Economic conditions undermining automobile sector

ISLAMABAD: The local auto industry continues to face multiple challenges, making it difficult for the manufacturers to stay afloat and create value for the national economy.

Ali Asghar Jamali, chief executive of the Indus Motor Company (IMC), said that the local auto industry has faced a severe blow with the prevailing economic conditions that show little or no signs of abating.

“As a result, volumes are expected to remain under pressure this year, as well,” he added.
“The core issue pertaining to continuing import restrictions on the completely-knocked down (CKD) kits has proved catastrophic for the auto industry. Consequently, we are forced to currently operate at 40 to 45 per cent of our capacity. Unless these restrictions are eased, the plant closures and non-production days will be inevitable,” Jamali noted.

“The exponential rupee depreciation, rising inflation and tighter fiscal and monetary measures have had an adverse effect on the auto industry, coupled with an all-time dampened consumer demand that may continue in the upcoming periods.”

The cumulative impact of these abrupt decisions along with the fragile economic conditions of the country, will further deteriorate the demand of the industry, which was already working at reduced capacity.

According to him: “The continued weakening of the rupee will push the cost of production higher, and in turn, restrict the manufacturers’ bottom-line in the forthcoming quarters because of reduced volumes, demand and supply issues, and low margins.”

The State Bank of Pakistan (SBP) has replaced the quota system allocated to the automakers for import of CKD kits with a priority list handed over to the banks, along with the responsibility of opening the letters of credit (LCs). The list prioritises the import of essential items, leaving little room for auto imports.

The LCs payments that remained pending until January 2023 have resulted in massive financial losses.

“Despite these challenges, the IMC will not lay off any of its employees. In addition, we are also providing interest-free loans to our suppliers in their time of need,” Jamali added.

According to him, the manufacturers’ margins have been under severe pressure, as the dollar has touched an all-time high against the rupee, forcing the sector’s volumes to remain dull.

Despite these issues, development of the Hybrid Electric Vehicles (HEV) policy is in progress to create an eco-friendly environment.

“The IMC will introduce the HEV with the highest-ever localisation in the SUV category in Pakistan; following Toyota’s global vision of shifting towards carbon neutrality,” Jamali remarked.

“This whole situation is posing a bleak future for the auto industry and to deal with all these issues, support from the government is critical on an urgent basis.”

“We are a customer-centric company and for them we have provided option for full refund along with interest, considering production will be very low in February and March 2023.

“The auto industry cannot deal with all these issues until and unless the government provides support to the industry on various fronts,” he said.

“The government has to think out of the box. Some critical factors would be political stability, harmonising trade relations with the neighbouring countries and adopting daylight saving,” he concluded.