By Khawar Azhar
Pakistan’s automobile industry stands at a critical turning point. Once considered a pillar of large-scale manufacturing, the sector that has developed over four decades — from the early days of Pak-Suzuki’s CKD-based 800cc assembly — is now struggling to survive a policy direction that appears to favour imports over local production.
The immediate threat stems from the growing liberalisation of used-car imports. Under pressure to stabilise external accounts and satisfy IMF conditions, the state’s primary objective today is to protect the balance of payments rather than nurture domestic manufacturing. One result is a shift in trade and tariff policy that may open the floodgates for used vehicles. A regulatory duty of 40% has already been applied, but with cascading effects and potential gaps, industry experts fear it will not be enough to protect local output.
Yet the stakes extend far beyond the assembly line. The automotive sector is deeply woven into Pakistan’s manufacturing ecosystem. Industry estimates suggest approximately 2.5 million jobs stand connected directly or indirectly to the auto supply chain. Around 1,200 factories support local production, from small vendors to major component manufacturers. The sector is also reported to contribute nearly PKR 700 billion to the national exchequer — roughly 6% of annual government tax collection — while import substitution through localisation saves close to USD 150 million every year.
These numbers underline a simple reality: if local manufacturing declines, Pakistan risks losing more than just a handful of car companies.
Allowing unrestricted used-vehicle imports means fewer cars leave domestic assembly lines — and fewer local parts are produced. Vendor industries, the unseen backbone of auto manufacturing, would be the first casualties. A shrinking order book would trigger layoffs. Slower output means lower tax collection. The total impact could ripple across the economy for years.
The argument is not unique to Pakistan. Even in Germany — home to some of the world’s strongest auto brands — policymakers are working to shield domestic manufacturers as electric-vehicle competition intensifies, particularly from China. Their approach is to reinforce local capacity, sustain brands, and protect export share rather than let market disruption wipe out decades of industrial value.
Pakistan’s challenge, however, is more fundamental. Used-car imports promise short-term relief for consumers but threaten long-term industrial capability. If policy swings too far toward import liberalisation, automakers themselves may eventually abandon local assembly and enter the used-car import market simply to retain business. The country would revert to being a trading economy rather than a producing one.
What, then, is the alternative?
A balanced, future-facing policy could preserve competition and consumer choice without hollowing out domestic capability. A tariff differential of at least 40% between completely built-up (CBU) units and locally assembled CKDs would give manufacturers breathing space to remain viable. New entrants — including EV manufacturers — should be given market access only under firm localisation requirements, with three years or less to begin local assembly and gradual re-export thereafter.
Equally crucial is regulation. To protect consumers and environmental safety, Pakistan must enforce international standards for used-vehicle imports through pre-shipment inspection, road-worthiness certification, emissions compliance, crash-test validation, and guaranteed availability of spare parts for a minimum of ten years. Depreciation-based duty calculations should be rationalised, and NEV/carbon levies should increase with vehicle age — as older engines emit more.
Protecting the industry does not mean shielding inefficiency. The government should simultaneously push local manufacturers to improve model quality, raise safety standards, and refresh product lines every three to five years. The goal is not permanent protection — but structured competition that lifts industrial capability instead of erasing it.
Pakistan today faces a choice. It can remain an assembly-and-import market, dependent on foreign production, or it can evolve into a genuine manufacturing base with export potential, technological investment, and domestic value creation.
The question is not whether the auto industry should reform — it must. The real question is whether the state will provide a policy environment that enables the industry to reform, compete and grow.
If Pakistan chooses wisely, the auto sector could still be a growth engine.
If it does not, years of industrial capacity may disappear — and once gone, it will not return easily. The writer is a communications specialist and writes on issues of public interest.
