Import restrictions proving catastrophic for auto industry

LC payments pending until January 2023 resulted in massive financial losses: CEO IMC

ISLAMABAD: The auto industry, much like many other sectors, has also started facing multiple challenges for import restrictions, making it difficult for the manufacturers to stay afloat.

“The local auto industry has faced a severe blow with the prevailing economic conditions that show little or no signs of abating. As a result, volumes are expected to remain under pressure this year as well,” said Ali Asghar Jamali, Chief Executive, Indus Motor Company (IMC) while talking to a group of journalists in Islamabad on Friday.

“The core issue pertaining to continuing import restrictions on CKD kits has proven catastrophic for the auto industry. Consequently, we are forced to currently operate at 40-45% of our capacity. Unless these restrictions are eased, plant closures and non-production days will be inevitable,” he said adding that the exponential depreciation of the rupee, rising inflation and tighter fiscal and monetary measures have had an adverse effect on the auto industry coupled with an all-time dampened consumer demand, that may continue in the upcoming periods.

According to Jamali, the cumulative impact of these abrupt decisions along with the fragile economic conditions of the country, will further deteriorate the demand of the industry, which is already working at reduced capacity. The continued weakening of the rupee will push the cost of production higher, in turn restricting manufacturers’ bottom line in the forthcoming quarters because of reduced volumes, demand and supply issues, and low margins.

It is to be noted that the SBP has replaced the quota system, allocated to automakers for import of CKD kits with a priority list handed over to the banks, along with the responsibility of opening LCs. The said list prioritises import of essential items, leaving little room for auto imports.

The LC payments that remained pending until January 2023, have resulted in massive financial losses.

Despite these challenges, the IMC will not lay off any of its employees, said Jamali. In addition, at this time of dire need, they are also providing interest-free loans to their suppliers. 

The CEO claims, the manufacturers’ margins are witnessing further pressure as the US dollar has touched an all-time high against the Pakistani Rupee making the sector’s volumes remain dull.

Despite these issues, the Hybrid Electric Vehicles HEV policy development is underway for creating an eco-friendly environment. “The IMC will introduce HEV with the highest ever localisation in the SUV category in Pakistan, following Toyota’s global vision of shifting towards carbon neutrality,” said Jamali.

“This whole situation is posing a bleak future for the auto industry and to deal with all these issues, support from the government is critical. We are a customer centric company and for them we have provided an option for full refund along with interest, considering production will be very low in Feb-23 and Mar-23. The auto industry cannot deal with all these issues until and unless the government provides support to the industry on various fronts,” he explained.

Lastly, “The government has to think out of the box. Some critical factors would be political stability, harmonising trade relations with neighboring countries and adopting daylight saving,” he concluded.


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