Inventory Shortage Forces Pak Suzuki to Shut Down Plants
Karachi: Pak Suzuki Motor Co. Ltd (PSMC) is facing ongoing challenges due to inventory shortage, leading to another shutdown at both its car and bike manufacturing plants. In a statement released to the Pakistan Stock Exchange, the company announced a two-week shutdown from June 22, 2023, to July 8, 2023.
The shortage of inventory levels has compelled the management to make this decision, which will affect the production of motorcycles and automobiles. This issue stems from the current economic conditions in Pakistan, where importers are struggling to obtain letters of credit (LCs) due to the country’s low foreign exchange reserves.
Pakistan’s State Bank currently holds approximately $4 billion in foreign exchange reserves, which is only sufficient to cover one month’s worth of imports. This scarcity of raw materials has been plaguing PSMC for a year, resulting in repeated shutdowns. Previously, the bike plant was closed from May 23 to June 16, and the automobile plant was also temporarily shut down last month. Other companies, such as Indus Motor Company, have also announced multiple shutdowns due to import restrictions.
The economic downturn in Pakistan, coupled with record inflation and a decline in purchasing power, has led to a significant drop in car sales over the past year. According to the Pakistan Automotive Manufacturers Association, car sales plummeted by 80% year-on-year in May 2023. During the 11 months of FY23, only 92,554 units were sold, marking a 56% decline compared to the 210,633 units sold in the same period of FY22.
Despite this overall decline, PSMC experienced a month-on-month growth of 101% in May 2023, with sales reaching 2,958 units. This increase can be attributed to the availability of CKD (completely knocked down) parts and the low base from the previous year. The sales of Alto, Swift, and Cultus saw significant jumps of 132%, 129%, and 59% month-on-month, respectively.
Unfortunately, the consecutive shutdowns by automotive companies in Pakistan have resulted in massive job losses. The Pakistan Association of Automotive Parts and Accessories Manufacturers reported that over 25,000-30,000 workers in the auto sector have been laid off due to the continuous decline in annual sales.
The government’s struggle to secure an IMF deal before the current bailout program expires on June 30 has negatively impacted business confidence in the country. According to a survey conducted by the Overseas Investors Chamber of Commerce and Industry, business confidence dropped 21 percentage points to -25% in March-April, compared to the -4% recorded in September-October 2022. The survey highlighted high inflation, high taxation, and devaluation as the major threats to business growth.
Published in PakWeb, June 21st, 2023.
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