Pak Suzuki Motor Company Limited (PSMC), on Monday, announced a 16-day shutdown of its motorcycle plant. The decision was revealed through a filing to the Pakistan Stock Exchange (PSX) causing speculation and discussions within the industry.
The motorcycle plant of Pak Suzuki, responsible for assembling Suzuki automobiles in the country, is scheduled to be shut down from July 31, 2023, to August 15, 2023. The reason cited in the filing is a shortage of inventory levels. However, it’s worth noting that the auto factory of PSMC will continue its normal operations during this period.
PMSC, a prominent player in the automotive market, is known for its assembly, manufacturing, and marketing of Suzuki cars, pickups, vans, 4x4s, motorcycles, and related spare parts, all under the renowned Suzuki brand hailing from Japan.
This is not the first time Pak Suzuki has faced production challenges. Earlier, the company had to close both its car and motorcycle plants from June 22 to July 8, and the closure was further extended to July 19. Prior to that, the motorcycle plant experienced a shutdown before June 16, 2023, due to a shortage of raw materials. Additionally, both the motorcycle and vehicle plants were temporarily closed from May 2 to May 9 for the same reason. The auto assembly factory also faced a closure from April 7 to April 28.
Industry analysts have been closely following these developments and offering their insights. Maaz Azam, an auto sector analyst at Optimus Capital Management, highlighted that the government has not fully relaxed the import restrictions, and the International Monetary Fund (IMF) document reveals that the government has requested gradual relaxation in the opening of LCs (Letters of Credit) to mitigate sudden impacts on foreign exchange reserves.
“However, the current situation is again a result of mix of LC and demand issues where most companies have started offering various promotions to provide support to dwindling demand,” he said.
On the other hand, Asad Ali, an auto sector analyst at Insight Securities, pointed out that while the State Bank of Pakistan (SBP) has eased some restrictions on imports of CKD (Completely Knocked Down) kits, supply chain improvements will take time to materialise. Former Chairman of PAAPAM (Pakistan Association of Automotive Parts & Accessories Manufacturers), Abdul Rehman Aizaz emphasised that LC opening and retirement are still far from normal, and significant limitations remain in practice.
One possible solution to the problem is to increase localisation efforts, but experts like Maaz Azam believe that this cannot happen instantly. Proper feasibility reports are required to address the high fixed costs associated with localisation, and the recovery of these costs demands sufficient volume, which may not be feasible at least for FY2024.
As uncertainty looms over future volumes and demands, companies in the automotive sector may become more reluctant to initiate further localisations. The situation calls for careful consideration and collaboration between industry stakeholders, policymakers, and regulatory authorities to find sustainable solutions for the challenges facing the auto industry. The nation watches closely as Pak Suzuki navigates these trying times while the pursuit of innovation and growth remains at the heart of its endeavors.
Published in The Express Tribune, August 1st, 2023.
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