The Indus Motor Company Limited was set up as a joint venture between the House of Habib and the Toyota Motor Company Japan for the assembling, manufacturing and marketing of Toyota Vehicles in Pakistan from 1990. Indus Motor Company Limited (IMC) is the sole distributor of Toyota and Daihatsu vehicles through its various dealerships. (Indus Motor Company 2012)
Indus Motor Company Limited (IMC) was made public limited and was listed on the stock exchange in 1989 and it started production in 1993. . Toyota Motor Corporation and Toyota Tsusho Corporation have 25 % stake in the company whereas House of Habib is the major shareholder.
Indus Motor Company Limited (IMC) has its production facility in Port Bin Qasim and has a total area measuring over 105 acres. The plant is unique in nature as this is the only plant in the world where Toyota and Daihatsu cars are being made under the same roof.
The production facility has the most state of the art technology and huge investments were made in order to ensure that the products are of the highest quality and the productivity level is unmatched.
Vision of Indus Motor Company
Toyota Indus motors being a subsidiary of Toyota motor company shares the same vision that the global company has. Toyota has been recognized in terms of innovation and the driving force behind being the most successful companies worldwide is offering good quality products in a large range to its consumers. Their vision statement reflects that:
“To be the most respected and successful enterprise, delighting customers with a wide range of products and solutions in the automobile industry with the best people and the best technology”
This vision statement states what is already known about the company. The company is very well known throughout the automotive industry as having the best human resource and technology and does not inhibit itself to just providing automobile products but also various solutions that means that the company can expand its operations not only in making physical products but also in providing solutions.
Mission of Indus Motor Company
The mission of Indus Motor Company is derived from the slogan the company has. The Slogan is an acronym of ACT # 1. This slogan actually means Action, Commitment and Teamwork to become # in Pakistan.
This statement is the overall Mission of the company but they have subdivided to give a more accurate account of what the company wants to achieve. The Indus motor company wants to achieve the number 1 position in the auto industry of Pakistan in the following areas:
Respect and Corporate image
Customer satisfaction
Profitability
Quality and safety
Production and Sales
Best employer
All these factors point out to the fact that the company wants to become number 1 in all the aspects including making the highest profits, having the best image and making sure that both the employees and the customers are happy with the company.
Core values of Indus Motor Company
Like the other aspects the Indus Motor Company shares the core values with that of Toyota Motor company which can been witnessed throughout the workings of the company in Pakistan.
These Core values include:
World Class production quality
Achieving the ultimate goal of complete consumer satisfaction
Being seen as the best employer.
Fostering the Spirit of teamwork.
Inculcating ethical and honest practices
These are the set of values that drive the Indus motor company and all the working of the company revolve around these core values.
Strategic Objectives
There are many strategic objectives that Indus Motor Company wants to achieve:
Becoming the market leader by delivering value to customers.
The philosophy followed to match the needs of the Pakistani customers is “Customer first and that is done by providing high quality vehicles and services.
Constantly improving the quality and reachability of the “3S” Dealership throughout the country.
Taking the advice of the consumers for constant feedback including product development and improving upon service and customer care.
Bringing the Quality of Toyota to Pakistan.
Maximization of Quality, Reliability and Durability.
Transfer of Technology.
Improving the standards constantly to meet the standard of Toyota internationally.
Optimization of Cost by using Kaizen
Encouraging a Kaizen culture and mindset.
Implementation of Toyota production system.
Removing wastage and having the lowest operating costs in the industry.
Respect for People.
Treating employees as the most important function.
Providing an environment that fosters creativity and teamwork.
Supporting equal employment opportunities without discrimination.
Building Competitive values.
Good corporate citizenship
Following globally acceptable ethical business practices.
Engaging in social activities that contribute to the enrichment of Pakistani society.
Enhancing corporate value for the benefit of shareholders.
