By Farooq Awan

Pakistan’s automobile industry continues to operate well below its installed production capacity despite the presence of multiple manufacturers and gradual growth in the domestic vehicle market.

According to a study on Pakistan’s automobile industry prepared by the Centre of Excellence in Competition Law at the Competition Commission of Pakistan, the sector possesses significant manufacturing capacity, but actual output remains considerably lower than its potential.

The report notes that the installed production capacity of the passenger car segment alone stands at about 341,000 units per year, yet actual production levels remain far below this threshold, indicating substantial underutilization of industrial facilities.

The study describes this gap between installed capacity and production as a persistent structural characteristic of Pakistan’s automobile sector. While manufacturers possess the technical capability and infrastructure to produce more vehicles, economic and market constraints limit their ability to operate at full capacity.

One key factor is the relatively small size of the domestic automobile market. Vehicle ownership in Pakistan remains low compared with regional economies, which limits the scale of production required by manufacturers.

Macroeconomic volatility has also played an important role in constraining output. Periods of high inflation, exchange rate fluctuations, and rising interest rates have repeatedly disrupted automobile production and weakened consumer purchasing power.

These pressures affect both producers and buyers. Manufacturers face higher costs for imported components used in vehicle assembly, while consumers encounter reduced affordability and limited access to vehicle financing.

As a result, the sector has historically experienced cycles of expansion followed by sharp slowdowns, preventing manufacturers from consistently operating at their full production capacity.

The report also notes that thirteen assemblers are currently operating in Pakistan’s automobile market, reflecting a gradual diversification of the sector compared with earlier decades when only a few firms dominated vehicle assembly.

Despite this expansion in the number of manufacturers, production volumes remain relatively low compared with other automobile-producing countries in the region.

Limited output restricts economies of scale within the sector, keeping per-unit production costs relatively high and affecting overall competitiveness. Smaller production runs also reduce incentives for local suppliers to invest in advanced manufacturing technologies.

According to the study, addressing the gap between installed capacity and actual output remains a key challenge for Pakistan’s automobile industry as it seeks to strengthen manufacturing efficiency and expand its industrial base.

Although the sector possesses substantial production infrastructure, its current output levels indicate that a significant portion of the industry’s manufacturing potential remains untapped.

Credit: INP-WealthPk