In October, local car makers faced a significant 58% drop in Completely Knocked Down (CKD) imports, falling from $54 million in September to a mere $23 million. This not only stands as the lowest monthly CKD import figure ever reported by the country but also dips below the average observed during the Covid era.
It's crucial to understand that the monthly average for CKD imports in FY22 peaked at around $142 million. For the first four months of the current fiscal year, CKD imports witnessed a substantial 41% contraction, dwindling to $208 million compared to the $355 million recorded in the same period last year.
Several factors contribute to the sharp decline in auto parts imports. The government's efforts to manage the current account deficit (CAD), restrictions on leasing imposed by the State Bank of Pakistan due to soaring interest rates that discouraged auto financing, and a consistent decline over the past 16 months all play a role. Meanwhile, elevated car prices and inflation have further eroded purchasing power.
If this trend in declining CKD imports continues, the outlook for car sales in November and December looks challenging. Recent data from the Pakistan Automotive Manufacturers Association (PAMA) shows that October 2023 marked the worst month for local assemblers, with a mere 5,000 units of passenger vehicles sold nationwide. Analysts are already predicting a potential 14% drop in overall sales for FY23/24.
In response to this challenging situation, Mohammad Irfan Ghani, the acting CEO of Baluchistan Wheels Ltd (BWL), highlighted the production challenges faced by automobile manufacturers due to shortages of CKD-imported parts. He emphasized the critical role of localization for the survival of the industry in Pakistan, citing advantages such as cost-effective production, job creation, healthy competition, improved quality, and the preservation of foreign exchange.
Mr. Ghani urged assemblers to seriously consider reducing imports of CKD parts that are readily available from local vendors and can be manufactured using domestic resources. Encouraging local production not only strengthens the domestic industry but also alleviates the challenges faced by the auto vending sector, currently under significant strain.
The decline in CKD imports poses a substantial challenge for the automobile industry in Pakistan. As the sector grapples with a decline in parts imports, local manufacturers face production hurdles, impacting overall car sales. The need for localization becomes evident in these trying times, with industry experts emphasizing the advantages it brings, from cost-effectiveness to job creation. As the auto industry navigates these challenges, a shift towards increased local production appears to be a crucial step for sustained growth and resilience.