Pak Suzuki Motor Company Limited (PSMC) hopes the government likely to announce tax breaks and lifting import restriction for industry revival.
In a review company chairman revealed that Pakistan is facing a range of economic challenges, including high inflation, low growth, low foreign exchange reserves, and a range of other factors. These challenges have been exacerbated by ongoing geopolitical tensions, which have led to increases in commodity prices and global monetary policy tightening.
In addition, the depreciation of the Pakistani rupee, higher freight charges, rising interest rates, political instability, inflation, uncertainty over external financing, and government efforts to control imports have all contributed to the current economic difficulties.
The recent floods in the country have further compounded these challenges, while heavy interest payments and rehabilitation spending have also put significant pressure on Pakistan’s fiscal accounts. These are complex issues that require careful analysis and thoughtful solutions in order to address the underlying causes and promote sustained economic growth and stability.
Economic indicators of the country are not encouraging. Large scale manufacturing (LSM) sector witnessed decline by 3.7% during the period Jul- Dec 2022 as compared to same period of last year (SPLY). During the period Jul 2022– Jan 2023, exports worth US$ 16.4 billion were achieved as compared to exports of US$ 17.7 billion in SPLY.
The economic situation in Pakistan seems to be challenging, with multiple factors contributing to the country’s economic difficulties. The decline in the Large Scale Manufacturing (LSM) sector and a decrease in exports have adversely affected the economy. The reduction in remittances due to the uncertainty in forex rates is another factor that has contributed to the economic difficulties.
The stringent import restrictions imposed by the State Bank of Pakistan have caused a decline in imports, which has resulted in a decrease in the trade deficit and current account deficit. Despite these positive developments, the downslide of Pak Rupee to an all-time low parity with the US dollar has adversely impacted the economy.
Inflation has also increased due to higher global commodity prices and recent PKR depreciation, and persistent shortages in essential crops due to floods are preventing inflation from settling down. The State Bank of Pakistan is following a contractionary monetary policy to contain inflationary pressure, with a progressive increase in the policy rate. Overall, the economic situation in Pakistan requires careful management to stabilize the economy and improve economic indicators.
Automobile industry in Pakistan experienced a decline in sales volume during the second half of 2022 due to the import restrictions imposed by the State Bank of Pakistan (SBP) on import of CKDs of vehicles. This led to a drastic decline in sales volume for cars and light commercial vehicles from 135,976 units in Jul-Dec 2021 to 84,116 units in Jul-Dec 2022, which is a decline of 38% in sales volume during the second half of 2022. However, the industry’s sales volume for cars and light commercial vehicles in 2022 remained at 227,407 units, which is only a nominal decline of 4% compared to 2021. It is worth noting that the government imposed import restrictions on several industries, including the auto industry, in May 2022 due to the continuous depreciation of the Pakistani Rupee and fast depleting forex reserves.
The automobile industry has been significantly impacted by the import restrictions imposed by the State Bank of Pakistan. The shortage of materials for vehicle production has resulted in OEMs having to temporarily shut down their plants, causing delays in the delivery of vehicles.
In addition to this, the industry is also facing high inflation, instability in forex rates, supply chain disruptions, and an increase in shipping costs. The restrictions have also caused remittances to foreign suppliers to be delayed, and imported consignments have remained blocked at ports, resulting in substantial detention and demurrage charges.
The sales volume for motorcycles and three-wheelers in the industry has decreased by 20% compared to last year, with sales volume for cars and light commercial vehicles declining by 38% during the second half of 2022. Despite improved sales volumes in the first half of 2022, the import restrictions have led to a decline in overall sales volume in the industry.
The economic crisis had an impact on the sales volume of the company, with a strong performance in the first half of 2022 offset by a weaker second half. However, the company managed to maintain its sales volume at around 125,996 units, which was similar to the previous year’s figure of 122,922 units. The company also increased its market share from 52% in 2021 to 55% in 2022.
To match the demand, the production volume of automobiles and motorcycles was adjusted, with the company operating at 84% capacity utilization and producing 126,603 units of automobiles. The sales volume of motorcycles increased by 26%, thanks to the company’s sales strategy of expanding its network of 2-wheeler franchises across the country. As a result, the company sold 40,674 units of motorcycles, up from 32,384 units in the previous year.
The company’s net sales revenue grew by Rs 42,384 million, increasing from Rs 160,082 million to Rs 202,466 million. This was due to higher sales prices, resulting in a 24% increase in sales revenue compared to the previous year. Gross profit also increased by Rs 3,513 million, rising from Rs 8,171 million to Rs 11,684 million. The company’s gross profit margins, as a percentage of net sales, also improved from 5.1% to 5.8%. However, the company suffered a net loss of Rs 6,337 million, compared to a net profit of Rs 2,680 million in the previous year.
The main reason for this loss was due to import restrictions, which resulted in reduced production and significant additional expenses, including compensation to customers for delayed delivery of Rs 3,826 million, detention and demurrage charges of Rs 3,628 million, and exchange losses of Rs 3,555 million.
The company offers high-quality products to our customers, supported by a comprehensive network of 3S dealerships throughout Pakistan. This network helps us provide efficient services to our customers, including reliable after-sales service and easy access to spare parts. We have been continuously improving and expanding our dealership network, even during difficult times. In fact, in 2022, we added nine new 3S dealerships and two 3S branch outlets to our network.
Since financing sales account for 40% of our sales, we have focused on improving our auto financing sales by collaborating with partner banks to provide “Value Addition Services” to customers. These services include new products like Residual Value financing and low mark-up promotions with additional benefits, which makes car ownership more affordable for our customers. However, the ongoing increase in markup rates and restrictions on consumer financing may have an adverse impact on our sales volume through financing.
The Information Technology Division (ITD) is committed to achieving digital transformation in order to improve efficiency and security. The current macroeconomic conditions in the country have presented challenges for the automobile industry, which has been an important source of employment and revenue for the country. The industry has contributed significantly to the development of the country’s engineering base and has provided direct and indirect employment to more than 500,000 people. However, the industry is facing difficulties due to taxes and import restrictions, and is hoping for government support to continue contributing to the economic development of the country.
The Board and shareholders would like to express their appreciation to the management, executives, workers, dealers, suppliers, and Suzuki experts for their contribution to the company’s affairs. It is hoped that the government will provide more support to the automobile industry to prevent a significant loss to the economy and increased unemployment.
The government is focused on maintaining forex reserves and exchange rate stability through fiscal consolidation, which may impact short-term growth prospects, but can contribute to long-term stability by increasing production capacities and productivity. Consistent and long-term policies are essential for the growth of the auto industry.
READ MORE: Rolls-Royce unveils Black Badge Wraith Black Arrow: only 12 units produced