Honda announces longest plant shutdown since Covid-19

LAHORE: Honda Atlas Cars has notified the Pakistan Stock Exchange (PSX) that it will observe non-production days (NPD) from March 9 to March 31, 2023. The company has attributed the decision to the restrictions placed by the Government of Pakistan in accessing letters of credit to import raw materials, and authorising foreign payments. 

Honda will keep its plant shut for a total of 23 calendar days. This marks the longest period the company will have done so since the outbreak of Covid-19, when they observed NPDs from March 24, 2020, to May 19, 2020. Furthermore, this is the longest any automotive manufacturer will have observed NPDs since the onset of the financial crisis last year. The longest duration of NPDs previously was Millat Tractors’ observance earlier this year from January 6 to January 15. 

What are the restrictions placed by the Government of Pakistan Honda is talking about? 

The State Bank of Pakistan (SBP) announced EPD Circular Letter No. 20 of 2022 on December 22, 2022, as a substitution to its governance over the import of products under Chapters 84, 85, and certain items of Chapter 87. This new system empowered authorised dealers (banks) to validate all transactions for these imports, providing some solace to the ailing automotive industry that had been gravely impacted by the prior mechanism. Shafiq Shaikh, Head of Public Relations and Official Spokesperson at Pak Suzuki Motor Company Limited, lauded the move, stating “This intervention has not only salvaged the industry but also the livelihood of thousands of employees,” to Profit when the Circular was released. 

Notwithstanding, authorised dealers were instructed to prioritise essential imports over those aligned with conspicuous consumption, prompting concerns about the depth of relief the automotive industry would receive in the immediate future. Munir Bana, Chairman of the Pakistan Association of Auto Parts & Accessories Manufacturers, posited to Profit that “The auto industry does not constitute an essential item, and therefore, SBP will continue to regulate and apportion our imports.”

Honda’s announcement subsequently validated Bana’s assertion. While the new circular offered a welcome respite, it is not a panacea for the industry’s long-standing challenges, as prioritising essential imports may impede its resurgence in the short term.

One after the other

Honda’s recent announcement to suspend its production marks yet another addition to the series of shutdowns experienced by major players within Pakistan’s automotive industry. 

This includes Ghandhara Nissan’s declaration of NPDs from March 6 to March 10, and Agriauto Industries’ decision to partially halt its operations for the entirety of March. Sazgar’s four-wheel division plant also had to close earlier this year from February 27 to March 4, while Suzuki has reported multiple plant closures throughout January and February. Toyota had to observe a two-week plant closure from February 1 to February 14, followed by the decision to adopt a single shift upon the resumption of regular production from February 15. Furthermore, Millat Tractors had to implement a plant closure from January 6 to January 15. 

These circumstances exemplify the continuous difficulties faced by Pakistan’s automotive industry due to impediments in the supply chain and the inherent economic volatility within the industry.