Auto parts makers face crisis 

Parts manufacturers cite macroeconomic conditions and failure by OEMs to increase profit margins as main causes for potential collapse 

LAHORE: Attendants voiced how the industry was on the precipice of a collapse at a conference hosted by the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM). 

The collapsing rupee, higher freight costs, higher interest rates, and the global commodity super-cycle were cited alongside the failure of OEMs to accept the manufacturers requests to increase their profit margins as the main reasons for the worst crisis the industry had ever faced. 

PAAPAM members stated that many smaller parts manufacturers would go bankrupt if OEMs did not accept the higher proposed profit margins as many manufacturers could no longer sustain operations given the rising input costs. 

PAAPAM members highlighted how increased industry bankruptcies would disadvantage both OEMs and the economy as it would lead to the need to import far costlier imported inputs for local car assembly. 

Automotive parts and accessories accounted for $522,097,000 over FY 2021-22. If there is any efficacy in PAAPAM’s members’ statements then this number may rise in the years to come as OEMs would be forced to rely on imported inputs due to lack of domestic options. 

OEMs have already had a painful year with the rupee depreciation significantly increasing their cost of production. Industry defaults would force them to increase the number of price increases as a lack of domestic inputs would limit the level of deletion they can achieve. This will asymmetrically disadvantage newer automobile OEMs who lack industry relationships with parts manufacturers comparable to those the incumbents enjoy. 

Conversely, in all of this, an increase in the profit margins of parts manufacturers will likely be passed onto customers by OEMs. Whether an increase in the profit margins translates to higher quality automobiles, or higher deletion and subsequently fewer price increases for customers is still unknown.  

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Daniyal Ahmad
The author is a member of the staff, and covers the automobile sector as a sector analyst. He can be reached at [email protected]

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