The automotive industry started in Pakistan in the 1950’s when National motor’s which is a public limited company was started its operations. The company National motors was established by General Motors and was responsible for making a number of brands such as the Chevrolet and Vauxhall. (Asif 2006).
After this initial period there was a long gap before any other assembling plant was set up in Pakistan and the industry only started its growth in the 1980’s. During this time the biggest new development was that Suzuki motors began production of their 800-1000 cc car range which was meant for the middle income groups and opened the market for a whole new segment that was previously untapped. (Malik 2003) This was a time where the automotive industry of Pakistan was growing and cars were being used by a number of income segments and the industry achieved growth.
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The period from the 80’s till the 90’s was dominated by Suzuki motors but in the 1990’s Pakistan’s automobile industry saw growth in the number of assembly plants and the importance of this segment grew tremendously. The first company that was set up after Suzuki motors was Indus Motor Company which was established to manufacture Toyota cars in Pakistan. (Asif 2006) This was followed by Honda Atlas which was set up for the manufacture of Honda civic and city. The entrance of these two large Japanese car companies showed that the market was growing and there was a huge potential for the car industry in Pakistan. After these two companies two more companies set up their manufacturing plants in Pakistan, the first company being Ghandhara Nissan which started the manufacture of the very famous Nissan Sunny and soon after Dewan Motors set up a plant to manufacture Hyundai and Kia vehicles in Pakistan which were both Korean car manufacturing firms.
The main growth in the local automotive sector came after the new millennium as the production and demand of the local cars really took off. The most significant growth the car industry of Pakistan has witnessed during this time was from the years 2003-2005 where the industry grew its demand by 48%. (Shahid 2007).This period was clearly one of the best phases that the industry has witnessed but it was very short lived as the industry saw a decline in the sales after this period and since has not been able to match the amount of sales achieved during this period.
Source: Pakistan Automotive Manufacturers Association 2012
Source: Indus Motors Financial report 2012
Source: Indus Motors Financial report 2012
Literature review
Mr. Zahoor Sheikh Sarwar (CASE), Mr. Azam Ishaque, Mr. Nadeem Ehsan, , Mr. Danial Saeed Pirzada, and Mr. Zafar Moeen Nasir, in their report published in International Journal of Productivity and Performance Management, has identified that automobile sector has huge economic potential and the study identified the prevalent condition of productivity in automotive manufacturing industry of Pakistan and indicated the possible areas for enhancing productivity. The findings of this research have revealed that effective utilization of role of technology can enhance the productivity of Pakistani manufacturing firms drastically. Pakistan Auto Industry Development Program (AIDP-2006),
A study conducted by Ministry of Industries and Production, Government of Pakistan states that the Pakistan Auto Industry has become a leading industrial sector to steer the growth in large scale manufacturing sector. The high economic and job multiplier effect of this industry and its deep forward and backward linkages in allied industries, make the auto industry a key player in the national economy. The report further elaborates that Pakistan is amongst a few countries of the world which manufacture all kinds of vehicles i.e. 2/3 wheelers, motorcars, LCVs, tractors, prime-movers & trucks and buses. The total country requirements are generally met from the local production except the import of certain categories of trucks & prime-movers. Import of used cars is allowed to the bonafide ex- patriate Pakistani’s and travelers only under the baggage scheme. The presence of few of world acclaimed brands and multinationals in the manufacturing of vehicles for the last 2 to 3 decades and their regular expansion plans speak of their confidence on the market, government policies and economic potential of the country. Pakistan auto industry turnover during the year 2005-06 crossed US $ 3.6 billion which comes to 2.8% of GDP (2005-06), thus saving substantial foreign exchange on imports. The job contribution by auto industry comes to nearly 1.392 million which includes direct jobs of nearly 192,000. The auto industry remains second largest tax payer in terms of its contribution to customs duty, sales tax and withholding tax. The export contribution however, is marginal and growing slowly, which otherwise has high potential to grow in the coming years. AIDP envisage to achieve a critical mass of production, double the contribution of auto industry to GDP from the existing 2.8%, by the year 2011-12 with high focus on investment, technology up gradation, increasing its exports to US$ 650 million, enhancement in jobs alongside the development of critical components to further increase the competitiveness of domestically produced vehicles. the group also come across financial information of the leading manufacturers which formed the basis of our opinion that the benefits of reduction in sales tax and the removing of Federal Excise Duty from the sector has not been shifted to end consumers which shows marginal economic benefits to the manufacturer of the automobiles only.. The liberalization of used car policy saw an increase of 87% in the number of used vehicle imports to 6,793 units in the fiscal period.
