Bike makers strongly oppose govt’s intention to offer concession to new player
September 09, 2011
The local bike makers have strongly opposed the government intention to allow duty concession to new players saying that the local industry would be in serious trouble if government goes for this move.
A letter has also been written by Abdul Waheed, Director General, Pakistan Automotive Manufacturers’ Association (PAMA) to Board of Investment asking to seriously scrutinize the misleading propagation of facts by Yamaha to get undue concessions in import tariff from the government.
He said that the investment offer of $150 million in ten years from Yamaha is not worthy enough as the duty relief demanded in return will cause huge losses to national exchequer, besides the local industry in routine will be investing more than $150 million during this period without demanding any further concessions, he added.
He mentioned that news-items published in different media portrayed wrong picture of the local industry on behalf of Yamaha, which is seeking heavy incentive from the government for setting up its manufacturing plant in the country.
He said the impression that local bike-makers are heavily dependent on the imports of spare parts is utterly incorrect because they have localized their manufacturing plants more than 90 percent and producing around 1.4 million units per annum.
DG PAMA urged that the Yamaha must not be considered as new entrant because the company has done its business in Pakistan for 35 years and sold out its shares to local assemblers manufacturing bikes with same designs and brand of Yamaha, (Yamaha Royal, Yamaha 4 & Junoon).
Yamaha in no way can be considered as new entrant therefore it should not be allowed any concession at custom level on the imports of machinery and spare parts of motorcycle at zero duty, he added.
Waheed further said that the government should realize the capacity and contribution of the local industry before giving any incentive or duty concession to Yamaha. The unfair relief to the company may jeopardize the growth of two-wheelers because the local players are already working under stiff competition with one another with low profits against their millions of rupees investment.
He urged the government not to put the billions of rupees local bike industry on the brink of collapse against the meager investment offer of $150 million that was planned to land in the period of ten years.
DG PAMA demanded from the government that local bike-makers should be protected at any cost because they not only fulfill the needs of local markets but also fetch foreign exchange through exports of units in different countries.
On the other hand to effectively cope with domestic market of over 1.5 million units and after a successful launch of their products in some global markets, the local motorcycle producers are now planning further investment of $100-150 million in their existing units.
The motorcycle industry analysts have pointed out that despite numerous hurdles the economy had during past four years, the growth in motorcycle production has been robust at 15 percent. “A decade back, the total motorcycle production in Pakistan was around 100,000 units, now the largest player alone is rolling out half a million units while total production of two wheelers has crossed 1.5 million,” one analyst explained. They said that the encouraging aspect in this regard is that industry is on a path of sustained growth. The local demand for motorcycles is likely to exceed 2 million units within a year or two, he added.
“The global response to our quality motorcycles indicate a sustain and healthy growth in exports as well,” he said adding that in fact, “the industry experts are seeing themselves as the largest exporters in the engineering sector.” He further said that the sustained growth has been possible due to regular investment and up-gradation of technology in the motorcycle industry. “The growth we see in motorcycle production would not have been possible without investment,” he added.
HKF Engineering Chief Executive Officer Fahad Iqbal makers of Ravi motorcycles said that the industry now has to fulfil the growing demand in both domestic and global markets and for this, it needs to invest over $100 million in the next couple of years to keep abreast with the market needs and demands. He said that all the motorbike producers having production of 50,000 units or above are now planning to expand their capacities to cope up with the market demands. “There are almost a dozen players that have achieved this production level,” he said adding that even if each of them invests $10-15 million, the total investment would cross $150 million. These units have been regularly making investments to increase their market share but now they have reached a level where they have to invest in high-tech parts to ensure that instead of having 90 percent local components, the Pakistani bikes are produced by 100 percent local parts, he added.
The market analyst urged that in such an encouraging situation, the government should refrain from taking steps that might jeopardise this investment. He said that an investment of $150 million by local players without any government concession is better than vying for similar investment over a period of 10 years from a foreign player on huge concessions. The local investment has been put on hold pending government’s clear-cut policy in this regard, he added.
The current players from Italy, China and Japan, are also in various stages of developing new models in the 100-150 cc ranges with the latest technology, he said. However, he added, they were not offered any relief even on the import of the environmentally friendly Euro 2 components, which has already been introduced in local bikes production.
“Capacities exist in the country in areas like sheet metal parts and there is a huge investment needed in areas such as die casting for parts like Crank Cases and Crank Covers, electronic parts such as CDI units, engine parts like ACG, Clutch, Pistons, shock absorbers (cushions), plastic parts such as emblems,” said General Engineering CEO Arshad Awan. Even capacity enhancement and thus investment will be needed in low-tech parts like head light, tail lights and winkers etc, Awan said.
As the industry size grows it nears the critical mass and as a result high investment parts like Carburettors, EFI, Chain Drive and Sprockets sets will be localised. The industry estimates that these will become viable investment options as the volumes grow to 2 million units annually and beyond, he said.