Pakistan auto industry’s misfortunes are well documented, the grim discovery of problems like production shutdowns, low sales and price hikes confirms that the import curbs reign supreme in this hapless sector. Pakistan Suzuki among BIG 3 seems more vulnerable in the respect.
As per Topline securities, Pakistan Suzuki Motor Company (PSMC) among the other carmakers has come with another distressing news, narrating a record loss after tax (LAT) of Rs 12.91 billion in the first quarter of year concluded on March 31, 2023. The company stated that the loss in corresponding time period of last year was 460 million.
Reports have further informed that this downtrend has brought PSMC’s equity to around Rs. 7 billion in Q12023 compared to 20 billion last year.
Furthermore, company’s net sales declined to Rs. 21.8 billion against Rs. 47.7 billion. And the reasons behind this new low of 54% (YoY) are back-to-back price jumps and production cuts in last couple of months.
Closed LCs – The Root Cause
LCs, or Letters of Credit, are a commonly used financial instrument that facilitates international trade by providing a guarantee of payment to the seller from the buyer’s bank. When LCs are closed, it limits the ability of businesses to import the necessary raw materials and components needed for production, which can lead to production cuts and a decrease in output and sales.
In the case of Pakistan’s auto industry, this led to a shortage of necessary parts and components, which have resulted in the production cuts. Meaning, not having the same access to international supply chains and may be more reliant on domestic suppliers.
In order to address these challenges, the government must consider implementing policies that encourage the development of domestic industries that can provide the necessary inputs for local production. This could include providing incentives for domestic suppliers to invest in their businesses and improve their capabilities.
Additionally, the government could work to improve its foreign exchange reserves to ensure that it has the necessary funds to support the economy and the local industry during times of economic stress. This could include diversifying its sources of foreign exchange, encouraging investment and exports, and implementing sound fiscal policies.
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