The economic survey of Pakistan 2010-11(Finance Division Government of Pakistan) in its report states that the growth in automobile industry across the world depends heavily on economic growth and availability of financing from financial institution at favorable terms. The sector recorded positive growth in cars, LCVs/Jeeps and two/three wheelers during July-March-2010-11 as compared to same period of the preceding year whereas the Buses, trucks and tractors witnessed a decline in their production as compared to the previous year. events like the unprecedented floods and destruction in supply chain due to earthquake and tsunami in Japan, compounded with a general slow down in the economic environment, lower GDP growth, rising interest rates, limited credit availability for auto financing, depreciation of the Pak Rupee against major currencies, unprecedented rise in prices steel and other inputs, inflation, etc impacted the demand negatively. The Auto industry of Pakistan has through the years of struggle become the leading sector in the large scale manufacturing and is instrumental in the growth of the industrial sector, according to a study conducted by the Ministry of Industries and Production. (AIDP,2006). The importance of the auto industry can be ascertained from the fact that this industry has very high economic and job multiplier effect and the industry has very strong linkages to a large number of allied industries this making it one of the most important industries in Pakistan. Pakistan is amongst a few countries which manufacture all kinds of vehicles i.e. 2/3 wheelers, motorcars, LCVs, tractors, prime-movers and trucks and buses. The industry is self-sufficient as the total requirements of the country are met by production that happens locally. (Naeem 2011)
The industry involves the presence of a few large multinational company who have through local collaboration has expanded the auto industry from the last two decades and with the continuous improvements in technologies being made and regular expansion plans the auto industry holds huge potential for the economy of Pakistan. “Pakistan auto industry turnover during the year 2005-06 crossed US $ 3.6 billion which comes to 2.8% of GDP (2005-06), thus saving substantial foreign exchange on imports”. (Naeem 2011)
The auto industry of Pakistan provides a large number of jobs directly, this being estimated at over 200,000. (Malik 2003)The auto industry is also the second largest tax payer which shows how much this industry has an impact on the economy of Pakistan.
The first phase of automotive assembling in Pakistan started in 1950 with Bed Ford truck followed by Ford Prefect, Ford Cortina and Dodge Dart. The indigenized parts in these vehicles did not exceed 20% with only exception of Bed Ford trucks with a deletion level of 80%. By the end of 70s practically all automobile assembling in Pakistan ceased.
The 2nd phase of Automobile assembly started in 1983 with the introduction of FX 800cc Suzuki Car. In 1989 Pak. Suzuki changed the Model of FX 800cc with Mehran 800cc. Pak Suzuki thereafter In 1992 Introduced Khyber 1000cc and 1300cc Margalla but the indigenization levels from 1983 to 1995 were not significant
Potentials of industry and high demand of the products attracted new entrants whereas the existing players started producing in mass quantities. This mass production that started in 1964 resulted in the first ever period of progressive manufacturing in the history of Pakistan.
Following the progressive manufacturing period, nationalization of industries under Economic Reforms order had a profound impact on automobile industry in Pakistan. In early 1972 under Martial Law Regulation, the Government took over the control of 32 industrial units, including eight automobile plants, under the officially appointed Board of Industrial Management with the Minister for Production as its Chairman.
In order to manage the automobile units and to advise the Government (in developing policy guidelines for growth and development of auto industry), Pakistan Automobile Corporation (PACO) was formed in 1973 under the administrative control of the Federal Ministry of Production.
