It has been reported that car assemblers in Pakistan have decided to either reduce the manufacturing or in some cases completely halt the production of vehicles. The most notable names include Honda, Kia, and Suzuki. And Toyota is on the brink of completely shutting down its assembly line and might even have to refund new customers the booking amount.
The reason is said to be the non-issuance letter of credit by the State Bank of Pakistan (SBP). Letter of credit or LC is a financial instrument issued as a guarantee from one bank to another on the behalf of a buyer of goods from a different country that the buyer will pay the seller. And has held the issuing of State Bank of Pakistan considering the rapidly falling Pak Rupee compared to the US Dollar in the international market. Pakistan is rapidly bleeding foreign reserves in these last couple of months or so. And there’s fear in the market that the country might end up in bankruptcy; something similar to Sri Lanka.
Toyota Pakistan might be shutting down car assembly
All these car companies rely on completely knocked down car kits imported from various countries. None of these auto companies bothered to fully localise the production and they are basically glorified assemblers. They bring major parts from other countries and put them back together and then sell them at exuberant prices. Parts like engines, gearboxes, chips and ECUs, and in some cases even sheet metal is imported from other countries. There is some localisation like seats, lights, carpeting and upholstery etc., but nothing significant.
Keep in mind these car companies are one of the top importers in the country. The import bill for completely knocked down kits reached an all-time high of 1.7 billion USD. To put it in perspective, Pakistan’s 2022-23 annual budget presented by the current government was $47 billion. Car sales have also been pretty high, and companies sold the most number of cars (234,180 units) despite the inflation and the sector saw a growth of 55%.
And since we only deal/trade in US dollars, buying parts/kits from other countries means all your foreign reserves that are in USD, are going to those countries. And we end up with a Civic costing nearly as much as 7 million after all the taxes. This is one of the major reasons why car prices rise whenever the dollar’s rate rises. The companies just shift all the burden of inflation towards the end buyer. Hyundai has increased the price of Tucson by 1 million PKR, and similar prices of Elantra models have as well.
Here are new Elantra prices in Pakistan:
|Old Price||Increase||New Price|
|Elantra 1.6||Rs. 4,341,990||Rs. 757,010||Rs. 5,099,000|
|Elantra 2.0||Rs. 4,998,490||Rs. 500,510||Rs. 5,499,000|
The decision to halt production by Honda is specially noteworthy considering the company celebrated outselling Corolla in the month of June, 2022. Honda sold 2,764 units of City whereas Indus Motors sold 2,626 units in June.So when these assemblers don’t have all these kits to assemble here, they will be going into non-production days (NPDs) considering the high operating costs of running an assembly line. Toyota is already suffering from this. And now other carmakers are considering joining Toyota. Keep in mind only 2-3 months ago, Toyota celebrated selling most cars in a month since its inauguration back in 1993. And now it has come to a position where it does not have parts to assemble cars anymore and might even be returning the customers their booking amount.
Suzuki remains market leader, halts further bookings!
If that happens, think of extended delivery times. And in some cases, your orders are just not being honoured. Many companies are already not taking anymore new car bookings since they do not have means to honour already booked orders. And if there is no business, they are unable to sell cars, which is their primary business, that means people losing their jobs. All these companies are massive employers and employ thousands of people combined.
The automotive industry in Pakistan needs a massive shakeup. The old practices need to be discarded and they really need to take a hard long look at themselves. The blame also lies on the concerned departments and ministries of government who did not enforce localisation and let these car companies get away with their ways which return not only hurt the customers in the shape of eye watering car prices, but also hurt the country in the form of bleeding foreign reserves.