Auto industry faces shutdown crisis amid supply chain disruptions

October 19, 2023 (MLN): The auto industry in Pakistan is facing a crisis as all three major auto assemblers have decided to temporarily close down their operations due to supply chain disruptions and inventory shortages.

This development will further impact the country's already challenging automobile industry.

Indus Motor Company Limited (PSX: INDU), the manufacturer and marketer of Toyota brand vehicles, announced that it will shut down its production plant from October 17 to November 17, 2023.

This decision was taken based on the current level of inventory of manufactured vehicles and part shortages due to supply chain challenges and is an extension of the company's previous plant closure from September 28 to October 09, 2023.

Moreover, Pak Suzuki Motor Company Limited (PSX: PSMC), the assembler of Suzuki vehicles, also decided to shut down its automobile plant from October 25, 2023, to October 27, 2023.

PSMC cited the shortage of inventory level as the reason for the shutdown.

Furthermore, Honda Atlas Cars (Pakistan) Limited (PSX: HCAR), the assembler and seller of Honda vehicles, will also be shutting down its plant from October 24, 2023, to October 31, 2023.

The company stated that the current level of inventory and parts of the company's supply chain have been severely affected.

Auto Industry Struggles

The auto industry in Pakistan has been struggling with various issues including high inflation, currency depreciation, low demand, and political uncertainty.

These issues, compounded by recent supply chain disruptions in securing critical parts and materials, have added to the woes of the sector.

Fahad Rauf, Head of Research at Ismail Iqbal Securities while talking to Mettis Global News stated that although the State Bank of Pakistan (SBP) has eased import restrictions, the auto sector's priority remains relatively low, with a higher preference given to sectors such as medicine etc.

Some restrictions still persist on certain essential parts, which significantly hamper the production capabilities of auto assemblers.

Additionally, as Indus Motor Company pointed out, declining demand is another factor, driven by factors like high inflation and diminished consumer purchasing power.

Fahad Rauf also highlighted the challenge of producing automobiles in the current scenario of exchange rate fluctuations.

The exchange rate volatility has made it difficult for auto assemblers to plan their imports and manage their costs.

These shutdowns will likely harm the sales and profitability of the auto companies, as well as the overall economic activity in the country.

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