The Struggle of Pakistan’s Automotive Parts Industry
Pakistani manufacturers of automotive parts are facing a growing crisis as the government moves to allow the import of used cars and reduce tariffs to 15 percent later this month. This policy, part of broader economic reforms supported by the International Monetary Fund (IMF), has raised concerns among industry leaders about the potential closure of thousands of manufacturing plants.
The Prime Minister Shehbaz Sharif’s government is aiming to boost Pakistan’s debt-ridden economy by 4.2 percent this fiscal year, which began in July. This growth target is heavily dependent on continued support from the IMF, which has set specific conditions for the South Asian nation to maintain its $7 billion loan. However, some members of the Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) believe these policies could have devastating consequences for local businesses.
Aamir Allawala, a leading PAAPAM member and former chairman, warned that if implemented without considering Pakistan’s “ground realities,” the new measures could lead to the closure of 1,200 companies. These firms produce essential components such as steel, plastic, rubber, copper, aluminum, and auxiliary parts for 13 car assemblers, including local partners of Toyota, Honda, Suzuki, Hyundai, Kia Motors, and Changan.
Allawala, who is also the CEO of Techno Auto Glass Ltd., explained that the government’s decision to open the import of used cars without any age limit is particularly concerning. He noted that under the National Tariffs Policy, import duties will be cut, which he believes will drastically alter the automobile industry.
“This new policy is expected to take effect by the end of August,” he said, adding that the changes could significantly impact the local market.
The IMF has emphasized the need to liberalize trade as one of the conditions for Islamabad to achieve its economic growth target. According to the lender’s country report in May, the new National Tariff Policy (FY25-30) should streamline and reduce tariffs, as well as eliminate non-tariff barriers. The report also highlighted the extensive trade barriers in the automotive sector and called for reduced tariffs and preferential support for local production.
Despite these concerns, the government has approved a “gradual but significant” reduction in import tariffs, with general customs duties capped at 15 percent. This is a sharp contrast to current rates that sometimes exceed 100 percent.
Allawala pointed out that no car-manufacturing country in the world allows the unrestricted import of used cars. He cited examples such as India, Thailand, Indonesia, and Vietnam, which impose high tariffs to protect their domestic industries. In contrast, Pakistan is reducing import duties to just 15 percent, a move that has alarmed local manufacturers.
Many of these companies are already operating below capacity due to low demand. For instance, Techno Auto Glass Ltd. is running at only 20 percent capacity, producing 10,000 glasses a month. Similarly, Aisha Steel Mills, Agriauto Stamping Company, Rubatech Manufacturing Company, Jin Kwang Jaz, and Thal Boshuku Pakistan are all producing below their potential.
Muhammad Umer Razzaq of Thal Boshuku, a joint venture between Thal and Toyota Boshuku and Toyota Tsusho, said they can produce sets for 54,000 cars a year but are currently only manufacturing 18,000 sets. Faheem Kapadia of Agriauto Stamping added that their factory can supply parts for 300,000 car units annually but is only catering to 130,000 vehicles.
The decline in car sales over the past three years has further exacerbated the situation. According to data from the Pakistan Automotive Manufacturers Association (PAMA), car sales have dropped by more than 50 percent to 111,402 units over the last three years until June. High inflation, political instability, and economic mismanagement have contributed to this downturn.
Allawala emphasized that the auto parts industry has invested billions of rupees in manufacturing, with over 500,000 skilled workers directly employed by PAAPAM alone. The overall automobile industry supports an estimated 2.5 million jobs. He urged the government to consider the potential job losses and ensure that the policy direction avoids such outcomes.
PAAPAM has already written to the commerce ministry requesting a fact-finding mission to assess the ground reality. However, the ministry has yet to respond. As the new policy takes effect, the future of Pakistan’s automotive parts industry remains uncertain.
