Pakistan.

Skilled labor shortage In previous two years it is witnessed in Pakistan’s Automotive sector that people left their previous organization and moved to join new companies with attractive pay and it is also found that no one from government and neither from Automotive Industries side are showing interest in investing on learning and development programs to increase the skills of the employees. To cop up this situation Pakistan Automotive OEM`s need to close liaison with the government for collaborative training programmes

The complaints presented by the customers and criticise auto companies for

Failure to deliver quality vehicles
Setting unfair prices for their products which are much cheaper in other countries
Outrageously long delivery periods
Black marketing in the form of on-money schemes
Failing to provide basic safety features

It is also found that there’s no regulatory body in place to inspect the quality of the vehicles being sold which hinders the delivery of quality automobiles in the country.

Technology Trends

With the rise in the popularity of the electric vehicles, Pakistan market of Automobile is also shifting toward the fuel free driving experience. In the recent year many distributors have already introduced electric vehicles in Pakistan market. Due to its feature of using electricity instead of fuel, these types of vehicles are gaining popularity among people. These vehicles are eco-friendly and cost effective too. Hybrid car in Pakistan as a new technology is also getting popularity. The government had proposed a reduction in Customs duty on import of electric vehicles from 50 percent to 25 percent, and 15 percent regulatory duty exemption
Connectivity is in the early stages of adoption in Pakistan. A minuscule share of vehicles sold in Pakistan come with factory-fitted connectivity features. There are several connectivity-linked applications that are picking up in Pakistan. Basic in-car entertainment, navigation, and in-car connectivity have evolved rapidly over the last decade. More advanced telematics features that utilize car sensor data, driving behavior, and vehicle-health parameters are also evolving.

Pricing Trends

Raw materials contribute about 47% to the cost of a vehicle. On average, an automobile is 47% steel, 8% iron, 8% plastic, 7% aluminum, and 3% glass. Other materials account for the remaining 27%.

Approximately 22% of an automaker’s operational costs depend on steel. So, any fluctuation in global steel prices has a direct impact on profitability. Steel prices per tonne costs around Rupees 1,00,000, Iron-Ore price is Rupees 76.54 per tonne, while Aluminium costs around 265,875.60 per tonne.

Regulatory Trends

The Government has passed the Automotive Development Policy (ADP) 2016-21. As per the Economic Coordination Committee of the Cabinet (ECC), policy has been framed to facilitate higher volumes of vehicle production, attract investment, ensure enhanced competition and offer high-quality automobiles in line with emerging opportunities within the country and region. The policy has been passed with a mid-term policy review mechanism to achieve car production of over 350,000 by the year 2021.
The major aim of the policy, is to attract new investment in the industry by lowering the entry threshold for new investors. New investment in ADP-16 is defined as, “installation of new and independent automotive assembly and manufacturing facilities by an investor for the production of vehicles of “make” not already being manufactured in Pakistan.” The policy offers all benefits to those investors who fall into the category of “make” and not “assembled.”

Other Key Market Trends

As high cost of financing is still prevalent customers are bugged from buying new cars, because of lack of growth the OEM’s are forced to produce old models.
On environmental and carbon emission standard, the world today is at Euro-6 while Pakistan’s “Big-3” are at Euro II. This is an obsolete standard issued in 1996 for passenger cars. Since then Euro III (2000), Euro 4 (2005), Euro 5 (2009) and Euro 6 (2014) have been launched, but because of deep snoozing and planned facilitation of monopoly, our authorities have never uttered a single word in this regard.

Market Size and Forecast

The market size of the Pakistan automotive sector is estimated to be USD 7.02 Billion in 2018

Although the Pakistan Automotive sector is smallest, it is also one of the fastest growing in Asia Pacific with CAGR of 7.2% in comparison to India growing at 7%,Australia and Cambodia growing at 5%,Malaysia growing at 4%, Thailand and South Korea growing at 3%.

Pakistan is the 5th largest motorcycle market in the world after China, India, Indonesia and Vietnam. With 7,500 new motorcycles being sold everyday, Pakistan is also among the world’s fastest growing two-wheeler markets. The Passenger car and motorcycle sales in Pakistan are both growing at rates of over 20% a year.

