The car industry in Pakistan has been facing immense challenges due to rampant inflation and relentless economic instability. However, amidst these turbulent times, the SUV and pickup truck segments have managed to fare better than their car counterparts. According to the Pakistan Economic Survey 2022-23 report, the car segment experienced a staggering 47.3% Year Over Year (YOY) decline in production during the fiscal year 2022-23. In contrast, the SUV segment witnessed a relatively modest decline of 25% YOY in production, despite the exorbitant price tags associated with SUVs. The two and three-wheeler industry also suffered a decline of 33.3% in production.
Decline in Car Segment Sales
In normal circumstances, it is worth noting that the production and sales volume of SUVs is significantly lower than that of cars. Therefore, even when comparing the declines, it becomes evident that car sales and production fared much worse than their SUV counterparts. This emphasizes the relative resilience of the SUV segment in the face of economic instability.
Resilience of SUV Segment
The ongoing economic instability has taken a toll on Pakistan’s auto industry, pushing it back to square one after witnessing remarkable growth in recent years. The latest Pakistan Economic Survey reveals a staggering 42.48% drop in the growth of the automobile sector between July and March of the current fiscal year (FY 2022-23), compared to the substantial 53.77% growth recorded in the previous fiscal year (FY 2021-22).
Impact of Economic Instability on the Car Industry
The decline in production can be attributed to the shortage of components and completely knocked-down (CKD) kits, resulting from regulated imports. Moreover, persistent inflation, currency depreciation, and limited financing options have contributed to consecutive price hikes, making car ownership increasingly unaffordable for many. The policy rate, which stood at 10% last year, gradually rose to 21%, accompanied by significant depreciation of the Pakistani rupee. Inflation continued to soar, eroding disposable incomes and reducing demand in the market. Additionally, the industry faced challenges due to hikes in sales tax, capital value tax, and withholding tax.
This decline in production and sales has been observed across the board, affecting various segments of the auto industry. Import restrictions have resulted in intermittent production closures, further hindering growth and prosperity for the industry.
Importance of the Automobile Sector
The Pakistan Economic Survey underscores the significance of the automobile sector, which contributes approximately 4% to the country’s GDP and constitutes around 15% of the Large-Scale Manufacturing (LSM) sector. It serves as a major revenue generator and job multiplier. Unfortunately, the recent market slump has severely hampered the progress of the auto sector, posing challenges for its sustained growth.
As the budget season approaches, there is a sense of anticipation regarding the future of Pakistan’s car industry. The industry stakeholders and policymakers eagerly await measures that could alleviate the economic instability and create an environment conducive to growth and prosperity. Only time will tell how the car industry in Pakistan will navigate these challenging times and emerge stronger, contributing to the nation’s economic development once again.
