The automotive sector in Pakistan, like that of other countries, is influenced by various economic factors, com­petitive pressures, and in­ternal and external fac­tors. Some primary drivers shaping Paki­stan’s automotive in­dustry are econom­ic dynamics, growing urbanization, mobili­ty, and geopolitical factors. It’s important to remember that the automotive industry is highly dynamic, and these factors may evolve, influencing the business landscape in various ways. Re­cent developments, such as non-production days, can be attrib­uted to a wide range of factors, including shifts in demand, sup­ply chain disruptions, and chang­es in economic conditions. Sup­ply chain disruptions caused by Letter of Credit (LC) restrictions, currency fluctuations, and price increases have negatively im­pacted demand.

The imposition of a 10% super tax is expected to exacerbate the auto industry’s profitability. On the other hand, the data for June 2023 provides some relief to the Pakistani automotive indus­try, which had a problematic fis­cal year marked by a 37.7% de­cline in vehicle sales compared to the previous fiscal year. The fiscal year 2023 has presented severe problems to Pakistan’s automo­tive industry, with original equip­ment manufacturers (OEMs) wit­nessing a shocking 55% decline in volumes and a ripple effect on auto parts manufacturers oper­ating factories at less than 70% capacity. A further prediction of a drop in sales of 8 to 10% dur­ing the fiscal year 2024 would be detrimental to the vendors’ strat­egy of working toward ‘Make in Pakistan’ production and con­tributing to the localization of the auto industry.

Economic variables like depre­ciating GDP, record headline in­flation, and rapid exchange rates shifts significantly impacts the au­tomotive industry. The current un­certainty in the local auto indus­try creates unemployment and wastes millions in machinery and infrastructure investments. Gov­ernment policies, such as tariffs, taxes, and trade agreements, play a crucial role. Pakistan’s Automo­tive Development Policy (ADP) has offered tax incentives to new entrants like Kia and Hyundai, stimulating competition. The im­plementation of substantial tariffs and non-tariff protection enables assemblers to secure sales and generate substantial profits. Con­sequently, they exhibit minimal concern for localizing their prod­ucts or reducing costs to enhance market penetration. Additional­ly, they display limited interest in expanding into the export market and integrating themselves into the vast global supply chain.

Fluctuations in fuel prices is affecting consumer preferenc­es and purchasing power. Rising fuel costs may lead to a surge in demand for fuel-efficient vehi­cles or hybrids in near future. Ex­change rate fluctuations impacts the cost of importing vehicle parts. A depreciating local cur­rency is raising production costs and affect pricing.

The presence of various play­ers like Toyota, Honda, Suzuki, Kia, and Hyundai has intensified competition. While the entrance of Japanese and Chinese cars has also increased competition, companies strives to differen­tiate themselves through prod­uct features, quality, and pricing. With global trends shifting to­ward electric vehicles (EVs) and sustainable transportation, com­panies like Tesla are disrupting traditional automakers. Local companies in Pakistan are also gradually introducing EVs and hybrids. Toyota Cross, Pakistan’s first hybrid electric vehicle, re­ceived a significant investment of Rs 2.5 billion. The auto industry’s ongoing challenges, including de­mand and supply issues, nullify their overall investments.

To mitigate risks associated with economic fluctuations and changing consumer preferences, automobile companies in Paki­stan could consider diversifying their product lines. For example, introducing more fuel-efficient and cost-effective models aligns with global trends and reduces reliance on traditional combus­tion-engine vehicles, just like Su­zuki did in India by introducing an Alto car worth rupees 0.3 Mil­lion which is cost effective and easily accessible for middle class. In Pakistan, the government and the automotive industry have ig­nored requests for a competitive market that would help consum­ers make the switch from bicycles and mopeds to compact cars and mid-sized vehicles. If local vehicle assemblers in Pakistan are not ex­posed to meaningful competition that compels them to localize and become part of the worldwide supply chain, they will remain wholly reliant on imports and will not be in a position to service the needs of Pakistani consum­ers, especially the middle class. Building strong ties between in­dustry and government is essen­tial for both to prosper. The gov­ernment should assist the auto industry and auto parts manufac­turers, citing the need for stabili­ty to foster business growth.

Understanding the primary drivers shaping Pakistan’s auto­motive industry involves a stra­tegic management perspective. Navigating Economic dynamics, competitive pressures, and re­cent developments like non-pro­duction days demands strategic agility, risk mitigation, and an un­wavering commitment to meet evolving customer needs. In this dynamic landscape, firms that adapt, innovate, and align their strategies with the prevailing business environment will thrive and drive the industry forward.

Umema Imran
The writer is a freelance columnist and can be reached at umemaimran5@gmail.com