PESTLES Analysis of Automotive Industry in Pakistan .

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 1.8 million people.

Pestles analysis of automotive industry of Pakistan is following.

1. POLITICAL.
 The Federal Board of Revenue (FBR) has reversed its consideration of providing
sales tax relief to the auto industry just before the summary was set to be presented
before the federal cabinet for approval.
As a result of yet another U-turn, the move which was thought to be a welcome
development for the revival of the auto sector has now been removed from the
equation. According to the details, FBR had earlier moved a summary to the federal
cabinet for approval on reducing the sales tax liabilities on as many as 32 imported
products including auto parts, tyres, tubes and batteries used by the car assemblers.
However, the summary has been withdrawn on the day of the scheduled cabinet
meeting in which it was supposed to be discussed. It was proposed to remove the
3% value-added tax (VAT) on these products and collect the standard 17% sales tax
on their retail prices.
 the Federal Board of Revenue enlisted imported items and their respective customs
tax. The new SRO amended the older one, changing custom duties, increasing the
tax rate charged on the import of new vehicles by 30%.
 The Pakistan Standards and Quality Control Authority (PSQCA) is the national
standards body. The functions of PSQCA include the establishment and enforcement
of national standards, registration of inspection agencies, and assessment of
industrial raw materials and finished products for compliance with international
standards.
PSQCA has been designated as the WTO-TBT National Enquiry Point on Technical
Barriers to Trade (TBT) of Pakistan under the TBT Agreement (Article 10.1, 10.2 and
10.3) to facilitate the exporters/traders/ manufacturers in the country and also
importers from WTO member countries. This enquiry point is responsible to
disseminate information on TBT notifications, deals with queries regarding
standards, technical regulations, and conformity assessment procedures.
 When the rupee depreciation hits the nation, it jolts the entire economy. From
January 2019 to July-mid 2019, the Pakistani rupee was at 159.70 PKR per dollar, its
lowest in the history.
According to local car manufacturers, the rising dollar affects the imports of parts.
The parts that are imported would cost more, increasing the cost to manufacture
thus raising automakers are left with no choice but to increase ex-factory prices.

 The government is deviating again from Auto Policy 2016-2021 by contemplating to

give an existing original equipment manufacturers (OEM), Greenfield status on
launch of its new models putting the investment of over one billion dollars by new
entrants in jeopardy.

New entrants in the car manufacturing industry have expressed serious reservations
 on developments as Automotive Development Policy (ADP) 2016 - 2021 does not
allow existing OEMs any concessions envisaged under category "A" (Greenfield
Investment) or category "B" (brownfield investment).

They are of the view that the incentives under the ADP are for new entrants only and
not the existing incumbent OEMs even if they bring in fresh investment for
expanding their existing production capacities and / or bring in existing / new models
of the same make. (hundai, proton, kia, renolt).
2. ECONOMIC.
 The action has been taken keeping in view the rising prices of petroleum products in
the international markets from the mid of September 2019.Note that on 29
September 2019, the Oil and Gas Regulatory Authority (OGRA) recommended the
government to decrease the price of petrol by Rs2.55 per liter and that of diesel by
PKR Rs3.23 per liter. The authority also urged the petroleum division to decrease the
price of light-speed diesel by Rs2.41 per liter; however, insisted to increase the rates
of kerosene oil by Rs1.19 per liter.
Despite the recommendations by OGRA, the government has not decreased or
increased the prices.
The current prices are as follows:
Petrol: Rs.113.24 per liter
High-speed diesel: Rs. 127.14 per liter
Kerosene oil: Rs.99.57 per liter
Light-speed diesel: Rs.91.89 per liter

 According to the data released by the Pakistan Bureau of Statistics (PBS), the import
of cars in Pakistan has drastically declined by nearly 85% during the first two months
of the fiscal year 2019-20.
The data reveals that the import of completely built units (CBU) has gone down
to $9.46 million during the first two months of FY 2019-20 as compared to $61.88
million during the same period last year. Similarly, the imports of completely
knocked-down (CKD) units also plunged by 15.46% due to an increase in the cost of
assembling. The imports during the first two months of FY 2019-20 were recorded
as $123 million as compared to $145.5 million in the corresponding period last year.

