Pakistan's Auto Industry in Crisis: A Call for Gradual Liberalisation

Strategic Insights -

Pakistan's auto industry has struggled to make a mark in the region despite decades of protectionist policies. The industry's dependence on government favors and failing to innovate has led to high prices, stagnant sales, and negligible exports. The recent announcement to liberalize the industry by allowing commercial imports of used cars has sparked protests from automakers, but it may be the necessary step to break the industry's stagnation. Here, we explore the industry's failures and the implications of gradual liberalization.

Key Takeaways:

  • Pakistan's auto industry has the highest effective rates of protection in the region, yet prices remain among the highest in Asia, volumes are stagnant, exports are negligible, and sales are sliding.
  • Passenger-vehicle ownership is at only 20 cars per 1,000 people, lagging behind India (34), Vietnam (68), and Thailand (275).
  • The locally assembled Swift top variant costs about $16,900 in Pakistan, compared to $11,400 in India, highlighting the industry's inefficiency and high costs.
  • The government's plan to liberalize the industry by allowing commercial imports of used cars up to five years old initially at a 40% tariff premium that will gradually decline has sparked protests from automakers.
  • Used cars already capture nearly a quarter of the market during weak years, and unrestricted inflows threaten to cannibalize demand for new vehicles entirely.
  • Pakistan's auto exports remain below $100m annually, while the country sits on the edge of a $131 billion regional automobile trade corridor, presenting a $6.5bn export opportunity.
  • Pakistan's auto-parts ecosystem supports 1.83m skilled jobs and relies on over 1,200 suppliers, with localised production annually substituting imports worth $1.25bn every year.
  • The industry's policy asymmetry is striking, with assemblers importing entire semi-knocked-down kits at the same duty rates as raw materials, while domestic vendors continue paying 15% duties on their inputs.
  • Regional players such as India, Thailand, and Vietnam used protectionist measures to build globally competitive industries, while Pakistan's auto industry failed to innovate, localise, or build export capacity.

Statistics:

  • 78 years of independence have not led to economic independence, with Pakistan's auto industry requiring frequent IMF interventions.
  • Passenger-vehicle ownership in Pakistan stands at 20 cars per 1,000 people, compared to 34 in India, 68 in Vietnam, and 275 in Thailand.
  • The locally assembled Swift top variant costs about $16,900 in Pakistan, while the same top Swift costs about $11,400 in India.
  • Pakistan's auto exports remain below $100m annually, while the country sits on the edge of a $131 billion regional automobile trade corridor.
  • The auto-parts ecosystem in Pakistan supports 1.83m skilled jobs and relies on over 1,200 suppliers.
  • Localised production annually substitutes imports worth $1.25bn every year, with vendors investing over Rs100bn in tooling, plants, and production facilities.

Sources:

  • National Tariff Policy 2025-30
  • Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam) report
  • "The New Silk Road: India's Economic Rise" by Sumantra Ghoshal and Ruming Amit