Suzuki Motor Company suspends car & bike plants in Pakistan due to import restrictions

The Suzuki Motor Company Ltd (PSMC) has decided to keep its car and bike plants in Pakistan closed from June 22 to July 8 due to import restrictions and its impact on parts and accessories, according to a media report on Tuesday.

The move by the Japanese auto major comes merely a week after it started operations at its four-wheeler unit in Pakistan that was shut for over 75 days, it said. The company in a statement to the Pakistan Stock Exchange on Monday said it was suspending production due to a shortage of parts and accessories because of a mechanism introduced in May last year by Pakistan's central bank, the Dawn News reported.

The State Bank of Pakistan (SBP) in May last year asked companies to take prior approval for the import of completely knocked-down kits, which had adversely affected the clearance of consignments, thus affecting inventory levels.

The ongoing shortage of raw materials has plagued the company for a year as the PSMC kept its four-wheeler plant shut for over 75 days from August 2022 till June 19, the Express Tribune newspaper reported.

“Due to shortage of inventory level, the management of the company has decided to shut down motorcycle and automobile plants from June 22 to July 8, 2023,” the company said. The company had also kept its bike plant closed from May 23 to June 16, the report said.

Other companies such as Indus Motor Company have also announced multiple shutdowns following import restrictions. Auto is one of the sectors affected by current economic conditions in Pakistan as the importers have been struggling to get their letters of credit (LCs) issued amid the low foreign exchange reserves of cash-strapped Pakistan. Car sales have drastically dropped in Pakistan amidst an economic downturn and a decline in purchasing power due to record inflation.

In May 2023, car sales plunged by 80 per cent year-on-year, according to Pakistan Automotive Manufacturers Association. On a month-on-month basis, however, PSMC recorded a growth of 101 per cent to 2,958 units in May 2023. Back-to-back production shutdowns by companies in cash-strapped Pakistan have led to massive layoffs in the country.

According to a statement by the Pakistan Association of Automotive Parts and Accessories Manufacturers, more than 25,000-30,000 workers in the auto sector have lost their jobs due to an unabated drop in annual sales. This comes as the government struggles to win a much-delayed International Monetary Fund (IMF) deal before the current bailout programme ends on June 30.

Business confidence in the country has dropped 21 percentage points to -25 per cent in March-April from -4 per cent recorded in September-October last year, according to the latest survey by the Overseas Investors Chamber of Commerce and Industry.

The three major threats to business growth identified in the survey were high inflation, high taxation, and devaluation. The SBP imposed various restrictions, like an upper limit of Rs 3 million on auto loans and a reduction in loan repayment tenor, on the auto sector. Tahir Abbas, Head of Research at Arif Habib Ltd, said high-interest rates, prices and production suspensions have adversely been affecting auto financing.

Abbas said the current share of auto financing in total car sales ranged between 1-2 per cent, in contrast to 25-30 per cent during the period of high vehicle demand and low prices. The revival of auto financing activities will largely depend on the resolution of political stability and the alleviation of the dollar crisis, while much will depend on the approval of the IMF loan. The forex reserves held by the State Bank of Pakistan stand at USD 4 billion, sufficient merely for a month's imports by the country.

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