In 2023, the auto industry in Pakistan weathered a storm of economic and political challenges, leaving an indelible mark on both industry players and consumer sentiments. The Express Tribune delved into the intricate tapestry of this tumultuous year, marked by price fluctuations, repeated plant closures, and the ebb and flow of local and imported automobile parts.
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As skyrocketing inflation cast a pall over the economy, it took a heavy toll on the auto industry, depressing sales and prompting temporary shutdowns of manufacturing plants. Industry stalwarts and mentors, sharing insights with The Express Tribune, underscored the profound impact of inflation on consumer demand. Rising costs of essential goods compelled consumers to recalibrate spending, causing a ripple effect on car prices and reducing their demand.
Furthermore, the industry grappled with a significant decrease in the importation of parts and accessories, leading to potential supply-chain-related challenges for manufacturers. The interconnectedness of the auto industry with the overall economic health of the country became apparent, emphasising the need for a stable currency and a reduction in interest rates to propel economic revival.
Despite these challenges, Pakistan’s auto industry harbours immense potential, driven by an estimated additional demand of 350,000 units every five years, courtesy of the growing young population. The symbiotic relationship between supply and demand presents promising prospects, awaiting a trigger policy to catalyse both economic recovery and the resurgence of the auto industry.
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A comparison with India reveals higher automobile prices in Pakistan, attributed to a smaller market and fewer manufacturers. India’s more diversified market, coupled with a higher number of producers and robust Research and Development (R&D) capabilities, fosters greater competition and innovation. The resilience of the industry shone through when the Indus Motor Company (IMC) launched the locally-manufactured Toyota Corolla Cross Hybrid Electric Vehicle, sourcing over 50% of automotive parts locally. Notably, Master Changan Motors Limited (MCML) emerged as the sole exporter of Completely Built-Up (CBU) Made in Pakistan cars, exporting 14 Oshan X7 to Changan Kenya in October 2023.
MCML, Director Sales and Marketing, Syed Shabbiruddin underscored their commitment to localisation, acknowledging the challenge of localisation requiring volume surety. The industry, once boasting over 300,000 units annually, faced a stark contraction to approximately 100,000 units due to skyrocketed interest rates and inflation.
Secretary General of the Pakistan Automotive Manufacturers Association (PAMA), Abdul Waheed Khan highlighted the industry’s struggle amid economic and political uncertainties, import restrictions, and prioritisation of food item imports over auto parts due to depleting foreign exchange reserves. Khan stressed that economic growth with political stability is pivotal for the industry’s recovery, especially as purchasing a new automobile becomes a luxury in times of crippling inflation.
Analyst and researcher Dr Aadil Nakhoda painted a stark picture of the industry, revealing that less than 5,000 units were sold in November 2023 compared to almost 15,000 the previous year. Economic challenges and import restrictions contributed to a decline in both demand and supply, resulting in plant closures and delays in parts shipments. However, Nakhoda expressed optimism, foreseeing improved economic confidence post-elections leading to a recovery in both demand and supply.
Looking ahead to 2024, Nakhoda anticipates an upswing in economic activity and recovery in the automotive sector. Government negotiations with the International Monetary Fund (IMF), potential easing of imports, and new incentives for auto manufacturers under the new government could provide impetus for growth.
Reflecting on the challenging backdrop of 2023, marked by high-interest rates, rupee devaluation, and supply chain disruptions, the auto industry stands at a critical juncture. Over 3.5 million families’ earnings depend on the wellbeing of the auto industry. Quaid-e-Azam Mohammad Ali Jinnah’s words, “Character, courage, industry, and perseverance are the four pillars on which the whole edifice of human life can be built, and failure is a word unknown to me,” resonate as the industry navigates uncertainties.
Industry mavens advocate for a comprehensive 10-year policy, both locally and internationally, activating the Pakistan Standards and Quality Control Authority (PSQA), reducing taxes, and fostering small and medium-sized enterprises (SMEs). With technological advancements, comfort, safety, and quality at the forefront, the auto industry envisions a positive trajectory as it adapts to new and modern technologies, reducing dependence on traditional fuel sources. As political stability is anticipated to improve in 2024, coupled with potential interest rate reductions and focused economic revival actions, the auto market is poised for growth once again.
Published in The Express Tribune, January 9th, 2024.
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