Auto Industry Facing Unprecedented Crisis

The economic woes experienced by the country have put enormous pressure on almost all sectors of economy. Auto industry is also gripped by the economic downturn and is retrenching both its productivity and workforce.

Auto sector has reported a significant fall in production and sales and it looks quite doubtful if it would get out of the current troubles.

The buyers have also suffered due to the difficulties faced by the sector by paying higher prices for vehicles that now stand at all-time high. In this context it is reported that the auto industry has recorded a steep decline in sales and barring the bus segment every other sub-sector is in trouble. The most affected are car sales that have seen a massive drop of 40 per cent.

In this context it is pointed out that throughout the last year the unfair practices prevalent in the auto market have negatively impacted it. The conditions of the auto market have been exacerbated by import restrictions, high increases in car prices due to exchange rate fluctuations and prohibitively high automobile financing rates.

The most obvious consequence of these issues is the profound reduction in passenger car sales, with its dominant share in the auto sector, has taken a tough hit. The steep depression experienced by the auto market has resulted in many plant closures and loss of employment. Though the automobile industry is not the most pressing concern of the economy yet affording new vehicles is an indicator of the overall economic health of the country as well as how evenly wealth is being distributed.

This is why it comes as little surprise that rising automobile prices have once again become a topic of concern in broader conversations around the economy.

The main issue arising of this situation is the inability of vehicle assemblers to localise production to a level that they would not need to gouge customers to offset frequent fluctuations in the dollar-rupee exchange rate.

Though encouraging new automakers from China, Malaysia and South Korea is a step in the right direction but even the vehicles produced by them remain unaffordable to a wide margin of citizenry.

The current position of the auto industry also raises questions about its demands for multiple concessions and subsidies in wake of the negligible benefit it provides to the majority of Pakistanis thereby not aiding in improving general standards of living in the country.

There is no support arriving from the buyers as rising prices have set the bar high that has gone out of reach of many people. To mitigate the difficulties, Indus Motor Company has raised the prices of Toyota vehicles by Rs.280,000 to1.2 million citing economic uncertainty, inflationary impact on raw material and the increasing cost of production.

The company also attributed the hike to the exchange rate volatility, increase in utility costs and overhead charges. It added that the situation had made it extremely difficult for the company to maintain the current prices and it was compelled to pass on some of the impact to the market. Indus Motor Company and Pak Suzuki Motor Company have suspended operations multiple times over the last few months due to a shortage of parts.

In respect of leasing, the market is also depressed because the all-time high interest rates with no signs of them coming down in the near future. Moreover the official curbs on auto financing and non-opening of letters of credit have resulting in parts shortage that led to production halts by various assemblers with late delivery in Japanese models also depressing the demand for automobiles. Due to the change of model year, buyers also slowed down purchasing of vehicles which plunged car sales last month to 13,768 from 15,432 units in the preceding month. A huge fall of 59 per cent was recorded in Toyota Corolla and Yaris sales with Toyota Fortuner and Revo sales fell by 30 per cent.

Toyota competitors Honda Civic/City sales slowed down by 49 per cent. In addition, Hyundai Elantra sales came down by 15 per cent though its sales were recorded better in the preceding months. Hyundai Sonata sales recorded a drop of 56 per cent in last six months of the previous financial year. It is also reported that Total Jeeps and Pickups sales remained 28.4 per cent lower than in the same period of last fiscal year. Another problematic aspect is with reference to the country’s agriculture indicator that remained subdued due to a 44 per cent and 63 per cent fall in Fiat and Massey Ferguson sales. Assemblers of these vehicles continued to observe non-production days due to parts shortage and falling sales trends while floods also affected sales.

As far as the 1,000 cc segment is concerned the last six months proved disappointing for Pak Suzuki due to 65 per cent and 68 per cent sales drop in Suzuki Cultus and WagonR. In less than 1,000cc segment, Suzuki Alto 660cc sales remained slow by 15 per cent whereas Bolan sales registered a 61 per cent fall.

Quite obviously the weakening currency has played a vital role in this increase as most vehicles are assembled in Pakistan and most of their parts getting imported in foreign currency that the country is desperately short of.

The real problem is that once the prices of vehicles go up then there is hardly any chance of them coming down getting out of the reach of many segments of population.

Disclaimer: The views expressed here are solely the author’s and do not necessarily reflect the opinions and beliefs of ARYNews or its management.