Pakistan's auto industry imported a record $2.118 billion in semi- and completely knocked-down (SKD/CKD) kits during fiscal year 2026, a 92% surge from $1.101 billion in FY25. The unprecedented figure underscores persistent low localisation levels across both new and older vehicle models, even as car sales climbed to 155,631 units and SUV, pickup, van, and jeep sales reached 50,814 units. Main Developments The previous all-time high for parts and accessories imports was $1.7 billion, recorded in FY22 when car sales stood at 234,180 units. Total SKD/CKD import bills from FY22 through FY26 have now crossed $6 billion. Outstanding auto loans surged for the 19th consecutive month to Rs382 billion at the end of June, up from Rs369.12 billion in May, despite an interest rate hike to 11.5% from 10.5% in April. Pre-budget buying appears to have driven demand for both new and used vehicles as buyers anticipated changes in taxes and duties. Read also: 3 reasons Gwadar Port is emerging as a safe trade hub amid tensions Even ongoing US-Israeli military operations against Iran since February 28 have not dampened consumer enthusiasm for vehicle purchases. Various financing packages offered by assemblers and private banks, along with affordable car financing schemes, continue to attract buyers. Background Under the last automotive policy, the government allowed Korean and Chinese original equipment manufacturers (OEMs) to operate under a 25% tariff regime. Established assemblers claim localisation levels between 50% and 70%, but many vendors argue that local parts content in new models is below 50%. Korean assemblers report localisation of 35–40%, while Chinese players have not disclosed their figures. The current SKD policy, which bases duties on sub-assembler prices rather than actual localisation levels, has been criticised for damaging the industry over the past decade. Japan's OEMs, by contrast, developed over 100 local auto entrepreneurs in Pakistan through a model that prioritised domestic sourcing. State Bank of Pakistan foreign exchange reserves remain under pressure at below $18 billion as of July 10, raising concerns about the sustainability of open import policies. Why It Matters The rising CKD/SKD imports threaten the survival of small and medium enterprises in the auto parts sector. Mashood Ali Khan, an auto parts maker and exporter, warned that many SMEs could face closure if the trend continues. He noted that new Korean and Chinese OEMs are not sourcing from local manufacturers, repeating a pattern seen when older models were discontinued—local enterprises closed due to lack of orders for new models. A similar pattern is emerging in the bus and truck OEM segment, where parts are being imported under CKD and SKD arrangements. Khan called for an immediate review of the National Tariff Policy to protect the local industry and conserve foreign exchange. Given existing funding constraints, the local industry cannot compete with massive imports of completely built units (CBUs), CKDs, and SKDs. If unchecked, Pakistan risks losing its auto manufacturing base within the next decade, as happened in Australia, Khan warned. What's Next The local industry is awaiting the new auto policy after the current policy expires on June 30, followed by changes in taxes and duties in the budget 2026-27. Some stakeholders are pushing for auto financing limits to be raised from Rs3 million to Rs6–8 million, and repayment tenures extended from 3–5 years to 5–7 years, along with reduced sales tax on small cars. The government's upcoming automotive policy will be critical in determining whether localisation requirements are strengthened or whether unchecked CKD/SKD imports continue. Industry players are urging the government to prioritise local procurement over import-heavy assembly models.