PAAPAM Says Auto Industry Might Shut Down Permanently

The Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) has sent an SOS to Federal Finance Minister Ishaq Dar beseeching him to remove imports of the auto/auto parts industries from the list of “non-essential items,” as the auto parts manufacturers save valuable foreign currency to the tune of $1.5 billion per year through import substitution and contribute more than 5% of the country’s tax revenues.

As the industry as a whole is on the verge of closure, PAAPAM Chairman Munir Bana informed the minister that its members, the auto parts makers, directly and indirectly, employ over 3 million Pakistani workers, technicians, engineers, and management experts, all of whom face layoffs.

In order to prevent the industry’s complete closure, PAAPAM has asked that all banks be instructed to open all LCs for imports by legitimate manufacturers. This is because the industry is currently facing permanent closure due to rising inflation, the devaluation of our currency, and an all-time-high markup rate that make it impossible to continue operations. In the said letter, the PAAPAM chairman observed:

“Unless immediate countermeasures are taken to save the “mother of all industries”, a massive tragedy would unfold, as the entire auto parts industry would shut down permanently, leading to losses of millions of jobs, rollback of localization, and repatriation of foreign investments by all the automotive assemblers. The auto industry needs support from the government and the State Bank of Pakistan through the easing of restrictions on imports of CKD kits by assemblers as well as raw materials by parts makers. This would help the recovery of volumes to a certain extent and assist the industry in sustaining its operations at a breakeven level.”

Munir Bana claimed that the entire automobile sector requires around $125 million per month to exist through breakeven capacity utilization. According to him, PAAPAM represents 1,200 Tier-Il and 350 Tier-I auto components producers throughout Pakistan. He emphasized that Pakistan is more than just an automobile manufacturing nation because our members manufacture and supply tens of thousands of locally produced auto parts and components valued at more than Rs150 billion annually to all foreign automakers in Pakistan who assemble passenger cars, light trucks, motorcycles, tractors, trucks, and buses. “Our members produce components as per global quality standards, tested and approved on Japanese, Korean, and Chinese specifications,” he insisted.

Despite our humble contributions to GDP growth, job creation, and domestic value addition, he continued, “Our industry is currently facing a life and death situation.” Commercial Banks are unwilling to open LCs for the imports of our members’ raw materials and CKD components from vehicle assemblers due to State Bank restrictions. The PAAPAM letter added that since May 2022, this scenario has persisted and caused a dramatic decline in the manufacturing of all types of automobiles by more than 70%.

The majority of car assembly plants are joint ventures (JVs) with multinational corporations that have substantial financial and technological capabilities, however, this is not the case with the local parts makers. As a result of restrictions, the automobile sector, especially the SME auto parts makers, has suffered a serious financial hit. So, we’ve had to scale back our activities and lay off our skilled workers, he added.

At the conclusion of the letter, PAAPAM also asked for a chance to have a quick discussion with the finance minister so they could inform him of the crisis facing the car industry right now.

Source: The Nation