The Competition Commission of Pakistan (CCP) has described Pakistan’s automobile industry as uncompetitive where existing companies are not facing any meaningful competitive pressure.
“It (automobile industry) is essentially marred by a lack of competition. Complaints of quality, availability and pricing of passenger cars particularly, is characteristic of an uncompetitive market,” the CCP wrote in its recommendations to the government for the automobile industry.
CCP, in its extensive 32-page report, has recommended that prices must not be changed after a car has been booked. “We have received numerous complaints that manufacturers announce arbitrary price increases retrospectively even after a booking has been made usually on account of rupee depreciation,” the report read.
Automobile manufacturers take a calculated business risk when they apply the just-in-time inventory model and do not hedge against currency value fluctuations. These are valid business and commercial decisions that automobile manufactures take.
“Nevertheless, once customers book a vehicle, whether through partial or full payment, they have a reasonable expectation that any future price increase would not be applied to them, particularly when they have to wait several months to get delivery of their vehicles for no fault of their own,” it added.
Meanwhile, the CCP has also suggested to the government that double taxation should be removed to allow for supply-push based wholesale automotive market.
CCP spokesperson Asfandyar Khattak told that the report has been sent to all relevant government authorities including the Ministry of Finance, Federal Board of Revenue (FBR), Ministry of Commerce, etc.
The CCP has also stressed the need for taking several measures for reducing premium in the auto industry. The issue of long delays in car deliveries from assemblers is essentially due to the supply of cars being unable to keep up with growing demand.
The problem is unlikely to be resolved completely unless there is significant expansion by existing players. The entry of new assemblers and availability of new vehicles by next year may improve the situation provided the new entrants bring significant production capacity and an attractive vehicle range across all passenger car segments.
It urged the government to create a national automotive sector standards and safety authority, which should have ample powers to introduce and enforce various standards relating to production, quality, safety, fuel efficiency and emissions of both locally produced and imported cars.
Furthermore, assemblers who import CKD parts of outdated vehicle models beyond two years from the global average should be discouraged by charging higher import tariffs.
It has also been recommended that competition should be enhanced through new entry. The lack of competition in the market in general can be addressed if federal and provincial governments support timely entry of new assemblers in the market, which will have a positive effect on the market in general.
The government has also been urged to ensure continuity in policies that have attracted new entrants in the automotive manufacturing market. A competitive automobile sector will only be established if players are able to enter and challenge the hegemony of existing players and put competitive pressure on them.