Volkswagen to set up manufacturing in Balochistan on 10th May

[ARMalik]

Why the Chinese are SO QUIET?? isn't CPEC suppose to be 'Economic Boom' with lots of Chinese Investment??

 

[Bilal9]

This report is misleading. Volkswagen is NOT about to set up a plant. This is just another auto racket mafia about to set up a local 'darzi' cottage operation to fleece the Pakistani customer.

How so? This is not VW but a local mafioso under the name Premier. They will import kits for VW's and then bolt them together. Place a their markup on each bolted unit and make profit.

There are three giveways. First if VW were really serious they would move in themselves and set up VW Pakistan Limited. Secondly a proper car plant would need well over $1 billion dollars investment. Thirdly the production would easily be over 100,000 units if not over 200,000 with some exported. At 25,000 the number is too low.

For comparison. The French auto company Renault Marocco has a plant at Tangier Med -

The Renault-Nissan Tangier facility is arranged over 300 hectares and has an annual capacity of 340,000 vehicles, running six days a week with a staff of 8000 people. It builds four Dacia models: the Logan MCV, Lodgy, Sandero and Dokker. The millionth Tangier car rolled off the line in mid-July. The completed Dacias are transported by the new rail line directly to the dockside, from where they are shipped around the world.

This one plant is making 340,000 cars with 80% local source and soon to be increased to 500,000 vehicles a year sold across the world. Pakistan is far larger country than Marocco and needs proper auto industry. Not this "darzi" nonsense.

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The auto industry in Pakistan will remain a joke until something like this takes place.

I agree with your sentiments about "Darzi" operations. But this is just the first stage. Can't consume a whale or an elephant in one big gulp. We chew off one bite at a time.

Nissan Maroc was not chosen as assembly point by the Company itself (as opposed to local Darzi) because of local market demand, it was LOCATION only. Great jump off point to serve both South American market as well as European market. The fact that wages were low was icing on the cake.

However logic dictates that a small operation (assembling SKD or CKD kits) often precedes assembly in a new location with 80% or even 50% local content. One has to test the waters first.

Nothing wrong with that. Pakistanis will still be adding value. There will be more value addition once VOLUME dictates sourcing and indigenization of local components, which has happened in China and to some extent India.

The sourcing of local components is affected by 2nd and 3rd tier local parts suppliers (for steering assemblies, brake components, forged suspension parts), who will not invest for dedicated parts supply manufacture and logistics, unless there is no demand upstream from assemblers like the one here. The fancy word for 2nd and 3rd tier suppliers is "backward integration". It needs "VOLUME".

Artificially set up "National Prestige" car companies like Proton will fail, if competition is allowed to thrive around it, which has happened in Malaysia where it became a white elephant of sorts. Proton was sold to a Chinese car company some years back.

Proton had some local suppliers, but it still sources mostly Mitsubishi parts, which the Proton cars are based on (underneath Malaysian styling and sheet-metal, and in some cases new dash electronics and displays not sourced from Mitsubishi).

This is the case in Bangladesh right now in the initial stage, where Proton CKD kit assembly takes place (PHP group) and SKD kits for HINO, AL, Mitsubishi and other Commercial Vehicles also take place (Various companies).

When Gandhara industries was set up in Chittagong in the 1960's it assembled Vauxhall Vivas. Post 1971, it assembled Mitsubishi vehicles for govt. use under a new name. But that is a govt. run plant, which the Sheikh never de-nationalized. Volume remained low.

Like you said, unless exports can be fully assured by assemblers, AND volume can exceed 100,000 units,

1. Parent companies like VW will not get serious about sourcing from a country (unless they have plans themselves to use local value addition in Pakistan and invest for either supplying locally or export).

2. Local parts suppliers will not get interested in investing to supply said assembler.

Although Pakistan has a larger automobile market than Bangladesh, both countries are in the same chicken and egg predicament, Darzi operations only until volume dictates export and local backward integration of parts, all of which are inter-related.

Lastly - I am guessing this plant will be set up around one of the SEZ's in Gwadar, which would ease export logistics, when the time comes. This would be logical.

 

[HAIDER]

Very well built but goodness, the sensors. Their reliability is rather finicky as they age

The best VW was 2009 to 2013 Jetta TDI.