The policy of de-nationalizing public sector units was adopted once the change in government took place. Privatization brings in foreign companies. This results in a number of joint ventures. Due to these ventures, Pakistan auto industry enters into assembly/progressive manufacture of passenger cars, commercial vehicles and motorcycles.
The liberalization of the importing used cars resulted in a tremendous increase in the number of used cars being imported and resulted in a huge 87% rise to a total figure of 6800 units in Financial Year 2010. (Rohail 2010)
Competitor analysis
In order to find out the true position of Indus motor company in the context of the Pakistani market it is imperative that it be compared to its closest competitors. In the case of the Pakistan automobile industry, the industry has not seen much competition throughout the years and there are only two identifiable companies which fit the profile of being a competitor of Indus motors. The two other companies in this case are Honda Pakistan and Pak Suzuki.
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In order to conduct the competitor analysis first background and history of both the companies will be provided and after that is done the financial ratios of the three companies in question will be compared to give an accurate view as to which company has been performing in comparison to the other companies. Although there are very few automobile companies in Pakistan the competition has been fierce throughout the years that these companies have been in operation and as the market is shrinking the competition has increased further during this time.
Overall the automobile industry of Pakistan has taken a hit over the years and since has declined rapidly from its period of boom which ended in the year 2005. This slide has been attributed to a number of factors and these factors have made the industry even more come competitive than it already is.
To start off with the competitor analysis we being with the brief introduction and history the two major competitors of the Indus motors.
Honda Atlas Cars Pakistan Limited
Honda Atlas Cars Pakistan Limited has been a joint venture between the companies Honda Japan and the Atlas group of companies. The company was officially incorporated in 1992 and the joint venture between the companies was signed in 1993. The company started its operations within 11 months of the groundbreaking ceremony and was inducted into the Karachi, Lahore and Islamabad stock exchange in the year 1994.
Since the inception of the company Honda Pakistan has sold more than 200,000 cars. this has been followed by the same methods of construction that the international cars are going through. All the dealership are made using the same high standards defined by Honda in all the countries it operates in.
Honda believes that the best products are made from the help of the home country and therefore it encourages local vendors to produce most of the parts required for the construction of the car and makes sure that the quality standards are met thoroughly.
The current range of product that Honda offer in Pakistan include
Honda Accord
Honda CR-V
Honda civic (four models)
Honda city (2 models)
Vision Statement
Striving to be a company that society wants to exist by sharing joys with people throughout the world creating products that maximize the joy of customers, with speed, affordability and low CO2.
Pak Suzuki Motor Company
Pak Suzuki Motor Company Limited is an automobile company that has its shares quoted on the stock exchange of Pakistan. The company was formally formed in the year 1983 with the collaboration of the government of Pakistan and Suzuki Motor corporation Japan. The company officially started manufacturing cars in 1984 in port bin Qasim where the plant is still located. Soon after the company was privatized and the capacity of the plant was expanded to be able to make 500,00 vehicles per year. This however never became possible until 2002 due to the recession in the market however as the market increased so did the capacity of the plant as it continued to increase till in 2007 it was able to make 150,000 cars annually.
The mission of the company is
To provide automobile of international quality at competitive price.
To improve skills of valued employees by imparting training and inculcating in them a sense of participation.
To achieve maximum indigenization and promote Pakistan’s automobile vending industry.
To make valuable contribution to social development of Pakistan through development of industry in general and automobile industry in particular.
The product range of the company include:
Swift (1300 CC)
Cultus (1000 CC)
Mehran (800 CC)
Liana (1300 CC)
Alto (1000 CC)
Financial Data Analysis
For the purpose of the financial data analysis all the data has been taken from the annual reports of the companies available for free on the respective websites of the companies. The financial analysis provides an opportunity to look at and compare first the company’s own performance and then see it in relation to the performance of the competitors.
