Indus Motor closed for business in December

Second auto-maker, in four days, to halt production

KARACHI:

After Millat Tractor, the Indus Motor Company (IMC), the makers of Toyota in Pakistan, announced that its production plants will be closed completely from December 20th to December 30th, due to the unavailability of letters of credit (LCs) following a restriction on the import of auto parts.

In a notice sent to the Pakistan Stock Exchange (PSX) on Monday, the leading automaker said, “The State Bank of Pakistan has introduced a mechanism, via the Exchange policy department (EPD) circular number 09 of 2022 dated May 20, 2022, to obtain prior approval for the import of completely knocked down (CKD) Kits and components of passenger cars – harmonised system (HS) Code 8703 category – for the auto sector.”

“The delay in the aforesaid approvals for the company and its vendors has created hurdles against the import and clearance of consignments for raw materials and components of the company,” said the company, adding that, “This has resulted in insufficient inventory levels and have, consequently, created an adverse impact on the supply chain and production activities.”

“Therefore, the company is unable to continue its production activities. In light of the above, the company has decided to completely shut down its production plant from December 20, 2022, to December 30, 2022 – both days inclusive,” reads the notification.

Speaking to The Express Tribune, Auto Analyst Arsalan Hanif observed that, “The SBP’s mechanism to obtain prior approval is impacting the growth of the automobile sector and might result in unemployment.”

“It is also hurting the financial position of the company as original equipment makers (OEMs) now must pay markup on late delivery,” said Hanif.

“Many other players are facing similar conditions and if this situation persists then the company might extend its closure due to insufficient inventory to produce vehicles,” he said.

Expressing his concern, Former chairman of the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), Abdul Rehman Aizaz said, “The auto sector is considered ‘a luxury’ by our policy makers. Just a few months ago, the entire government machinery was concerned about delays in the delivery of cars. Now, however, strict restrictions on imports are resulting in idle capacities of over 50%.”

“This will continue until the SBP removes the restriction of allowing only 50% import of parts and that too, flooded with so much difficulty and uncertainty. We are already witnessing massive unemployment and this is just the beginning,” warned Aizaz.

Indus Motors receives most of its demands from the agriculture sector. Therefore, even when prices skyrocketed and hurt other players in the market, demand for the company’s vehicles did not fade. But this time, within the four days, this is the second company to halt productions.

Apart from demand being affected by the import restrictions and strict LC conditions, another factor that has induced this sluggish trend in demand is a decline in the buying power of consumers.

Published in The Express Tribune, December 20^th, 2022.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.