 

[Indus Pakistan]

However logic dictates that a small operation (assembling SKD or CKD kits) often precedes assembly in a new location with 80% or even 50% local content. One has to test the waters first.

Mate, I know all that. They have been 'testing the waters' since 1970s and five decades later all we have is darzi operations. Dozens of them. Inefficient. I mean when your total production capacity [actually bolt together parts] is 30-40k your never gonna have economies of scale.

Now I could buy into what you said if this was 1970s and your trying to plant seeds of auto industry. But 50 years later nothing has changed. Pakistan has no indigenous auto maker and it's a country of 200 million people ffs.

This is how it works. And if you look at South Korea they did. You ban all imports. You then set up a one darzi unit on contract with a foreign maker whose cars would sell to maximum buyers in Pakistan. Suzuki Alto or what was called Mehran is fantastic example. Why? Simple, cheap and easy to make. The Mehran in conjunction with Suzuki began production in 1980s.

However the idea should have been is to start as a darzi but evolve into a global player like HyundaI of South Korea. By 1990s they should have been making 90% locally. When the production ceased back in Japan the plant machines should have been bought and installed in Pakistan to continue making the Mehran with 100% local content. By 2000s sales volumes would be near 150,000 units. This would be possible as no other cars would be allowed in. So generals, judges, lawyers, traders down to young men would all be driving the same Mehran. This would mean you could have high sales volume because there would be no other choice.

The Mehran could be then slowly worked on by local engineers. Tweek it, give it facelift, introduce fully loaded de luxe models down to basic no frill Mehran. Upstream industries like steel, pastics etc would be integrated to keep the production indigemous. By 2010s the Mehran plant would have skills and talent to produce entirely new indigenous car. If needed some foreign expertise could be brought in. Then the new Mehran would be sold as all new Pakistani car. With captive market inside Pakistan 200,000 unit sales would be possible. Then the model also could be aggrssively marketed in poor African and Asian countries as cheap reliable no frill transport. This might achieve another 100,000 sales. With 300,000 unit production the Mehran company would be on the cusp of going big time. Maybe the next Kia or TATA.

Instead what happened? One darzi was set up making Mehrans. But the upper middle class wanted Honda's, Toyota SUV's, Audi A3s etc. So the government of the day gave another licence to one of their favourites or whoever placed few milliions in their pocket to local mafioso, who then did a survey and found 25,000 buyers could be had for the new Honda. So a approach was made to Honda to send knocked down kits and a darzi unit was set up. News reports flashed that Honda was coming to Pakistan. 1000s of buyers paid deposit even before the cars were bolted together.

Some time later another government gave a licence to their fabvourite who set up another darzi operation bolting 20,000 cars. The result is loads of small darzi operations non of which are ever going to be able to stand on their feet.

And now VW are coming .....

 

[Bilal9]

Mate, I know all that. They have been 'testing the waters' since 1970s and five decades later all we have is darzi operations. Dozens of them. Inefficient. I mean when your total production capacity [actually bolt together parts] is 30-40k your never gonna have economies of scale.

Now I could buy into what you said if this was 1970s and your trying to plant seeds of auto industry. But 50 years later nothing has changed. Pakistan has no indigenous auto maker and it's a country of 200 million people ffs.

This is how it works. And if you look at South Korea they did. You ban all imports. You then set up a one darzi unit on contract with a foreign maker whose cars would sell to maximum buyers in Pakistan. Suzuki Alto or what was called Mehran is fantastic example. Why? Simple, cheap and easy to make. The Mehran in conjunction with Suzuki began production in 1980s.

However the idea should have been is to start as a darzi but evolve into a global player like HyundaI of South Korea. By 1990s they should have been making 90% locally. When the production ceased back in Japan the plant machines should have been bought and installed in Pakistan to continue making the Mehran with 100% local content. By 2000s sales volumes would be near 150,000 units. This would be possible as no other cars would be allowed in. So generals, judges, lawyers, traders down to young men would all be driving the same Mehran. This would mean you could have high sales volume because there would be no other choice.

