Wednesday, 21 October 2015

The New Auto Policy


Tim Cook CEO of Apple said on Monday this week “It would seem like there will be massive change in that (car) industry, massive change.”
Most of the world is reflecting on this statement because of the importance of Apple as the world’s largest company as well as the technology leader. This statement has large ramifications for us too and we would all do well to think upon it.
We are told that our policymakers are considering a new auto policy. Newspapers report that it is likely to be business as usual, rewarding our automakers with the large protection that they have received now for more than 40 years.
For 40 long years we have struggled to create an auto industry giving our local assemblers a market where imports are made prohibitively expensive forcing consumers to buy what they produce. We all know about not only the kinds of cars we get but how they are sometimes bought at the infamous premium of the ‘on’ where you pay full cash in advance for delivery months later. In some years the earnings off the ‘on’ money have been huge for some car companies.
Our ‘auto policy’ has been full of strange outmoded ideas, which are seldom challenged.
First, the car industry is central to development. As a matter of belief some of our policymakers say that without a car industry no country developed.  This belief stems from an era when the car industry was at the cutting edge of technology and global bcar adoption was taking place. Humans were beginning a romance with ‘just in time’ transport. Much as changed since then including the romance with the car.
Second, technology can be adopted through policy and subsidy. For this ‘indigenization policy’ was put in place to try to manufacture all auto parts locally. It was envisaged that over time all auto parts would be manufactured locally and as it grows it too will be offered protection of operating behind high tariff barriers. A cottage industry for manufacturing these parts has developed and is now strongly resistant to lowering tariff barriers.
Third, given the imperative of developing a car industry, we cut deals with some car companies that allowed them to manufacture only for our domestic market, and not for export.
Poor Pakistani citizens are forced now to drive cars that have seen no technological improvement in many years. They buy cars with no warranties often being told by showrooms that tires and brakes will need to be changed soon as they may not be up to standard. Most cars are not equipped to international safety standards.
It is well known how scared our car assemblers are of old cars. They argue for the stoppage of all used car imports. Indeed they know that the cars sold locally are not as good as some of 10-year-old models sold in the rest of the world. 
There is no end in sight to this protection policy despite the assemblers’ high profits.
Meanwhile as Tim Cook said the car industry is no at a cusp of change.  Nothing in this world remains static and the car industry is in a state of flux now. 
The internal combustion engine—the one we are patronizing by our protection policy—is dying. Hybrids have been here for decades and are sill not allowed into Pakistan except at exorbitant costs. Electric cars are in and gaining ground. Estimates show that the share of hybrids and electric vehicles is now about 3% in the US and growing at about 22% per annum.
Meanwhile car technology is redefining driving, the use of the vehicle as well as the need for roads, bypasses, flyovers and signal free corridors. 
Tesla a revolutionary 12-year-old car company has developed a best-seller luxury car with outstanding safety standards and frontier technology to challenge known brands like Porsche, Mercedes, BMW etc. The car runs on Batteries and is charged through an electric connection. It has no internal combustion engine yet it outpaces the Porsche and handles as well as a BMW. It has redefined cars.
Last week Tesla did a software update on its cars just like you and I update our mobile phones and computers. The update has allowed the Tesla to incorporate several self-driving features. The car will now automatically brake when it sees an obstacle in front. It can drive in lane by itself sensing cars and lines. It can park itself.
Self-driving features are now being introduced in many cars while we have all watched in wonderment as the Google Car goes about like toy in tiny town without even a steering wheel.
Apple is rumored to be making a car in its project Titan that is expected to revolutionize the car industry. 
With this change happening does it make sense to make the car of the 20th century? Are we trying to indigenize a moving target in a cottage industry? Brakes, batteries, seats, steering wheels, engine parts are all being rethought out on a regular basis. Rethinking is being done through research at every level. Can cottage industries keep pace with this research or change?
The auto policy must take into account the change that the global auto industry is going though. An industry that can prey upon local consumers without any pressure to keep abreast of technological changes that are happening is not going to be an asset going forward. The bill for its backwardness is being paid in a myriad indirect ways and will grow over time. 
At a minimum the import and export barriers on this industry must be removed. The assemblers must face import competition. Moreover, their cars must be exportable. If this is done they will be forced to keep up and over time invest in research and design.

Our policy makers need to understand that technology is no more than research. Those who invest in research have technology. Those who copy never stay abreast.