Investments from China and other foreign companies likely to give boost to commercial truck and pickup sector.
Pakistan is currently going through a transition phase in the automobile sector, with the approval of the latest Auto Policy 2016-2021. According to the policy, new investors can set up their production plants in Pakistan and boost import for less than half the normal price as an added perk. Automobile sales in Pakistan, including pick-ups and trucks, have remained strong in the last few years. Higher economic growth, improving security situation and higher bank financing have all contributed to supporting the sales of vehicles in the country. The development of major infrastructure projects in the country, including motorways, is expected to further increase the demand for automobiles in future. The recent rupee deprecation would increase the cost of imported parts for auto assemblers. Assemblers have the pricing power to pass on the cost to consumers by increasing selling prices. Over the long term, as new players KIA, Hyundai, Nissan, etc. come in, the pricing power would reduce substantially.
According to a rough estimate, new investments of over $800 million are being made in the auto industry either through direct joint ventures between Pakistani companies and global auto giants or by domestic auto part manufacturers in Pakistan. Currently, Pakistan’s light truck market segment is wide open for investment due to lack of competition. However, in the next few years a number of Chinese light truck makers are expected to assemble trucks in Pakistan with a corresponding increase in competition. Auto sector is set to make big gains from China-Pakistan Economic Corridor (CPEC) as Chinese are interested in setting up an auto unit at Gwadar.
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Strong Chinese investment
In light duty commercial truck and pickup segment many Chinese companies are establishing their assembly plant in Pakistan with Pakistani partners which will certainly change the horizon of Pakistan automobile industry. JAC, a Chinese automobile conglomerate has already been in talks with the government, while Zotye, another Chinese automobile company is in process of making a deal with a big business groups of Pakistan. One of the automobile giants of China, The Foton Group, has showed keen interest in investing in manufacturing a range of automobiles in Pakistan. Brilliance China Auto, German luxury carmaker BMW’s Chinese mainland partner are planning to expand their business network in Pakistan. First Automobile Works (FAW) is already working with a Pakistani partner and having an assembly plant in Karachi, they are increasing their market share gradually. Dong Feng Motors has also started assembly of their heavy-duty trucks in Pakistan. Khalid Mushtaq Motors are building their automobile assembly plant in Nooriabad. They will introduce their revolutionary products very soon especially in light commercial pickup/truck segment. Dewan Group has entered into a joint venture with Korean Kolao Group in April 2016 and formed Daehan-Dewan Motor Company, which has now started producing Daehan Shehzore at its previous assembly plant in Sujawal, Sindh. The production capacity of the factory is 20,000 units per annum on double-shift basis.
New investors who have decided to invest in Pakistan include Regal Automobiles Indus Ltd, United Auto Industries Ltd and privately TM Habib Rafiq (Pvt) Ltd, in collaboration with various other Chinese companies. Regal Automobile Indus Ltd has decided to invest in the auto sector in collaboration with the company PDF S Motors and United Auto Industries. Similarly, Habib Rafiq (Pvt) Ltd has decided to invest with Jean Van Dong Dong motor cycles and vehicles in cooperation with another company. National Logistics Cell (NLC) has also decided to help companies like MAN Truck & Bus AG, Volkswagen owned sub-branch, distribute their vehicles in Pakistan implying that truck and buses auto plants will be established in Pakistan. The process of putting the plant together is expected to be completed in 2 to 3 years.
[box type=”note” align=”” class=”” width=””]The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan[/box]