The beginning of the fiscal year 2019-20 has not been an ideal one for the local auto
industry by any means. In fact, things have gone terribly wrong in this short time
span. The auto industry is on the verge of collapse in the current state of the
 economic crisis in the country. However, the government’s steps towards curbing
the car imports have worked quite well in the first two months of the fiscal year
2019-20. One of the major reasons behind this sharp decline is the imposition of
several restrictions by the government on the import of cars under which the
customs clearance for them could only be done through verified payment. The
remittances required for the payment of duties and taxes are bound to be drawn
from the account of the Pakistani national who is sending the vehicle into the
country. In case of a non-existent or non-operational bank account, remittances can
be received from the account of a close family member. The government has
allowed the import of vehicles under personal baggage, gift scheme, or transfer of
residence only.
These steps were taken to curb the malpractices in the market. Previously,
only 5% of the cars were imported by genuine Overseas Pakistanis under the allowed
schemes. A majority of car importers were using the passports of Overseas
Pakistanis for importing cars. Due to the illegal means of car imports, the country has
suffered quite badly from money laundering and outflow of foreign exchange over
the years. The top beneficiary of the restriction on car imports has been none other
than Pak Suzuki. A large proportion of used cars were imported into the country
from the Japanese market. A majority of these cars majorly belonged to the
hatchback category of 660 cc engine capacity. This segment is largely dominated by
Pak Suzuki in the local auto sector. The ban on imported hatchbacks resulted in an
increase in sales of locally manufactured budget hatchbacks of Pak Suzuki.

3. SOCIAL.
 Car Culture in Pakistan.

In Karachi. The cars in Karachi have the highest rate of categorical diversity among
them. Frequently, you see cars which are expensive and unique. Ferrari’s, Bentley’s
Aston Martin’s and what not? Karachi has them all. The tuner cars in Karachi are also in
a good quantity.
There are so many good vehicles in Karachi that the people living there don’t get excited
so easily by seeing a good car. Unlike Lahore and Peshawar, Karachi has an extensive
range of unique vehicles. The reason of this is the fact that majority of the famous
personalities with political and showbiz background originate from Karachi. The quantity
of such vehicles is also justified because Karachi is very populous.
In Islamabad. Islamabad is known to be the most exclusive city in Pakistan. It is because
of the fact that Islamabad is home to the VVIPs of the country which include highly
ranked government and defense personnel. Moreover, the overall living standard in
Islamabad is very high and the people living there, own very distinctive vehicles.
The cars in Islamabad are generally expensive, high-end saloons followed by a good
majority of SUVs. It’s partly because the majority of international embassies are in
Islamabad and the cars belong to the officers in them and partly the cars belong to
wealthy residents of Islamabad who buy Mercedes Benz E250 for their wives so that
they can go see their parents. Not much of an abnormality for them, but for the people
living outside Islamabad.
 Coming to the other category of cars in Islamabad, we have a wide variety of sports cars
and tuners as well. Peshawar being a nearby city, the young petrolheads of Islamabad
can easily grab performance upgrades and stuff for their rides and fulfill their adrenaline
requirements.
In Lahore. the Car culture of Lahore is so unpredictable. The Androon Lahore is a place
which is full of bikes and rikshaws and public transport and if I had a good car, I would
think twice before taking it to such place but I don’t comprehend the mentality of
people who bring their exotics and luxury cars to such places.
In the exotic collection, cars in Lahore include Ferraris including 2 599s, Lamborghinis
and way too many Porsches and Audis including a few R8s. Our sources tell us that there
are some more exotics that are never seen on public roads due to unknown reasons. In
the tuner section, Lahore is full of Mazda RX8s, RX7s, Nissan GTRs, 350Zs and so on.
What’s interesting in this culture is the recent revival of the tuning category. Probably,
majority of old cars in Lahore which have a sporty history are swapped with engines that
make them go like a bullet and would embarrass a pretty expensive and quick car with a
loud exhaust mocking them in their faces. More interestingly, this category is one of the
most unpredictable. Moreover, getting the suspension revamped and running on a
lower height with shorter springs or coilovers is the new Dolce&Gabbana. I won’t be
surprised now if I see a pretty fast Daihatsu Charade of the 80s because that car is
capable of running on any FWD engine or a 6th Generation Honda Civic scrapping its
underbody due to immensely low ride height because our young and enthusiast
automobile freaks are willing to spend all of their pocket money on them.
 Consumer Attitude.
The stats show that the trend of buying cars of 1300cc engine displacement or above has
gone down by 62.66% as compared to the sales in August 2018. As we move down to
the 1000cc engine capacity category of cars, the sales have declined by 49.50% in August
2019 as compared to the corresponding period during last year. The overall passenger
car sales are recorded at 9126 units as compared to whopping 15,389 units last year
hence declined by 40.69%.
4. TECHNOLOGICAL.
Today’s cars are evolving rapidly from being boxes meant for transportation of people and
cargo to smart and efficient vehicles. So here is my list of the five big, long-term automotive
engineering trends that are going to fundamentally change our outlooks on the kinds of cars
we’ll drive tomorrow. I will be ranking them on the basis of their current and long-term
impact, their benefit to the manufacturer and the consumer and for how long they may
potentially continue.

