Pakistan's Auto Sector's Doom and gloom Future
  Sep 06, 2023      

Pakistan's Auto Sector's Doom and gloom Future

Stakeholders in the car industry sector predict that the upcoming six months will be more difficult than the first seven months of the current fiscal year after seeing a 43% fall in sales.

Due to the State Bank's (SBP) limitations on obtaining new letters of credit (LCs), the sector continues to experience a scarcity of parts, which causes factory closures and extended vehicle delivery periods. Despite factory closures, a shaky economy, and declining sales, industry participants continued their historical habit of raising prices. To reduce overhead costs, some assemblers even implemented repeated price shocks in less than a month.

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Customers are paying more for imported parts as a result of the rupee's declining value against the dollar, but no one is concerned about lowering prices for consumers now that the rupee is strengthening against the dollar. In the interbank market, one dollar was worth Rs 264.38 on February 16 as opposed to Rs 276.58 on February 3.

However, a report in Dawn said that car assemblers' closure of certain facilities had led to the loss of between 250,000 and 300,000 direct and indirect employment in the auto vending sector at a time when food inflation and electricity costs were skyrocketing. The largest auto manufacturer in the country, Pak Suzuki, stopped its facilities for roughly 50 days during the past seven months.

Toyota automobile assembler Indus Motor Company (IMC), whose sales fell by 51% in the 7M-FY23 to 21,877 units, had its facility idle for a total of 53 days, from August 2022 to February 2023. Although there has been a significant decline in output and there have been several plant shutdowns, IMC CEO Ali Asghar Jamali said that "our company has not offloaded any of the employees, not even drivers and low-salary personnel." Regarding the direction of the sector, he said:

“It is hard to predict future sales scenarios as things are not visible regarding the opening of fresh LCs for parts and accessories. We do not know what is going on. I think overall auto sales in FY23 will fall by at least 50%, keeping in view the current situation.”

On the prospect of a price reduction, Jamali countered that "we do not know the circumstances ahead" since the rupee appreciated against the dollar starting on February 3.

"We have noticed a reduction of roughly 50% in terms of customer footfall in the bank for vehicle financing from July 2022 to February 2023," a consumer auto finance banker at a private bank stated. Customers are turning to secondhand cars and paying cash for them since new cars are being delivered late. "We have not reached our financial objectives from July 2022 until the present," he continued.

The year 2023 will be the most challenging year for the auto industry, according to Mashood Ali Khan, an auto part manufacturer, exporter, and director of Mehran Commercial. According to him, the lack of confidence that exists between the business sector and all federal departments and provinces is the primary cause. Feedback from Mashood Ali Khan:

“All assemblers must collectively coordinate a shutdown schedule that will save the vendor. Every assembler is operating a plant and announcing a shutdown on different days of the month. This is adversely affecting the vendors who are forced to continue opening throughout the month with no work. This is very hard for the survival of the vendors. The best option is to have non-production days in all assembling units on specific dates to help vendors close on the same days to save operational costs.”

Mr. Khan said that Toyota is now the sole automaker to have provided an interest-free loan for a period of nine months to its vendors, saying that assemblers must also help small and medium-sector suppliers with financial instruments.

According to an auto assembler in Lahore, the government is more concerned with raising Rs 170 billion in income than it is with production shutdowns and a sharp decline in sales caused by a lack of components and LC difficulties. The frightening increase in unemployment is boring to everyone. Low- to high-volume production depends on imported raw materials, whose delivery takes three to four months.

He inquired: “From where the government will fetch huge revenue amid dwindling auto sales and plant closure? Raw material inventories are fast running out. How will the government survive without any revenue earning?”