The debate over the prohibition of used cars is now rather old. Domestic auto manufacturers demand a prohibition on the import of used cars, as in their opinion the bulk import of second-hand cars from Japan into Pakistani society is killing the local car manufacturing industry—an industry that claims to have introduced the latest technology and which provides employment to nearly a million workers. Local manufacturers claim that the business of importing used cars into Pakistan does not provide employment to even a small fraction of Pakistanis. The “black market” of imported cars in Pakistan is based on a business model, where a group of two people, normally from the same family—one sits in any city in Japan and one sits in Karachi or Lahore—conducts illegal business of car imports from Japan.
Until recently, the import of used cars into Pakistan was completely banned. The government only allowed import of used cars under a gift scheme or as part of the personal luggage of a Pakistan family which is relocating itself from a foreign country back to Pakistan. An expatriate Pakistani family or a person relocating to Pakistan could bring a used car as personal luggage from a foreign country into Pakistan. This law or executive order had been misused thoroughly by the illegal importer of cars. Someone familiar with this business commented some 20 years back—and I recall here for readers attention—that the Japanese will make Pakistan a graveyard of used Japanese cars. There is an ample supply of used cars in Japan, which the Japanese people abandon or sell at throwaway prices. These cars are then imported into Pakistan.
Why Pakistan? Primarily both Japan’s and Pakistan’s traffic systems are both right hand drive. So, it is easy to dump all second-hand used cars from Japan into Pakistan.
Leaders in the car manufacturing industry dub the business of used cars import as the biggest black market of our economy. Why? Because a black market is an economic activity that takes place outside government-sanctioned channels. Illegal market transactions usually occur “under the table” to let participants avoid government price controls or taxes. The goods and services offered in a black market can be illegal, meaning their purchase and sale are prohibited by law, or they can be legal but transacted to avoid taxes. Car manufacturers allege that the whole business has a cloak and dagger style attached to it. How government created provisions to facilitate expatriate Pakistanis have been misused by car importers on a large scale, a scale which can potentially cripple the local auto manufacturing industry. The importers sitting in Japan purchase an expatriate Pakistani’s passport for 100 dollars, and then use the same passport for importing used cars in bulk into Pakistani society.
The Pakistani government doesn’t have any vision for putting the country's economy on a self-sustained path of growth. Most of its decisions for running the economy are based on appeasing the political constituencies that support the government at the political level or share the class, social and cultural worldview of government leaders. There is no long-term planning to push the economy towards a self-sustaining growth rate. The government only responds to the demands of social classes which are addicted to luxurious lifestyles, and what impact the government’s decisions have on the economic growth or overall health of the economy is something government leaders don’t care about.
Pakistan’s economy has a weak manufacturing base. If we are manufacturing or producing something of quality, a quality that could be exported out of the country, it is thanks to the multinationals that have collaborated with local business houses to install manufacturing plants in Pakistan. The auto industry in Pakistan has gradually acquired the manufacturing capacity to produce international brands locally, with indigenization ranging from 55% to 71%. But this capacity is seriously threatened by the government’s decision to allow the import of used cars on a large scale in the first quarter of 2023. The import of used cars has decreased the demand for locally manufactured cars. In the first six months of this year, the import of used cars has seen a staggering surge of 684%.
Official estimates clearly indicate that over 16,500 used cars were imported from July to December 2023, marking an exponential increase compared to the approximately 2,100 used cars imported in the fiscal year 2022-23. Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM), Chairman, Abdul Rehman Aizaz attributed this phenomenal increase in used car imports to the removal of regulatory duty in the federal budget for FY 2023-24 on used cars of up to 1800cc engines. He noted that while this move was intended to revitalize the automotive sector, it has proven detrimental to the local auto industry. This trend bears significant economic implications, particularly for local vendors, who are facing an estimated loss of a staggering Rs36 billion, pushing them towards closure of their businesses.
In our neighbor states like China and India, economic planners meticulously calculate the impact of the manufacturing sector on the growth rate of the economy. These growth rates are then projected on the international stage as the success story of Chinese and Indian economies. The economic planners in these countries protect the manufacturing sectors that contribute substantially to their economies, almost as if they were their babies. Just like western European economies, the success of Chinese and Indian economies are the outcome of heavily protected manufacturing sectors.
In our case, the government’s ill-conceived and ill-advised policies are playing havoc with the local manufacturing auto industry. Two government decisions one after the other had a crippling impact on the local auto manufacturing industry. Sometime in the middle of 2022, the government placed restrictions on auto manufacturers in their processes of importing CKD (complete knockdown kits) from Japan. This was done to protect the foreign exchange reserves which were fast dwindling after the fall of the Imran Khan government.
Auto manufacturers claim that they still have to import some 40% of the parts of the cars they manufacture in Pakistan. For instance, they import flat steel sheets from Japan which are then given shape by the local industry into the form of the model of cars manufactured locally. Car manufacturers say this decision of the government hurt their industry severely.
Secondly, the government eased restrictions on the import of used cars sometime in early months of 2023. The government is in fact encouraging a social culture that sees wealth creation as a suspect activity in Pakistani society. If the car manufacturing industry is a success story–in terms of revenue it generates, in terms of technology it has introduced in the society and in terms of its contribution towards social and economic stability in the society–this success story needs to be celebrated. The government attitude and policies amount to undermining the success story of car manufacturing in Pakistan.
The government decisions created a situation for auto manufacturers like Indus Motor Company, Honda Car, and Suzuki Motors were forced to halt their production due to low demand. These closures saw Indus Motor Company shutting its plants for 58 days, Honda Car for 78 days, and Suzuki Motors for 89 days between October 2022 and August 2023. Adding to the industry’s woes, imported used cars have gained a significant foothold, inflicting another dent to the car manufacturing industry.
It would not be an exaggeration to conclude that government policies are inflicting substantial damage to the auto industry and auto manufacturing in Pakistan has ceased to be a profitable business. Multinationals continue to operate in any country as long as it gives them profit. Otherwise, it would not be impossible for them to shift their plants to another location in the region. If the status quo persists, our society will suffer significant job losses and it will put a halt to the process of technology transfer that is possible under the partnership of multinationals and local business houses.