2022 – A Forgettable Year for Pakistan Auto Industry
The year 2022 was a rollercoaster ride for the auto industry in Pakistan. The first half of the previous year was excellent. The lower interest rates led to high auto financing, post COVID-19 recovery registered record-high sales numbers, but it all went in the reverse gear in the second half. The inflation, hike in the policy rate by the State Bank of Pakistan (SBP), high-interest rates, devaluation of the Pakistani rupee against the US dollar, ban on imports, and last but not least, non-issuance of Letters of Credit (LCs) by SBP proved to the final nail in the coffin for the industry.
A Good First Half
The industry was having a very good first half of 2022 as it sold all-time high units, 28,379 of them to be precise, in the month of June 2022. Meanwhile, Yearly sales were also recorded at an all-time high of 279,700 in the same month. The major reasons were a slash in sales tax, FED, and lower interest under Auto Policy (2021-2026). Although the government reversed the decision in the mini-budget in January 2022, however, it didn’t make a considerable impact on car sales.
A Reverse Gear
In May 2022, only a month after coming to power, the new government imposed a ban on importing almost 800 items in 33 categories, including completely built-up (CBU) vehicles under SRO598. The ban affected the already booked cars with delivery times later than May 19, 2022. Only the vehicles with a Bill of Lading (BL) before May 19 were cleared. The ban was slapped to reduce the pressure on the country’s shaky foreign exchange reserves.
The government removed the import ban on August 18, 2022; however, the ban on three items, including CBUs, remained intact. As mentioned earlier, the final nail in the coffin of the auto industry proved to be the non-issuance of LCs for the import of CKD kits. Under the new policy, SBP required prior approval before opening LCs or registration for certain types of imports like CKD kits. As we all know, the Pakistani industry heavily relies on importing major parts of cars, and this ban resulted in the crumbling of production. A number of companies, including Big 3, Suzuki Pakistan, Indus Motor Company (IMC), and Honda Atlas, were forced to repeatedly shut down their production plants due to the unavailability of the parts and the non-issuance of LCs.
Resultantly, the market slowed as imports of CBUs, and CKDs fell, and the auto industry had to lay off its employees while the overall sales also reduced. However, the end of 2022 brought good news for the sector as SBP finally lifted curbs on imports, including CKD kits, which will undoubtedly positively impact production and assembly.
What do you think about the car industry situation in 2022? Please share your thoughts in the comments section.