Honda Atlas extends shutdown

Company, shut for over 2 months, blames LC curbs, halted foreign payments

KARACHI:

Honda Atlas Cars, the leading automobile assembler in Pakistan, has announced a further 15-day extension to its plant shutdown, citing the country’s economic crisis, restrictions on import letters of credit (LCs), and halted foreign payments as reasons for the closure. This marks the fourth plant shutdown for the company this year, as it continues to grapple with supply chain disruptions and inventory shortages.

The initial shutdown, which began on March 8 and was expected to end on March 31, was first extended to April 15 and then further extended to April 30. Now, Honda Atlas Cars has confirmed that its plant will remain closed until May 15.

In a notification to the Pakistan Stock Exchange (PSX), the company stated, “Further to our letter dated April 13, 2023, and considering the current economic situation of Pakistan, whereby the government resorted to stringent measures including restricting opening of LCs for import of CKD kits, raw materials, and halting foreign payments, has severely disrupted the company’s supply chain. As a result, the company is not in a position to continue with its production and ultimately has continued to shut down its plant.”

Pakistan is facing its worst economic crisis, with dwindling foreign reserves and a struggle to secure an IMF deal. Banks are reportedly refusing to open LCs for non-essential items due to the shortage of US dollars. This economic turmoil has impacted the auto industry, heavily reliant on imports, leading to production breaks by several companies due to inventory shortages.

Speaking to the Express Tribune, Optimus Capital Management auto sector analyst Maaz Azam emphasised the need for harmonised import restrictions during the economic crisis. For example, the expiration of RD on imported duties will leak off much-needed support from the demand side to people who easily exploit inefficiencies in our system. He warned that imbalances and inefficiencies in the system could further burden the economy and hinder support for the most affected individuals.

“At the same time, we are giving a clear message to foreign investors to be very aware of these inefficiencies putting them off for any future investment which is very important for a country like us to improve the standard of living for our people,” said Azam.

Insight Securities, auto sector analyst, Asad Ali highlighted that Atlas Honda’s plant shutdowns are a consequence of supply constraints resulting from import restrictions imposed by the State Bank of Pakistan (SBP) to preserve foreign reserves. These restrictions, however, have pushed the auto sector to the brink of collapse.

Auto sector expert Mashood Ali Khan noted that original equipment manufacturers (OEMs) in the auto sector, including Atlas Honda, Pak Suzuki, and Indus Motors, have all been forced to shut down their plants due to the shortage of spare parts caused by import restrictions. He emphasised the urgent need to resolve the country’s economic issues and political unrest to improve foreign exchange reserves and ensure the recovery of the automotive industry.

“The government needs to give immediate attention to save the automotive industry and the textile industry otherwise both will suffer irreparable loss,” said Zulfikar Thaver, President of the Union of Small and Medium Enterprises (UNISAME). Thaver suggested negotiations between the industries and their principals to allow exports and adjust the supply of parts. He also urged the government to facilitate negotiations with Chinese buyers for credit-based cotton supply in exchange for the purchase of textiles.

Thaver expressed disappointment in the government’s focus on politics rather than trade diplomacy, calling for action to ignite the economy. He lamented the suffering of the SME sector and criticised the government for procrastination and lethargy.

The ongoing plant shutdowns and the struggling automotive and textile industries underscore the urgent need for decisive action from the government to address the economic crisis and support key sectors to prevent irreparable losses.

Published in The Express Tribune, April 29^th, 2023.

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