 Efficient Engines.
The general consensus among the automotive community half a decade ago was that the
internal combustion engine is dying. We had soaring fuel prices (Does anyone remember the
days of 110+ Rupees/Liter of Petrol?) and the arrival of successful electrified cars like the
Toyota Prius, Honda Insight and the Nissan Leaf. However, the engine soldiered on thanks to
a wave of new technologies like Turbocharging, Direct Injection, Computerized Variable
Valve Timing, Auto Start-Stop (Better known here as Eco-Idle), High Compression
Ratios, Atkinson Cycle Layouts and the list goes on and on. Despite attaining maturity a while
ago, the amount of modernization the internal combustion has been through is incredible
and the future still has a lot in store with Mazda’s SkyAktiv-X compression ignition engines,
Achates Power’s Opposed Piston Engine which claim up to 45% thermal efficiency,
compared to 25% for a normal engine and Mazda’s experiments with variable compression
ratios offer an enticing proposition for the internal combustion engine of tomorrow. It safe
to say that I don’t see this trend of modernizing the engine stopping anytime soon. It
however stays at the bottom of my list as the future does look not as bright for the
combustion engine as it does for the rest of the trends on feature today.

 Electric Vehicles.
 2

Battery electric vehicles and fuel cell electric vehicles are undoubtedly the future. Their
simplicity, efficiency, Eco-friendliness and complete lack of complex mechanical parts will
appeal to both manufactures and consumer alike. In the 2017 Electric Vehicle Outlook
Report by Bloomberg New Energy Finance, it was stated: “Tumbling battery prices mean that
EVs will have lower lifetime costs, and will be cheaper to buy, than internal combustion
engine (ICE) cars in most countries by 2025.“ I still ranked them fairly low because they
remain a tiny fraction of total car sales today. That may not change until we have a major
breakthrough in battery technology that solves the two biggest issues associated with
electric cars; charging times and range. With that being said I firmly believe that widespread
EV adoption may take place as soon as 2040 and apparently so does Bloomberg and that will
signal the end of an era.

 Connectivity.

Just like pretty much everything in the 21st century, your car is also connected to the vast
Internet of Things (IoT). Whether it is Apple Carplay, Android Auto or 4G LTE services in the
infotainment system, inexpensive OBDII dongles to monitor vehicle statistics or remote
access from a smartphone app, connectivity is going to be a game changer. Many cars today
allow you to locate them remotely, start the engine and even set the climate control all from
a smartphone app. DSRC (Dedicated Short Range Communication) and IEE 802.11V are
allowing new ways for vehicle-to-vehicle communication and to collect data for insurance or
ride share programs. In many ways, the cars of tomorrow are going to be the richest data
probes in your life and if that makes you feel insecure, you can always drive a Suzuki
Mehran.

