Auto sector in distress

Plant closures, non-production days are inevitable, says IMC CEO

LAHORE:

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

“The local auto industry has faced a severe blow under the prevailing economic conditions. As a result, volumes are expected to remain under pressure this year as well,” noted Ali Asghar Jamali, Chief Executive Officer of the Indus Motor Company (IMC).

“The core issue, pertaining to continuing import restrictions on complete knock-down (CKD) kits, has proven to be catastrophic for the auto industry. Consequently, we are being forced to operate at 40-45% of our capacity. Unless these restrictions are eased, plant closures and non-production days will be inevitable,” he added.

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

“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 is already working at reduced capacity,” he lamented.

“The continued weakening of the rupee will also push the cost of production higher, in turn restricting manufacturers’ bottom line in the forthcoming quarters because of reduced volumes, demand and supply issues, and low margins,” he added.

“It is to be noted that the State Bank of Pakistan (SBP) has replaced the quota system allocated to automakers for the import of CKD kits with a priority list handed over to the banks, along with the responsibility of opening LCs. The said list prioritises the import of essential items, leaving little room for auto imports,” he explained.

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

“This whole situation poses a bleak future for the auto industry and to deal with all these issues, support from the government is critical on an urgent basis,” he said, adding that “The government has to think out of the box. Some critical factors would be political stability, harmonising trade relations with neighbouring countries and adopting daylight saving.”

Published in The Express Tribune, February 4^th, 2023.

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