LAHORE    -    Fast growing auto industry has plunged into crises with trends of sharp decrease in sale of locally manufactured vehicles. Leading brands including Honda, Toyota and Suzuki have witnessed 50 per cent decrease in sale of cars in July this year as compared to the corresponding month last year. As the experts are expecting the trend to continue in coming months, the manufacturers are revisiting plans of more investment of further increasing production. In addition to that, brands like Honda and Toyota had already resorted to shutting down plants for specific duration to rationalize production in the wake of less demand of cars.

As per Pakistan Automotive Manufacturers Association (PAMA), the recent government steps taken in contradiction to the essence of Auto Development Policy 2016-21 (ADP) have adversely impacted the localization process and sale of locally manufactured cars. If this continues, all industry efforts of production of 550,000 units under the Auto Policy 2016-21 will become futile. Revenue loss of Rs225 billion per annum and 1.8 million jobs will eventually result in reduction of the growth and expansion that has taken place in the industry over the last few years. The industry needs security and stable policies to implement long term investment plans. The government must ensure conducive environment to reap the benefits offered by this industry.

According to the data of PAMA, three leading brands sold 18,875 cars in July 2018 which decreased to 10,968 units in July 2019.

Sale of Honda decreased by 66%. Honda sold 4,981 units in July 2018 which came down to just 1,694 units in July 2019. Similarly, the sales of Toyota witnessed decline of 56%.

The company sold 5,468 cars in July 2018 but this figure was just 2,413units in July 2019.

The sales of Suzuki registered a decline of 23%.

The company sold 9,700 cars in July 2018 but this figure was 7,535 units in July 2019.

PAMA opined that this crisis has made the auto manufacturers completely revisit their development and expansion plans and all the hopes of local manufacturers, new entrants and the customers shaken, as the disposable income is depleted.

“Increase in advance customs duty on all raw materials and imposition of 2.5 to 7.5 percent FED announced in the current budget proved deadly for the industry. Besides, huge devaluation of Pakistani currency against the US dollar in the recent times has severely affected all future plans of the industry,” said an office bearer of PAMA.

Approximately Rs140 billion has been invested by the local auto industry in the current years and around $1.3 billion is in the process to be invested further by the new entrants, he said.

Now local manufacturers have started holding their investments, lowering their productions which will result in reduction of local purchases from suppliers. Therefore, the employment will be hotspot as these SME vendors will have limited capacity to hold the idle employees.

It is to be noted that Honda kept its plant closed for 12 days in July while Indus Motor Company reduced production work to five days a week.

This situation is very disappointing for the new entrants as well and they are not going to reap what they expected at the time of their investments, he said.

Insiders say that this gloomy situation is also not profitable for the government since they would face tax collection shortage of around Rs3 billion per month as a single car’s prices has around 33% - 38% of taxes that go to the government.

Around 400 local vendors are also to get hurt by this situation because 50% - 60% of the price of a car is the value of localized parts installed in it, he said, adding, this situation has also posed a big threat to the employment of the industry as the local auto industry has direct employment of 300,000 and indirect employment of 2.5 million.

He said that frequent policy shift, rupee disparity and its massive devaluation, new taxes and duties, and high energy and interest rates are leading to increasing input cost.

“There should be stability. The government should not support pro-import policies. In the long run, the government should have a tight control on exchange rate and it should strictly follow Auto Industry Development Program (AIDP) 2016-21”, he suggested.