 Driver Assistance and Autonomy.

 Autonomous driving is an emerging mega-trend that will radically reshape the logic of how
we approach cars, impact the number of road fatalities and give way to many other services
like ride sharing and car sharing programs. Driver assistance in the form of adaptive cruise
control, autonomous emergency braking and lane departure prevention in today’s semi-
autonomous driving programs like Cadillac’s Super Cruise, Nissan ProPilot Assist, Volvo Pilot
Assist, Toyota Safety Sense P, Honda Sensing, BMW DriveAssist and Tesla Autopilot all aim to
make driving safe and secure. These driver assistance programs will eventually evolve into
full autonomy and will change the very nature of how we approach cars It may make people
less interested in owning cars in favour of ridesharing programs like Uber. It may negatively
impact manufacturers like Bugatti, Ferrari and Lamborghini whose entire existence is based
on the driving pleasure. This may be the trend that most impacts how we see the cars of the
future. The recent fatal crash of a 49-Year old pedestrian with an autonomous Uber SUV
may have left many people skeptical about the prospects of self-driving cars. However, any
objective person who has seen the footage of the crash cannot argue; the crash was simply
unavoidable. Even if there was a human operating the vehicle, there is no way he/she could
have reacted fast enough to the vehicle to stop before impact.

 Making Cars Lighter.

My number one engineering trend for today and tomorrow has undoubtedly surprised you
all. But saving weight is everything. When a car is lighter, it accelerates better, gets better
fuel economy and a result has lower emissions, handles and corners more elegantly, brakes
more quickly and puts less wear on its own parts like shocks, engine mounts, suspension
components and tires. All high-performance cars today aim to weigh less using remarkable
new materials like carbon fiber and aluminium alloys etc. Or using CAD to design parts that
weigh less, perform better and are stronger at the same time. For context, the hypercars of
today like the Lamborghini Aventador SV, Bugatti Chiron, La Ferrari and McLaren P1 all make
extensive use of weight-saving techniques like using Aluminium sub-frames and carbon-fiber
passenger cells. Saving weight truly is the holy grail in car design and will remain so as long
as cars exist.

5. LEGAL.
 Business law protect companies for any monopolistic competition.
 Legislation protects the interests of society.
 Law to protect consumers from unfair business practices.
 Revised taxes rates . (withholding tax, income tax on annual token tax)

6. ENVIRONMENTAL.
 There are no standards evolved for the automobiles produced in Pakistan nor there are any
labs to check the standards of safety, etc. Even there is no facility to gauge emission
standards.
These labs must be fully equipped and internationally accredited but unfortunately our
government takes no action in this regard, he said.
We need specific standards of our own and also have to concurrently develop labs to check
them. It will be futile to have only standards without checking the mechanism.
The new auto policy proposes to participate in WP 29’s International Whole Vehicle Type
Approval (IWVTA) scheme and adopt all global technical regulations.
At present, different countries adopt different regulations to ensure safety and
environmental protection and any vehicle, whether domestically made or imported, must
conform to them.
 Manufacturing eco-friendly cars to reduce air pollution.
Growing number of vehicles in the country has become one of the major sources for severe
air pollution; Pakistan's urban air pollution is among the most severe in the world, which
damages both human health and the economy. Sources told Business Recorder here on
Monday that the estimated number of vehicles in Pakistan has jumped from approximately 3
million to around 15 million in 2018 over the period of last 20 years, causing severe air
pollution due to the variety of reasons.

"Karachi alone has more than 3.3 million vehicles and the number is increasing at an
alarming rate of 1000 vehicles per day. Vehicles alone contribute about 70 to 75 percent of
poor quality air in urban Karachi, which is measured as PM 2.5 (particle matter)," they
added.

