Pakistani Automobile sector is going to experience a gloomy year. The measures taken in the budget of current financial year 2019-20 will result in the drop of sales and job losses. The automobile sector market experts and big players are forecasting steep drop in the sales between 40 to 60 percent this year. This means a job loss of at least 1, 50,000 from this sector. The crisis in automobile sector will contribute in the increase in unemployment. The picture looks very gloomy in this sector.
Auto industry was hoping to increase its sales to 0.3 million by 2021 and half a million units by 2022; however, changes in the government policy, new taxes with increasing input cost and unpredictable surge in rupee-dollar parity resulted in jacking up car prices, which ultimately cut down sales.
Industry sales tumbled against its forecast for the last three months. Similarly, the car and LCV sales went down by 7 percent during the last fiscal year to 240,335 units from the previous year. There has been a drastic cut in tractor production also. But more worryingly, the downslide is not stopping in near-to-medium term at least, say market insiders.
From one of the best performing sectors in recent years to the currently bleak scenario, the industry has been prompted to make major revisions in manufacturing plan by the main players and new entrants.
The 50% drop in the sales means job slaughter in the automobile industry. Some experts have estimated the job losses between 1, 00,000 1, 50,000 within a year. They are saying that fewer sales mean less manufacturing and that means fewer workers required. The drop in sales will result in cuts on jobs.
Hike in input cost pushed car prices up and resultantly decreased sales. This compelled Honda Atlas to shut down its plant for 10 days with piled up inventories of 2,000 units. Similarly, Indus Motor Company was also planning to stop car production for eight days, two days every week, sources in the industry said.
Another major player Pakistan Suzuki Motor Company would take decisions to reduce production after analysing industry dynamics, market equilibrium and sales trends that would determine the booking orders during the present month.
The News reported the comments of Almas Hyder, one of the top manufacturers of autoparts that “present sluggish trend in vehicles sales has been contrary to earlier projections and poses completely new challenges to the industry. Especially, cost escalation due to huge depreciation has been beyond imagination, rendering industry clueless as far as curbing costs was concerned.
He further added that the bigger problem with dollar-rupee parity was uncertainty and volatility, hurting sentiments in auto-industry the most. He demanded the government to withdraw taxes and duty announced in budget 2019-20, as these proved counterproductive. Tax collection would not increase as sales were already plummeting due to increase in prices. “The prudent way is to rationalise tax rates to help increase sales by reducing cost of production of auto industry.”
Another serious issue confronting the auto parts industry is that their part prices are not being increased as rapidly as the rupee devaluations or as quick as the cars, motorcycle or tractor manufacturers raised their own selling prices. This delay is cutting their cash flows seriously and may result in bank defaults soon.
The government needs to intervene immediately to stop the situation becoming more serious. The government should invite the big players of auto sector for devising the plan to avert this crisis. The government promised to provide millions of new jobs to reduce the unemployment. But crisis in auto sector is going to make thousands of workers unemployed. The PTI government should avoid this situation.
If the purpose of increase in the taxes and duties is to increase the tax revenues, then the drop in the sales and manufacturing will means less revenue and tax collections. The government should adopt a rational approach towards the increase in revenues.
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