Nearly 2.3 million motorcycles have been manufactured from the factories in Pakistan in the last 10 months. According to the latest data from Pakistan Bureau of Statistics (PBS) the production of motorcycles jumped 22.34 percent in the first four months of fiscal year 2017-18 (FY18), over the corresponding period of FY17.

According to Pakistan Automotive Manufacturers Association (PAMA) Pakistan’s automobile market is also expanding along with the motorcycle market. Sales of passenger cars soared 20.4% to 217,987 in the current fiscal year of 2017/18, recently released official data shows. Car sales were 85,901 in the same period of last fiscal year.

Three wheelers’ sale in the country also rose to 156,497 units in June 2018 from 129,342 units in the same month of 2017, posting an increase of 21 per cent.

The automotive industry in Pakistan is the one of the fastest growing industries of the country, accounting for 4% of Pakistan’s GDP and employing a workforce of over 1,800,000 people

Market Outlook

Pakistan automotive market is expected to reach a market size of USD 11.42 Billion by 2025 growing at a healthy CAGR of 7.2%.

The passenger vehicle sales in India crossed the 203274 units in FY18, and is further expected to increase to 300000 units by FY20.

Overall automobile exports grew 13.01 per cent year-on-year between April-December 2018 It is expected to grow at a CAGR of 5 per cent during 2018-2025. Also, luxury car market in Pakistan is expected to grow at a 25 per cent CAGR till 2020.

Pakistan is the 5th largest motorcycle market in the world after China, India, Indonesia and Vietnam. With 7,500 new motorcycles being sold everyday, Pakistan is also the among the world’s fastest growing two-wheeler markets.

The Light Commercial Vehicle market is growing at a CAGR of 3.1% totaling a sales of 37,546 units in 2018 as compared to 36,411 units in 2017

The Truck sector is posting a negative growth of -3.2% in 2018 with only 8,175 units sold in 2018 in comparison to 8,447 units sold in 2017.

Buses posted a phenomenal growth rate of 13.6% in 2018 with 980 units sold in comparison to 863 units sold in 2017.

Distribution Chain Analysis

The Second tier Supplier refers to the supplier of raw materials such as Steel,Aluminium,Iron-ore, Plastic and glass.Once the second-tier supplier provides the required raw materials, the First tier Suppliers procure the raw materials and start the manufacturing process.

When the manufacturing of the automobile is completed the automobile gets stored in the Warehouse for future delivery. Once the request is raised from the customer for procuring an automobile, the automobiles are shifted from the Warehouse to the dealers of automobiles with whom the request has been raised from the customer and finally the automobile is delivered to the end user.

Competitive Landscape

In Pakistan as auto parts sector is not organised therefore the technological know-how and expertise is available to only a few large exporting vendors.

Due to this reason, most of the vendors are engaged in basic and low-end products. This weakness offers a huge potential for new entrants with technological know-how and modern production facilities.

A combination of strategies is in play in the automobile sector. For example, Pak Suzuki follows cost leadership, in its production and other areas, while Indus Motors and Atlas Honda depend on differentiation to promote their sales.

Competitive Factors

Brand Equity:

Brand image is a factor that provides competitive advantage. It is not only the factor that provides competitive edge but still it is a factor that keeps the business going in tough business climate. Brand equity is a result of customers perception about a brand.There are a variety of car brands in the market with varying brand images.

From luxury to low cost, there are a wide range of alternatives available to customers. Some of the brands have the image of sporty and stylish while other have more of a premium image. Responding to customer expectations in time and providing them a product that suits both their style needs and utility expectations is an important strategy that helps brands build equity.

Technology :

In the 21st Century technology is an important competitive factor. With changing expectations so does the technological landscape. Technology can only satisfy the high expectations of customers. Technological Innovations has become important for other reasons too.

Environmental safety concerns have turned to be priority and hence companies are innovating for sustainability. Simultaneously, the demand for digital has also gone up requiring brands to invest more in this area. Down the supply chain and distribution chain too, the need for technology has grown.

The automobile manufacturers are leading towards AI to make vehicles safer and to provide a higher level of connectivity that can help the customers locate everything from gas stations, restaurants and shopping malls.

Efficient Supply and Distribution System:

Apart from the other factors the brand that wants to rule the market must focus on supply chain and distribution as well as satisfactory after sales service. An efficient supply chain is an essential part of a high standard value chain.

