Used Cars Import Surge Threatens Pakistan’s Auto Industry Future

By Khawar Azhar Pakistan’s automobile manufacturing sector, responsible for nearly 2% of the national GDP, generating about 2.5 million direct jobs, and supporting close to 5 million livelihoods through its extensive vendor, supplier, and dealership network, has issued renewed warnings that the government’s continued facilitation of used-car imports could destabilize one of the country’s most important industrial bases. The sector, which has long been regarded as a cornerstone of Pakistan’s industrial ecosystem, argues that the policy direction risks eroding decades of investment, localization, and employment generation. In FY25, the auto industry contributed an estimated Rs 700 billion to the national exchequer, accounting for roughly 6% of the federal government’s total revenue collection. Over the last two decades, the sector has also attracted approximately $5 billion in foreign direct investment (FDI), largely from Japanese, Korean, and Chinese manufacturers. This investment has helped create a sophisticated production ecosystem, including hundreds of local vendors supplying parts, components, and services. Localization initiatives have enabled the industry to save nearly $150 million annually through import substitution, funds that would otherwise be spent on importing parts or fully built vehicles. Despite these contributions, the automotive sector has become a central subject in the government’s latest tax reforms and tariff restructuring, developed in line with Pakistan’s commitments under its agreement with the International Monetary Fund (IMF). Facing mounting economic pressures, including fiscal constraints, inflationary pressure, and recent flood-related disruptions, the government has agreed to meet an ambitious tax collection target of Rs 13.981 trillion. Additionally, Pakistan has committed to achieving 3.5% GDP growth and raising the tax-to-GDP ratio to 11% in the upcoming fiscal year. In this environment, policymakers view the easing of used-vehicle imports as a quick way to generate immediate revenue, and the 2025–26 federal budget reflects initial steps to operationalize this approach. Industry representatives caution that such measures may yield short-term gains at the cost of long-term structural damage. Data from the first eight months of FY24 indicates that the influx of used vehicles resulted in an estimated Rs 45 billion in revenue losses for local manufacturers. This erosion in market share compelled several companies to scale down production, reduce the number of operational shifts, delay new investments, and consider layoffs. Many manufacturers fear a repeat of earlier cycles, during which inconsistent automotive policies and unchecked used-car imports undermined domestic assembly volumes, discouraged localization, and created uncertainty for investors. Historical context further strengthens the industry’s argument. When the first automobile assembly plant was established in Karachi in the early 1980s, the company agreed to progressively localize production, starting with CKD (completely knocked down) kits. These commitments were designed to foster a long-term parts-manufacturing ecosystem within Pakistan. However, repeated policy deviations, ad hoc tariff relaxations, and fluctuating consumer demand for imported used cars hindered progress. As a result, Pakistan became a large market for used vehicles, which limited the economies of scale needed for competitive domestic production and delayed the development of a robust local manufacturing base. Industry stakeholders now argue that any abrupt liberalization of used-car imports would again place domestic manufacturers at a severe disadvantage. They contend that while the government may receive a short-term revenue boost, the long-term implications—such as weakened industrial capacity, job losses, supply-chain disruptions, and declining investor confidence—would outweigh any immediate fiscal benefits. As the government drafts the Auto Policy 2026–31, industry leaders recommend a more balanced approach focused on strengthening tax and customs administration, closing revenue leakages, and supporting domestic production rather than implementing punitive or unpredictable policy shifts. They emphasize that a stable, transparent, and predictable policy environment is crucial if Pakistan is to transition from being a predominantly import-driven automobile market to becoming an exporter of vehicles and automotive components. The sector asserts that its long-term stability is closely linked to Pakistan’s broader economic growth objectives. At a time when the country requires sustainable, inclusive economic progress, industry representatives argue that preserving and strengthening domestic automotive manufacturing is far more beneficial than resorting to short-term measures focused exclusively on revenue generation. Khawar Azhar is a communications expert and writes on different issues of public interest.