The Mehran could be then slowly worked on by local engineers. Tweek it, give it facelift, introduce fully loaded de luxe models down to basic no frill Mehran. Upstream industries like steel, pastics etc would be integrated to keep the production indigemous. By 2010s the Mehran plant would have skills and talent to produce entirely new indigenous car. If needed some foreign expertise could be brought in. Then the new Mehran would be sold as all new Pakistani car. With captive market inside Pakistan 200,000 unit sales would be possible. Then the model also could be aggrssively marketed in poor African and Asian countries as cheap reliable no frill transport. This might achieve another 100,000 sales. With 300,000 unit production the Mehran company would be on the cusp of going big time. Maybe the next Kia or TATA.

Instead what happened? One darzi was set up making Mehrans. But the upper middle class wanted Honda's, Toyota SUV's, Audi A3s etc. So the government of the day gave another licence to one of their favourites or whoever placed few milliions in their pocket to local mafioso, who then did a survey and found 25,000 buyers could be had for the new Honda. So a approach was made to Honda to send knocked down kits and a darzi unit was set up. News reports flashed that Honda was coming to Pakistan. 1000s of buyers paid deposit even before the cars were bolted together.

Some time later another government gave a licence to their fabvourite who set up another darzi operation bolting 20,000 cars. The result is loads of small darzi operations non of which are ever going to be able to stand on their feet.

And now VW are coming .....

I agree completely, Thanks for the detailed informative post.

In Bangladesh the govt. has gotten a taste of how this works when they banned foreign made cellphone imports and provided incentives for local manufacture. Now Bangladesh has half a dozen companies making cellphones, half of them with their own designs and built from scratch. This happened in the span of three years.

The household appliance manufacturers are also going the same way. Bangladesh is 90% self-sufficient in cellphone manufacturing and nearing the same milestone in appliances because of govt. policy support in spite of strong importer lobbying and influence-peddling (manufacturers actually have more money to bribe officials).

Here is one of locally made high capacity IoT enabled smart luxury fridge models (from Walton brand). Smaller fridges use their own compressors and they also export compressors overseas.

Walton launches new smart fridge that ‘can kill viruses on food’

Bangladesh’s tech giant Walton has introduced a new smart fridge that the company says can kill viruses on food and be controlled by mobile phone from anywhere in the world.

bdnews24.com

Walton launches two new 2nd-gen compressors

Bangladesh is the eighth largest compressor-producing country in Asia and 15th in the world

www.dhakatribune.com

On a larger scale, this might happen with autos too in Bangladesh (same policy support banning import of second hand reconditioned vehicles from Japan). The Bangladesh govt. (Ministry of Industry) just came up with an automobile industry manufacturing policy,

https://moind.gov.bd/sites/default/files/files/moind.portal.gov.bd/notices/d17e0566_13cb_486d_b77e_2d4063d09426/Automobile%20Industry%20Development%20Policy,%202020%20Draft.pdf

Darzi operations will not stop until (like you said) the govt. sets up one preferred national manufacturing unit that has backward integration support and can trump the production cost of the Darzi operations.

But it is important that parts manufacturing be also set up locally, sheet stamping, forging and electrical/hydraulic sub-systems assembly.

EV manufacturing is the focus of our govt. now which will simplify components and parts counts in huge fashion.

 

[Bilal9]

By the way, India's Maruti (dedicated national JV with Suzuki set up by Rajiv Gandhi back in the day) used to make Suzuki Mehran (Alto type) 800 cc vehicle back about twenty or more years ago, they still do (but it achieved 100% indigenization many years ago), it is sold under different sheet-metal now - using the chassis for that same (almost four decade old) Alto model but a slightly different 800cc engine.

This is for the huge price-sensitive market in India (I'd say 70% of their auto market or more). Today, there are so many choices in India equivalent to this Maruti model. But back in the day, this was an ultramodern car compared to the 1950's era Ambassadors and Premier Padmini (Fiat Delight 1100) cars India used to make prior (available by 3 years advance booking/deposit and application only).

This is the first Maruti owner in 1986 I believe.

This is the 2020 model, underneath the changed sheet-metal, the same 1986 innards.

This is the "luxury version" - 4 lakh ex showroom.

Alto prices start at 3 lakhs, which very few new cars can match in India. for kanjoos-minded Indians, this is a dream come true.

Maybe some Indian members can explain how they can keep the price so low, but scale/volume is of course one of the reasons.

Meanwhile Pakistan has stopped assembling the Mehran and gone into assembling the eighth generation Japanese market Alto which is probably a lot safer than the older Maruti 800 model, with better crash protection built-in.