Auto parts manufacturers face setback as used car imports surge

Investments in localisation, technology dampened by increased competition

KARACHI:

Auto parts vendors in Pakistan, who invested billions in localisation and imported robots in anticipation of the local auto industry’s expansion, now find themselves grappling with an uncertain economic landscape worsened by a surge in used car imports, which threatens their operations and workforce.

These vendors had made significant investments ahead of car manufacturers’ plans to launch the country’s first hybrid electric vehicle (HEV) and other models, just before the ongoing economic crisis unfolded some 17 months ago. However, the government’s recent liberalised policy on used car imports has dealt a severe blow to these vendors, who have managed to retain their workforce despite a sharp reduction in production, currently operating at around 30% compared to over 100% capacity utilisation earlier in 2022.

A group of journalists visited two auto parts manufacturers, Agriauto and Spel, this week, discovering that they are facing challenging times further exacerbated by the increased importation of used cars at a time when Pakistan is grappling with a shortage of foreign exchange reserves.

The auto original equipment manufacturers (OEMs) experienced a 55% drop in volumes during FY2023, and the current sluggish demand, coupled with rapid inflation and higher taxes, has caused the production of auto parts manufacturers to shrink to less than 30%.

“We manufacture 459 dies and 155 parts for the auto industry, and we invested billions of rupees from 2019 to 2023. However, due to the current issues facing the industry, our production has plummeted to less than 30% from 140%,” revealed Mohsin Siddiqui, General Manager Plant at Agriauto.

He disclosed that they invested Rs2.5 billion solely for the Toyota Cross, Pakistan’s first hybrid electric vehicle, but the current demand and supply issues in the auto industry are eroding their overall investments.

Notably, all major OEMs (car makers) were compelled to suspend their operations due to low demand, with Indus Motor Company shutting down its plants for 58 days, Honda Car for 78 days, and Suzuki Motors for 89 days between October 2022 to August 2023.

Additionally, Siddiqui pointed out that imported used cars captured a 25% market share in July this year.

During FY2023, Pak Suzuki claimed the largest share of sales at 52%, followed by IMC at 25%, and Honda Car with a 13.5% share. “This equation clearly shows that used car imports have become the second biggest sellers in the local auto industry, equally affecting both the auto industry and auto parts manufacturers,” reasoned Siddiqui.

Furthermore, he added that despite achieving substantial localisation, sluggish demand due to the low purchasing power of customers amid record-high interest rates has been undermining the growth prospects of local auto parts manufacturers.

“The auto market is likely to remain subdued, with an expected decline in sales of 8 to 10% during FY2024,” said Siddiqui, emphasising that this would adversely impact the vendors’ efforts to promote ‘Made in Pakistan’ production and contribute to the localisation of the auto industry. Synthetic Products Enterprises Limited (SPEL), another automotive parts manufacturer, expressed similar concerns, stating that auto parts manufacturers are burdened at every level due to the current economic turmoil.

“The current uncertainty in the local auto industry is causing unemployment and wastage of millions of rupees invested in machinery and infrastructure,” said Mirza Sikander Baig, General Manager - Plant at SPEL.

“We invested Rs700 million in our Karachi plant in 2021 and imported robots for the production line, with an investment of Rs30 million to design 35 molds for plastic interiors,” Sikander explained. He added that the auto industry’s capacity dropped from 60% in August 2022 to just 19% in June 2023.

Published in The Express Tribune, September 10^th, 2023.

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