Auto market upheaval

The spiraling economy is taking its toll on the auto sector, with Honda Atlas now announcing it is extending its plant shutdown amid low demand and rising production costs. Pak Suzuki Motor Company has also extended the shutdown of its motorcycle manufacturing facility, while Suzuki and Toyota Atlas have both shut down car production for varying durations in recent times due to the economic upheaval. In fact, car sales are at their lowest level in the post-Covid era, and industry watchers are concerned that the entire industry is now in dire straits. Honda’s plant closure is now scheduled to last for almost two months, and there is no good reason to rule out further extensions in the coming weeks, since the company’s major concerns are unlikely to be addressed in the near future.

However, the situation also reflects the abject failure of carmakers to meet the indigenisation conditions under which past governments granted them high levels of protection from imports. Only a handful of cars are made with at least 50% locally-produced components, and the figure is under 25% for vans and trucks. While the industry claims there is not enough domestic demand to trigger economies of scale benefits attached to localisation, their refusal to look at the global market via exports has been their own undoing. Indeed, concerns over the unavailability of several imported components caused by the government’s restrictions on issuing letters of credit would be inconsequential if production were highly localised and exports could have offset domestic demand fluctuations.

But the crashing sales of tractors and motorcycles — areas with over 90% indigenisation — exposes the government’s role in the mess, because last year’s floods are only a small part of the problem. The real hurdles in these markets were reduced economic activity and dwindling purchasing power due to record inflation, and how the towering interest rate set to control it made auto financing impossible for almost everyone. Without a quick turnaround, the struggles of the auto sector may soon be the fate of all manufacturing.

Published in The Express Tribune, April 15^th, 2023.

Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.