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Thursday, May 23, 2024

Major downturn in auto industry of Pakistan

Rupee depreciation, increased taxes, and rising fuel prices have caused a major downturn in auto industry of Pakistan

Auto industry of Pakistan is prepared for a major downturn in the coming year, as rupee depreciation, increased taxes, and rising fuel prices all weigh on the industry’s outlook. It is about to close a tremendous year where the trends indicated to record its highest ever sales of more than 360,000 units, almost 50 percent greater year-on-year. The figure is inclusive of passenger cars, light commercial vehicles, jeeps, trucks, and buses.

It cannot also not be neglected that weakening economic situation that pushed Pakistan to reach the International Monetary Fund (IMF) will likely dampen demand because of measures such as increased fuel prices, restrictions on auto lending, and rising inflation.

Read more: SBP’s restriction caused panic for auto assemblers in Pakistan

Furthermore, challenges in opening letters of credit as a result of dwindling foreign exchange reserves will induce a halt in manufacturing.

According to Changan Pakistan analysis on auto sales trends, Pakistan will have a grim FY23, with overall industry sales plummeting to almost 240,000, a one-third decrease. It stated that limitations to LC approval is a major issue in the loss in production of almost two months.

However, primary reasons will be high interest rates, price increases due to rupee depreciation, additional taxes, and fuel prices. It also indicated that impacts of these will hurt all auto and mobile phone assemblers.

In addition, senior officials from the industry have anticipated a significant increase in car prices. There is a common anticipation of the automotive industry’s analysts that there would be a 40-50 percent drop in sales compared to last year. Also, it may result in some orders being cancelled which would further reduce the expectation for automobile sales volumes in FY23.

Furthermore, the State Bank of Pakistan (SBP) has hiked the key interest rate twice since then, first by 250 basis points during an emergency meeting in April, and then again in May.