ISLAMABAD: The Competition Commission of Pakistan (CCP) has suggested the policy makers that tariff on import of new cars in all segments of the market must be reduced to 5 to 10 percent in order protect manufacturers. Currently, car imports are subject to excessively high duties. Competition can be improved significantly by allowing import of new cars at lower prices.
The Automobile Study finds that the Pakistani passenger car market only has three major players, each of which dominates a different segment of the market based on the size of the car. The concern vis-à-vis competition is the neat division of the market among the three players in the passenger car market, the steady market shares each of them enjoyed in the last decade, signifying a lack of competition. Clearly, any loss of competition in the market is bad news for the consumers, who have the same limited choices albeit at rising prices.
The absence of competition has let the local industry to dictate prices. Continuous price increases of local automobiles since 2006 has put new cars out of range of middle-income groups. Statistics depict a fall in sales on year-on-year and on a month-on-month basis but the prices have shown an upward trend - Honda, Indus Motors and Pak Suzuki increased their prices thrice in 2008. It seems that the local assemblers have adopted a strategy of increasing profits on limited production instead of increasing volumes. Most carmakers have been announcing plans to increase production volumes over the next few years but these plans have yet to come to fruition and the problem of late delivery of cars remains unchanged as a source of dissatisfaction among buyers. It has not been uncommon for customers to pay additional money to ensure delivery of their vehicles within a short time period.
Alternatively, customers pay the full price of the vehicles months in advance and the assemblers get benefits from their tied investment. In the downstream market, dealers of the manufacturers/assemblers act as mere agents and have no real incentive to compete in the market. Study of the dealership agreements revealed, it is the company that controls the quantity to be sold and the price to be charged. These dealership agreements go on to eliminate intra-brand competition by disallowing discounts.
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