There are early indications that Pakistan’s automotive industry is in decline compared with the previous financial year, according to BMI’s recently published Pakistan Automotives Report. Data for the first three months of FY2008/09 (July-September) shows production is down by 31.2% year-on-year (y-o-y), while sales are currently 34% lower than the same period of the previous year. Although a proportion of the downturn, particularly in production, can be attributed to the phasing out of the old Toyota Corolla before production of the new version began in August 2008, the overall performance of the market has prompted BMI to lower its forecasts for the current financial year.

Consequently, BMI believes it is now even less likely that Pakistan will meet the targets set under the Automotive Industry Development Plan (AIDP) for output of 500,000 units by 2011. Indeed, the situation has prompted the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) to approached the government for help. The industry’s car production volume has been halved over the past year or so, largely as a result of escalating raw material costs and interest rates. This in turn is taking its toll on parts suppliers. The association claims that the rate of annual car output can be maintained at around 165,000 units with government backing, by utilising around 50-60% of installed capacity and covering financial liabilities.

The industry’s struggle to achieve its production potential has dragged on Pakistan’s score in BMI’s Business Environment Ratings for the automotive industry in Asia Pacific. Pakistan ranks down in 13th position with 42.5 from a possible 100. The market is held back by low production growth potential and an average rating for sales growth in comparison to some of its regional peers. However, as a signatory to the Trade Related Intellectual Property Rights (TRIPs) agreement under the WTO, the country’s regulatory environment scores well. A number of free trade agreements (FTAs) also contribute to this category, and forming FTAs with non-Asian countries would improve this area further. Despite low marks for bureaucracy and corruption, the market does score well for its long-term economic risk and policy continuity.

Figures for FY2007/08 show that Suzuki-brand models represented 62% of total Pakistani passenger car production and 51.7% of sales. The Suzuki Mehran also won back its place as Pakistan’s best-selling model for the year, after losing to the Toyota Corolla in the previous financial year. Honda is Pakistan’s third-largest car producer and has an 8.6% share of sales. Despite the slower market, the Mehran maintained its position in the first quarter of FY2008/09, outselling the Corolla by 5,169 to 1,919 units.

However, as mentioned earlier, the latest version of the Corolla was introduced in August, which meant the phasing out of the previous version. Honda maintains its dominance of the motorcycle market in the first quarter, with a market share of 77.6%.