Supply chain efficiency means you do not have to look for raw material when you need it for production. It enables them to have the right quality raw material at the right time. Quality in the supply chain has become an important concern and so the automobile brands only adopt the suppliers who have the ability to surpass the minimum quality standards and deliver better than expectations.

Marketing Capabilities:

Innovative marketing is imminent for retaining the leadership position. Competition in the automobile world is immense giving rise to a need for innovative marketing methods and capabilities. Auto marketers are trying every channel from the traditional ones to the social media to market their products and brand.

Marketers are using digital channels and technology to target their marketing efforts. Brands have become more aggressive in terms of marketing since sales to a great extent are affected by how much positive buzz are created related to the product.

Key Market Players

Pak Suzuki Motor Company (PSMCL) is a Pakistani affiliate of Japanese automaker Suzuki It is the Pakistani assembler and distributor of cars manufactured by Suzuki and its subsidiaries and foreign divisions. Currently Pak Suzuki is the largest car assembler in Pakistan.

Honda Atlas is a Pakistani automobile manufacturer and joint venture between Honda Motor and Atlas Group, based in Lahore, Pakistan since 1992. Honda Atlas is the authorized assembler and manufacturer of Honda vehicles in Pakistan.

Indus Motor Company Limited, operating as Toyota Indus, is a Pakistani automobile manufacturer and joint venture between House of Habib, Toyota Tsusho and Toyota Motors, based in Karachi, Pakistan since 1990. Indus Motor is the authorized assembler and manufacturer of Toyota and Daihatsu vehicles, auto parts and accessories in Pakistan since 1 July 1990 at its 105 acres (0.42 km2) manufacturing plant at Port Bin Qasim Industrial Zone, outside Karachi.

Ghandhara Nissan is a Pakistani automobile manufacturer based in Karachi, Pakistan since 1981. Ghandhara Nissan is the authorized assembler and manufacturer of Nissan, Dongfeng, JAC & Renault Trucks vehicles in Pakistan.

Hinopak Motors is a Pakistani truck and bus manufacturer based in Karachi, Pakistan. It is the largest bus and truck manufacturer in Pakistan and the authorized assembler and manufacturer of Hino vehicles since 1985 at its assembly plant at S.I.T.E Industrial Area

Al-Ghazi Tractors is a Pakistani tractor manufacturer based in Dera Ghazi Khan, Pakistan since 1983. It is the authorized assembler and manufacturer of New Holland tractors and generators in collaboration with Fiat New Holland.

Master Motors is a Pakistani bus and truck manufacturer, based in Karachi, Pakistan since 2002. Master Motors is the authorized assembler and manufacturer of Changan, Mitsubishi Fuso, Iveco Trucks, Foton & Yutong vehicles in Pakistan. Master Motors is made an agreement with Chinese automoblie company Changan Automobile after awarded Greenfield status by Ministry of Industries & Production. Master Motors is also assembling Italian Iveco Trucks in Pakistan starting from mid 2019.

Ghani Group of Companies commonly known as Ghani Group is a Pakistani multinational conglomerate company headquartered in Lahore, Punjab, Pakistan. It encompasses different business sectors: Mining, Glass, Poultry and Automobiles. Ghani Group of companies was founded in 1959 by Aitzaz Ghani as a trading company. It has operations in two countries Pakistan and UAE. The major Ghani Group of Companies are Ghani Food, Ghani Mines, Ghani Halal Feed Mill and Ghani Automobile Industries

Strategic Conclusion

The market size of the Pakistan automotive sector is estimated to be USD 7.02 Billion in 2018 and is expected to grow at a healthy CAGR of 7.2% to reach a market size of USD 11.42 Billion by 2025.

The major risks faced by the automotive sector in Pakistan includes High rate of duties and tariffs, Lower Production inspite of Higher Production Capacity, and Dependence on International Suppliers.

The growth of the automotive sector in Pakistan is driven by factors such as Change in the Government’s Automotive Policy, Rising Demand, Foreign Direct Investment and Favorable macroeconomic factors.

Appendix

USD – US Dollar
CAGR – Compounded Annual Growth Rate
OEM – Original Equipment Manufacturer
PBS – Pakistan Bureau of Statistics
ADP – Automotive Development Policy
ECC – Economic Coordination Committee