The first set of ratios will focus on the profitability of the firms and see how well the companies have been performing in this regard over the last three years.
The first ratio in this context is the gross profit margin percentage which tells us about the profit margin before tax and interest made by the respective companies. As clearly evident the gross profit margin of Indus motor company is a lot higher than the both its competitors Honda Pakistan and Pak Suzuki motors. In the Financial year 2010 Indus Motors had a very healthy margin of 8.08% which was really high when compared to the same years for the competition. During the same year Pak Suzuki motors had a much lower gross profit margin of 2.2%. this was because the company was suffering losses in the production of its 1300 CC Liana and this really affected the profitability of the company. In the same year Honda Pakistan was actually making losses due to supply chain issues it had as the production was significantly reduced because of the earthquake in Japan and flooding in Thailand. FY 2011 was a better year for both the competitors as Honda improved its gross margin to actually make a profit and the situation for Suzuki became better as well. This however could not be said for Indus motors as the profit margin dropped sustainably to become 6.6% due to the fact that the company had to reduce production and was not able to perform at full capacity. The latest year has been mixed for the three companies involved as Indus motors managed to improve their gross margins but Honda again has suffered losses and Suzuki has managed to increase its margin but is still way below that of Indus motors.
The next ratio looks at the net Profit margin which is the profit after taxation and interest expense. The net profit margin also displays the same pattern for the three companies over the course of the three years. The net profit margin is quite high for Indus motors at FY 2010 at 5.7% and then it falls down to 4.45 % in FY 2011. This was due to the same reasons as to the fall of the gross profit margin during the same period. The net profit margin of Honda is negative throughout the three years under question and shows just how poorly the company has performed over this period. The net profit margin shows higher losses than the gross profit margin as this also includes the interest expenses which are to be given even in the case of losses. The only difference with the net profit margin is in the case of Suzuki motors in FY 2011 as this shows that the gross profit margin decreased from 1 to 0.5 in FY 2011 which was not in accordance to the gross profit margin that year. This year due to increased servicing of debt charges during the particular year.
The next ratio in the financial analysis is the earning per share (EPS). EPS is the portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share gives an indication of a company’s profitability. The EPS of Indus motors is very high and shows that the company has proved very good for the investors as their percentage earning is very high. The EPS for Indus motors starts very high in FY 2010 compared to the industry at 43.8 but then is reduced the next year to 34.9, the EPS again rises in FY 2012 to become 54.7the highest in all the three years under comparison. As expected the EPS for Honda during this time was negative throughout the three year period. The EPS for Suzuki was in the positive but was significantly lower than that of Indus motors. This clearly shows that even during bad economic times indus motors has proved to be one company that has been beneficial for the investors.
The next ratio deals with the efficiency and that is the inventory turnover. This ratio shows how many times a company’s inventory is sold and replaced over a period. The less days it takes the more efficient the inventory is. Now it is known that Toyota is known for its strict inventory management and this shows in the data
The number of days for which the inventory is turnedover12 for Fy 2010 and then it improves and stays the same for the next two years. This in comparison to the other competitors shows just how much more efficient the inventory management of Indus motors is. Honda for the last three years has not fared well in this regard as the days are too large to be efficient and that is because of the supply chain issues it has been having since the last 2 years. Fy 2011 was better for the company in this regard as the number of days were reduced in this year. The worst inventory management is shown by Pak Suzuki over the three year period as the number of days are almost 100 in FY 2010 and go to just above 90 in FY 2012.
Another ratio to check the efficiency of the firm is the debt collection period. This shows how efficient the company is in managing its debts and the fewer days it takes the more efficient the company is in debt management. Indus motors is doing well in this regard as well as the number of days are very low. However in this regard the most efficient is Suzuki motors which have the least number of days in all the three years. This ratio seems to be giving a problem to Honda Pakistan as the number of days continue to rise over the given period. The days for Toyota are less than 10 in all the three years with the ratio improving each year. However this being said the ratio for Pak Suzuki motors is significantly lower below five for FY 2010 and then at 2 days for
Fy 2011 and Fy 2012.
