Outline of the solution of Auto Industry Case Study

Question 1. Does 60% localization of domestically produced cars mean that the auto parts
industry is developed? What measures can the car manufacturers take to develop the
industry and would it have made any difference in the situation of the sector today?
No it doesn’t mean that the auto parts industry is developed because
● Most spare parts of locally manufactured cars are imported from japan or Thailand
● Only in Pakistan there is an aftermarket of spare parts, imported from
Afghanistan(known as ​kabli parts​)
● The parts are categorized according to their quality and reliability (the manufacturers
have no link with those categories)
● There is a big market of second hand spare parts(from stolen or totaled vehicles)
● The custom and duties on spare parts is very low( it gives incentive to the car
manufacturers to import the parts rather than make them here themselves
● Investors refrain from entering this type of market
In order to develop the industry
● The government should give incentives to the investors for investing in auto parts
business
● The manufacturers should focus on the long run and make quality products
● The manufacturers should stop their dependence on imported parts
● The manufacturers should revise their tuning insurance policies

Question 2. Do you think increase in car prices is justified and who is responsible for such
price hike?
The car prices are not justified what so ever. The responsible stakeholders are:
Government
● Depreciation of rupee by the government has lead to many problems including High
Taxes duties and tariffs.
● New policies of registration (filer and non filer issues)
● Strict policies on import (end of hundi system, appreciation of Japanese yen)
● No control over the industry and their monopoly (the big three dominance)
Manufacturers
● High car prices as compared to other countries
● Substandard car quality as compared with international standards
● Delay in introduction of new models
● Maximum profiting(the profit of the coming year is fixed, price is not dependent on cost
of the car)
 ● Virtual monopoly of the big three that no one has cracked down from the last 3
decades (there is no other company available to the consumer to choose from. Hence
the demand of cars is more than its supply which results to increase in car prices )
● No guaranty or maintenance provided by the local manufacturers(as compared to new
imported cars)
Consumers
● Acceptance (accepting substandard quality cars,)
● No resistance on price hype ( the sales were never affected due to price hype until 2019)
● Convinced to pay additional amounts for the car (in the name of owning, booking etc.)
● Dependent on society's perception ( a Pakistani car is cheap to maintain etc.)
● No resilience
Showroom owners (imported and second hand cars industry)
● Immoral practices (They have been importing damaged and accidentedcars)
● No fixed commission of the shipper, distributor or seller
● Undefined profit margins

Question 3. Being an auto expert, what strategic measures you would suggest to the main
players to restore the industry? Highlight the previous mistakes of the manufacturers.
The three main players of the industry are Toyota Honda and Suzuki
Suggestions
● Make cars according to international or at least Japanese standards
● Develop the local auto parts industry ( most of the parts used in manufacturing are
imported)
● Beware of the upcoming rivals
● Change the financial policies (leasing, owning, booking etc.)
● End the monopolistic approach
● Compete with each other instead of approaching different classes of customers(Toyota
targets the rural market while civic targets the urban)
● Don’t go for the profiting approach (they should define their profit boundaries
● Introduce sub brands (Lexus, Acuraetc.)
● Manufacturer small cars(660cc cars locally)
● Introduce fuel efficient cars
● Introduce More safety measures in cars
Question 4. What could be the impact of new manufacturers/entrants on buyers and sellers
of current auto industry?
● Kia is going quite successful(on average selling 3 cars per day as stated by their
showrooms)
● Kia ‘s sportage rivals the top sellers civic and corolla
● Renault and nissan is also coming to Pakistan in near future
● The virtual monopoly of Honda, Suzuki and Toyota is on stake
● There will be a drop off bitting shares of the big three
● Contracts with higher companies of the big three are on stake(military, government)
● The quantity of cars of the big three will be reduced on roads
● The prices spare parts of the cars will reduce
● The overall pricing scheme of the cars would be revised(due to end of limited
competition)
● The big three will be forced to make high quality and technical cars(due to competition)
● The overall prices will be reduced
● New technologies will be introduced(due to advancement in overall industry)
● Consumers are going for changes
● As the petrol prices are high companies are forced to introduce More fuel efficient cars

Question 5. The major risks faced by the automotive sector in Pakistan includes high rate of
duties and tariffs, lower production in spite of higher production capacity, and dependence
on international suppliers. Comparing these factors with India and Indonesia, what advice
would you give to the government for nurturing of the industry until the threshold volumes
are achieved to gain competitiveness.

● New policy of importing cars should be revised(end of hundi system)

● The system of taxation on imported cars must be revised(our system seems illogical as
compared to India)
● The taxes should be justifiable by the manufacturers to the consumers
● There should be intervention of government in the auto industry
● Introduction of new companies
● Opportunities should be given to the new companies to break the monopoly
● German and American companies should also be welcomed for production along with
Korean and Chinese companies
● The new policies of registration of cars should be revised
● Promotion of brand localization(like India localized Suzuki as Maruti Suzuki)
● Introduction of Pakistani brand(like India introduced Tata)
● The financial policies should be revised (financing of the car should be easy as it is in
India)