2023- Dark Clouds will Remain Looming on the Auto Sector

Pakistan’s economy is going through a turbulent period casting a hugely negative impact on my sectors including the automobiles. Local assemblers were already anticipating an up to 30% decline in sales during this fiscal year but analysts believe the forthcoming situation is going to be even worse.

With a hovering default risk, the State Bank of Pakistan (SBP) continues with its policy of not issuing the LCs (Letter of Credit) due to which a major shortfall of imported raw materials has emerged. Like other industrial sectors, local auto assemblers are finding it very difficult to import CKD parts due to which production schedules have been badly hampered.

Related: Car Sales Reduced by 36% YoY in October- Cut to Half in 4M-FY23

Most auto assemblers are already observing non-production days due to lack of inventory in hand and the situation is expected to become even worse in 2023 as SBP is still not ready to issue the LCs. Furthermore, there are speculations about a further decline in Rupee value against the US Dollar after which auto assemblers might announce another price increase. This will put another dent on the already sinking sales of locally assembled automobiles in Pakistan.

Now as the interest rates have been increased substantially, curbs on the auto financing, prevailing political and economic uncertainty and reduced purchase power of the masses, car sales are on a constant decline. Currently, most local players are offering various incentives, discounts & ready deliveries since as we know 90% of new vehicles in Pakistan are booked by investors (say hoarders).

Related: On-Money & Delivery Time Coming Down as Auto Market Crashes

These investors (hoarders) having foreseen the turbulent situation are now hastily disposing off their stocks. According to Mashood Ali Khan, a former chairman of the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), the investors were highly active due to the high demand for vehicles and “own money” was thriving. Now however, the situation has changed and investors are selling vehicles below their invoice price by offering discounts due to the subdued demand.

Since PAMA sales numbers are actually “booked vehicles” rather than “sold/ delivered”, there is a good number of cars available at the dealerships’ disposal which are now being marketed for instant deliveries. Nevertheless with persisting production hiccups, its not too hard to assume that the ready stocks won’t last for long as recovery in production schedule is not yet in sight. Assemblers will be forced to observe more non-production days in 2023, which coupled with rising car prices will give a lethal blow to the sales of locally assembled passenger cars.

Related: FBR Imposes Additional Customs Duty (ACD) on Imported Car Parts

The import of automobile parts plunged by 36.6% to $258 million in the July-September quarter from $407m in the same period last year in wake of restrictions imposed by the SBP. The move was initiated to dampen the demand for new cars in order to save the outflow of precious foreign exchange reserves.

TDM Showroom

Earlier in November, Indus Motor Company (IMC) the assemblers of Toyota cars in Pakistan informed in a management briefing that the automobile sector of the country faces unforeseen external challenges due to unprecedented rupee devaluation and import restrictions by the State Bank. IMC also warned that if the current situation persists “some players may exit from the market,” according to Topline Securities quoted as saying.

Related: Escrow System in Car Purchasing is the Need of the Day

This also highlights the need of achieving true localization in order to lessen the dependency on imported components. Sadly, even vehicles which are being assembled in our country for several decades are suffering due to import restrictions, which is a matter of concern. We hope things get sorted out sooner and may we proceed towards taking the right steps to finally get our local auto industry stand on its feet.

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