LAHORE: In separate announcements to the Pakistan Stock Exchange (PSX), Toyota and Honda have disclosed their plans to observe non-production days (NPD) in May. Toyota will halt production from May 2nd to May 3rd, while Honda will pause production from May 1st to May 15th. The latter announcement is particularly noteworthy as it reveals Honda’s decision to extend its current NPD streak to a staggering 68 days – the longest in the company’s recent history.
Both companies have attributed their decisions to the paucity of raw materials due to the State Bank of Pakistan’s (SBP) restrictions that inhibit them from accessing letters of credit (LC).
Why the NPDs?
On 22 December 2022, the SBP unveiled a new governance system for importing products under Chapters 84, 85, and select items of Chapter 87. EPD Circular Letter No. 20 of 2022 authorised dealers (banks) to validate all transactions for these imports, offering a glimmer of hope to the beleaguered automotive industry. Shafiq Shaikh, Head of Public Relations and Official Spokesperson at Pak Suzuki Motor Company Limited, praised the move, declaring, “This intervention has not only rescued the industry but also safeguarded the livelihoods of thousands of employees,” upon the Circular’s release.
However, authorised dealers were instructed to prioritise essential imports over those associated with luxury consumption, raising doubts about the extent of relief the automotive industry would receive in the near future. Munir Bana, Chairman of the Pakistan Association of Auto Parts & Accessories Manufacturers, contended that “The auto industry does not constitute an essential item, and therefore, SBP will continue to regulate and allocate our imports,” in an interview with Profit.
Honda’s subsequent announcement confirmed Bana’s assertion.
What on earth is going on at Honda?
Honda’s car plant originally shut down from March 9 to March 31. This was later extended until April 15, then till April 30, and now finally till May 15. The current spell of NPDs now exceeds Honda’s previous longest stretch of NPDs from March 24, 2020, to May 19, 2020 amidst the Covid-19 pandemic.
Maqsood Rehmani, Vice President & Company Secretary at Honda Cars, informed Profit that the government has mandated that they obtain 365-day usance LC from their suppliers for completely knocked-down (CKD) kits and other parts.
A usance LC is a type of trade finance instrument that guarantees the confirming bank (exporter’s bank) that the issuing bank (importer’s bank) will make the payment by a specified future date. “We have been instructed to obtain 365-day usance LCs from our suppliers and make the payment in 365 days,” says Rehmani.
“However, it is highly unlikely that any supplier would agree to provide us with materials for payment one year later. Furthermore, it is difficult to forecast the exchange rate one year in advance. It is not feasible to operate a business under such circumstances,” he adds.
Industry-wide lights out
These decisions follow a string of similar decisions by other companies in Pakistan’s automotive industry. Suzuki most recently announced that its automotive and motorcycle plants would observe NPDs from May 2 to May 9. Similar to Honda, but to a lesser degree, Suzuki’s motorcycle plant has crossed the one month mark as it was originally scheduled to be offline from March 20 to March 31. This was later extended until April 15, then until April, until the current May 9 given now.
Toyota previously announced its second round of NPDs for 2023 from March 24 to March 27, after already observing them from February 1 to February 14 and moving to a single production shift. Ghandhara Tyre & Rubber Company and Hinopak Motors will also observe NPDs from March 24 to April 3 and March 24 to April 4, respectively.
Ghandhara Nissan observed NPDs from March 6 to March 10 and shifted to a bi-weekly production schedule for the rest of March. Agriauto Industries announced a partial shutdown for the entire month of March, while Sazgar announced NPDs for its four-wheel plant from February 27 to March 4.
Similarly, Suzuki also observed NPDs for its four-wheelers from January 2 to January 6, from January 9 to January 13, from January 16 to January 20, and from February 13 to February 21. Millat Tractors also closed its plant from January 6 to January 15.
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