“Higher Localization” Can't Produce Cheaper Cars

In Pakistan, the notion that more localization of auto parts results in more affordable automobiles has been disproved because both cars and motorbikes have steadily increased in price over time.
In the roughly 40 years that local automakers have assembled vehicles, currency depreciation has become a significant factor in rising auto pricing. This provides the impression that no substantial attempts have been made to utilize significant quantities of locally produced parts in the construction of vehicles. Pakistan's import bill for fully and partially assembled (CKD/SKD) kits increased alarmingly to $1.7 billion in FY22 from $1.11 billion in FY21, partly because of the poor localization of the cars supplied by both new entrants and established assemblers.
New entrants were drawn in by the Automotive Development Policy 2016–21, and they began to release various automobile models. During FY22, the sector is reported to have "assembled" 279,000 automobiles in Pakistan. "Localization in terms of percentage is not authentic," said Abdul Razzak Gauhar, chairman of the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), in an interview with Dawn. The yearly localization monitoring was discontinued once the "deletion program" gave way to the Tariff Based System (TBS) regime in 2006.

According to Mr. Gauhar, the assemblers' statistics are based on the proportion of the total number of locally produced parts rather than the percentage of locally produced goods. Suzuki Swift has localized material to a 35 percent level, Cultus to a 51 percent level, WagonR to a 60 percent level, and the Alto 660cc to a 62 percent level. The Bolan and Ravi models, which have been around for over four decades and have a percentage of locally produced components of 72 and 68 percent respectively, provided the most startling insight. With the exception of a Euro-II module, none of these two "famous" Suzuki cars saw a full model change during a period of more than four decades.
Following the 30-year-old Suzuki Mehran were the 17-year-old Cultus MK-II and the 12-year-old Alto 1,000 cc on the manufacturing line, which both had the outmoded interior and exterior designs and just a Euro-II engine update. Any succeeding governments had never examined Pak Suzuki's accomplishments of a different sort. Former PAAPAM Chairman Mashood Ali Khan asserts that without the technical assistance of international partners, Pakistan's almost four-decade-old engineering sector in the automobile industry could not manufacture locally made components. He remembered that from 1990 to 2006, the nation had seen two Pakistani engineers take the initiative to create indigenous pickup trucks and passenger automobiles, but they were unable to enter the market due to a lack of government assistance.
In a recent company meeting, Honda Atlas disclosed that localization levels for car parts for the Civic are 60%, the City is 70%, and the BR-V is 50%. However, the localization rate only amounts to about 30% of the total number of Pakistani rupees. An almost 10-year-old 11th generation Corolla contains up to 68 percent local content, according to Indus Motor Company, which also claims to have achieved up to 65 percent localization. Despite this, the pricing is more than or virtually utterly dependent on exchange rates.
Additionally, the Auto Policy 2016-2021 changed the country's auto industry's landscape, but the policy incentives only allow new entrants to localize 5 percent of their manufacturing, which caused a significant financial hit to the government coffers due to a massive import bill for CKD and SKD kits. In their first five years of business, the majority of entrants have hardly exceeded localization rates of approximately 10%. The current assemblers, who had been releasing new models with a relatively tiny percentage of locally created components, have also contributed to the harm to the import bill.

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