The next ratio to be reviewed is the return on equity. ROE is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The ROE for Indus motors is very high when compared to the 2 competitor firms. This shows that in terms of investment Indus motors has been a good investment and the returns it offers are better than that of any other company in the industry. The company started at a very good ROE of 27 in FY 2010 and then the next year due to reduced profitability the ratio declined, however indus motors was able to increase the ROE in FY 2012 to make it 25. In comparison the ROE for Honda is negative for all the three years in question. This shows that Honda was not a very safe investment for its shareholder. Pak Suzuki motors however managed a very healthy ROE in all the three years but was constantly lower than that of Indus motors.
The next ratio looks at what percentage of the firm is being financed by debt in relation to equity. Lower debt means that the finance cost would be lower and in this regard Indus is doing really well as it is being completely financed by equity thus achieving lower costs and having the scope of using debt financing in order to expand its operations without becoming a burden on the company. The other two companies have higher debt to equity ratios specially Honda which is the main reason for the high finance costs it has to incur.
The last ratio in the financial analysis is the Current ratio. The current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations. The higher the current ratio the better. A current ratio of above 1.5 is said to be good generally and this is exactly what Indus motors has achieved over the three year period. The good thing about this ratio for the company is that the ratio has increased constantly over the three year period and is in par with the industry. This being said however Pak Suzuki motors is doing a much better job at maintaining its current assets in relation to current liabilities.
In Conclusion Indus motor company has been performing very well in comparison to the two main competitors and one of the reasons for this is external as Honda has suffered a lot due to the earthquake in Japan whereas Toyota has been able to regroup effectively. This being said the main point is that although the company is performing better than its competition still it has not been able to reach up to the level it had only a few years ago. This is the main problem that the company is facing right now and with the sudden influx of imported vehicles in the country at cheap prices the most successful company currently in Pakistan has a bleak future if the problem is not curtailed immediately.
Research Objectives
Establish a link between declining sales of Indus Motors and the increase in imported cars.
Find out the patterns of growth and decline for car sales for Indus Motor Company.
Gauge the economic impact of the policy of liberalization of used cars.
Find solutions to revive the declining sales of Indus Motors.
The core problem that Indus motors is going through right now is the declining sales it has been facing since a number of years and several studies have linked this to an external factor which is the tremendous increase in the imports but no substantial research has been done on the subject to establish a definitive link between the two.
This research is first of its kind and will seek to establish the impact of rising imported cars coming into Pakistan with the declining sales of Indus motors.
The research will also find out very important information such as the number of cars imported after the liberalization and the ways in which this has impacted the car industry of Pakistan.
After categorizing the research objectives it is very easy to formulate the research question to would be the essential focus of the whole research.
“The impact on the sales of Indus Motor Company with the rise in imported cars”
Research Method
The research undertaken is going to be an applied research. This is because an applied research aims to find a solution for an immediate problem facing a company (Kumar 2005)and that is exactly what this research aims to accomplish as currently the Indus Motor company is facing the problem of declining sales.
The research will start off with the collection of secondary data. This would include journals, newspapers, government statistics and information on the company. The secondary research is very important as it establishes the grounds for the primary research. The secondary research uses data also collected for other purposes and therefore is such a study where the figures of car production and imports are very important, collection of secondary data is a vital first step. Data was collected from both online and offline sources and only data that can be verified will be used in order to ensure the validity and the integrity of the research.
In conjunction with secondary data, primary data was vital for the successful completion of this research. This is due to the fact that this type of research has not been conducted before and therefore it is vital that primary research be conducted.
Primary research included detailed interviews with the staff and managers of Indus Motor Company as well as floating questionnaires to conduct the research. The interviews are very important as they would establish a detailed view into the company and would be beneficial for the research.
Due to the issue of time constraints not everyone would be interviewed but there wou
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