The Karachi-listed Millat Tractors Ltd (MTL), the country’s largest tractor assembly company, in a letter sent to the Pakistan Stock Exchange (PSX) on Thursday, announced that the company planned to keep its plant shut every Friday starting today (December 16, 2022).
“Due to reduced demand of tractors, the company will observe Fridays as nonproduction days from December 16, 2022, until further notice,” read the PSX notification.
Apart from pre-existing issues compelling MTL to shut down its plants on Fridays, the agriculture income induced demand for the auto sector, also wavered on account of the devastation caused by the recent flooding.
Although, sales for the overall auto sector have improved slightly, tractors are losing ground. Amongst tractor makers, Al Ghazi Tractors (AGTL) recorded a decline of 65% month-on-month (MoM) to 137 units followed by Millat’s sales of 1,103 units, down 27% MoM in November 2022.
This takes the sales of the total tractor industry to 10,498 units during the first five months of the current fiscal year (FY2022-23), down by 52% year-on-year (YoY) due to the floods, weak buying power and higher prices.
Speaking to the Express Tribune, Insight Securities Auto Sector Analyst, Asad Ali said, “Tractor manufacturing companies are facing a continuous decline in demand possibly due to the slowdown witnessed in agricultural activities. Other factor affecting their sales is the import of used tractors being allowed and higher inflation. These conditions have forced MTL to shut down their plants once a week.”
Expressing similar views, Auto Analyst Arsalan Hanif said, “The floods have impacted the buying power of farmers as they have suffered huge losses. On the other hand, the increase in interest rates has also reduced the demand for tractors as a majority of the farmers prefer to buy tractors on instalments rather than paying the entire amount as one-time cash.”
The Former Chairman Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) Abdul Rehman Aizaz said, “Tractor manufacturers are suffering due to the massive amount of Sales Tax refunds stuck with the government as well.”
He added that, the devastation caused by the floods, coupled with a massive rise in the cost of input – due to the rupee consistently devaluing – has eroded the average farmer’s purchasing power. “Demand is not even 33% of the capacity right now. Therefore, closing operation for three days a week is just the beginning. One can expect more non-productive days if the macroeconomic situation does not improve,” he warned.
The pain, however, is not limited to tractor manufacturers only. Part manufacturers too, are on the verge of bankruptcy and are being forced to lay off labour and staff so as to survive a bit longer, noted the former chairman.
Lamenting the situation clouding the auto-part industry, Auto Expert Mashood Khan said, “We are trying to create demand for our auto parts in foreign countries. In fact, the America-Pakistan Business Development forum (AMPAK), led by Farooq Mughal, visited a local auto parts manufacturing company as part of their mission to collaborate with the local industry.”
The expert disclosed that he is trying to establish linkages between US-Pak companies to enter into joint ventures and technology collaborations, aligning small and medium sized enterprises (SMEs) in the supply chain of large original equipment manufacturer (OEMs).
“International businesses are looking for alternate destinations to manufacture goods – so why not Pakistan? Our aim is to develop cooperation with SMEs in the US in order to make trade possible,” said Khan.
Published in The Express Tribune, December 16th, 2022.
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