Current Upheavals of Pakistan Automobile Industry

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In the month of July 2022 Indus Motor Company the assemblers of Toyota vehicles massively increased the prices of all models, the prime reasons explained for this unprecedented increase in prices by the company officials were the consistent decline in the value of Pakistani Rupees against U.S Dollar, increase in taxes and duties. The other reasons were increased in raw material prices and cost of transportation as the fuel prices has also drastically increased in last three months resultantly cost of transportation has also increased.

On the other hand capital value tax – CVT, on 1300 CC and above vehicles is imposed. It may be noted that all original equipment manufacturers OEM are dependent on parts supplier / vendors. These vendors production cost are also tremendously increased. All these factors impacted on OEM’s cost of production. So Toyota forced to increase their product prices. This trend of price increase is followed by the other two big Japanese car assembler’s i.e. Honda and Suzuki. After that all other newly established OEM’s like Hyundai, Kia, Changan RAIL, Hawal etc. etc. followed the same pattern and increased their product prices.

Fortunately from end july till mid August Pakistani rupees recovered by more than 12% in interbank against the U.S Dollar. This is due to Forex inflows from Saudi Arabia and U.A.E. furthermore deal with the I.M.F is confirmed by G.O.P. it seems that rupee now reached at an stable stage. In this circumstances auto assemblers again forced to reduce the prices. Again the first company that announced the reduction was Indus Motors and runner up was Pak Suzuki. The third company was Honda Motor Company. Behind these three giants new entrants were lined up. So Hyundai, Kia, Changan, Cherry, Hawal etc etc are also slashed their prices.

Before this Ping Pong between price increase / decrease, Government took one more step. In May 2022 the ban on CBU imported vehicles was imposed. Even after this Government was still feeling pressure on Forex reserves. So a new mechanism was introduced for establishment of letter of credits for all imports. Now central bank is monitoring and controlling the establishment of L/C, Central Bank allows according to the available quantum of Forex reserves. This practice is causing unnecessary delays in opening L/C’s. In the mid of August 2022 Pakistan foreign exchange reserves have increased by USD 52 million and foreign exchange reserves reached at the level of eight billion US dollar.

Beside this, after much back and forth, the I.M.F has finally announced that they will release funds to Pakistan soon. So the Ministry of Commerce issued SRO 1562(I)/2022 on August 19, 2022, for lifting the ban on luxury item including motor vehicles. But finance minister said that the regulatory duty will be imposed by three times higher than the current level. So practically CBU import will become unviable.

The major outcome of these upheavals, major automakers cut their production volume and vehicle sales fell precipitously in July 2022. According to the latest figures from the Pakistan Automotive Manufacturers Association (PAMA), automakers (PAMA members only) a staggering 58 percent reduction in vehicles sold by Toyota Indus Motor Company (IMC), a 62 percent reduction in sales Pak Suzuki Motor Company (PSMC). Sales at Hyundai Nishat Motors Private Limited (HNMPL) fell by 89 percent during the same period. Hyundai was unable to sell even one unit of the Elantra or Sonata, therefore they continued to be the worst-selling vehicles.

According to some experts, sales will start growing through September 2022. However, manufacturers’ observance of non-production days is what caused the early decline (NPDs). Due to debilitating inflation, price increases, and significant delivery delays, all automakers anticipate a sharp fall in demand in the coming days.

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