According to environment experts, managing emissions from mobile sources is an area of

grave concern and thus it is imperative to adopt a cleaner fuel, such as CNG/LNG and
electricity. Possible interventions to control and reduce PM emissions from mobile sources
include: reducing sulfur in diesel and fuel oil; retrofitting in-use diesel vehicles with PM
 emission-control technology; converting diesel-fueled minibuses and vans to CNG/LNG;
controlling PM emissions from motorcycles; and converting three- wheelers (rickshaws) to
CNG/LNG.

They believed these interventions would not only reduce PM emissions, but low-sulfur fuels
would also reduce secondary particulates by reducing sulfur dioxide emissions.

"The most cost effective way would be to change vehicle to the cleaner fuels. Cars running
on CNG/LNG or electricity would help. In most countries all public transport, including buses,
trains, trams run on electricity or LNG now," they added.

The experts pointed out that vehicle emissions is not just limited to increasing private cars
but from all types of vehicles ply on the roads of all major cities, including old buses, motor
bikes, rickshaws and goods transport, all these vehicles are contributing in air pollution.

"The best and easiest solution to improve the air quality and to control the environmental
pollution is to move three wheelers and four wheeler vehicles to cleaner fuel, such as
CNG/LNG, which is available in the system. Switching to CNG/LNG as a fuel also makes
economic sense, since its retail price is about 55-65 percent of the cost of the fuel being
replaced," they added.

They stressed that CNG/LNG is cleaner than petrol by 20-30 percent and diesel by 30-40
percent. Hence, they suggested, as a first step with growing imports of LNG and the
government's plans to drill for more natural gas, the government should enact laws to
convert all public transport (buses and rickshaws) and trucks to CNG fuel.

While citing a World Bank report (published in 2014), they revealed that urban air pollution
silently kills more than 30,000 people each year and is responsible for more than 100,000
hospital admissions per year, including cases of chronic bronchitis, and several million cases
of lower respiratory cases especially among children under five.

They claimed that Pakistan's urban air pollution is among the most severe in the world, and
it significantly damages human health and the economy. "Last year, in Lahore the air quality
index (AQI) reached 588 in December when it should be under 50 AQI. Karachi, Islamabad
and Peshawar cities also have poor AQI. Winter months averages 150 to 250 AQI (air visual
data)," they added.

According to them, pollutants in air not only cause serious health issues but also become a
source of economic loss for the country. A 2013 assessment by WHO's International Agency
for Research on Cancer (IARC) concluded that "outdoor air pollution is carcinogenic to
humans, with the particulate matter component of air pollution most closely associated with
increased cancer incidence, especially cancer of the lung".

7. SAFETY.
 Not following international safety rules.
Automotive safety in Pakistan has always been a concern for the end users. Pakistan’s Motor
Vehicle Ordinance and legislation on vehicle safety have not been amended since 1969. We
unfortunately have a 49-year-old safety standard. Every year around 13,000 people are
killed and around 50,000 are injured because of road accidents. The estimated total cost of
these accidents and deaths are around 100 billion per year to our national exchequer.
 Numerous essential safety features are omitted from Pakistani vehicles. This can be
determined by the fact that most prominent automakers in Pakistan charge around Rs1.3
million to Rs1.8 million and for this much amount people do not even get ABS brakes and
airbags in their vehicles.
Moreover, few automakers in Pakistan do not even crash test their vehicles. Ultimately,
increasing the life threat for consumers. Therefore, necessary safety features such as
airbags, ABS brakes, electronic stability control and a traction control system should be
made mandatory for locally manufactured vehicles. These safety measures will not only
reduce the fatality rates caused by road accidents but will also save around Rs100 billion
to the national exchequer, which could be utilised productively for other sectors.

 Safty and insurance of motor business.

Increased thefts and snatching and the high loss ratio are the two primary factors blamed for
rendering the motor business highly unprofitable by the general insurance companies in
Pakistan. The access to car insurance is therefore very limited. And for the same reason
demand is tilted heavily towards the small car market. Details about the motor insurance
situation are discussed later, under the major issues heading.