After Toyota, Honda, and Kia Lucky Motors, it is expected that Pak Suzuki will also halt production for a few days next month. According to media reports, the company’s top official has confirmed that they will observe non-production days (NPDs) in August 2022.
And the reason for this step is similar to the other companies as SBP, and commercial banks are not opening the Letter of Credit (LCs) and documents against the payments (DPs) for CKD kits. Hence, the unavailability of CKD kits and raw materials may lead to the shutting down of the plant.
The company official told the media that Suzuki successfully averted NPDs during the current month, and it is aiming to deliver orders by June. However, the company thinks it heavily depends on opening LCs and DPs.
Toyota Halts Production
This development comes days after Toyota made the same announcement. The company had previously cited the constraints regarding the State Bank of Pakistan’s LC approval for CKD imports as the main reason for disruption in production. The company also observed two weeks of idle production in June and July, which has led to delayed production.
Toyota Indus will also be refunding advance payments on its cars to customers who cannot wait for delayed deliveries. If the situation persists, Toyota Indus might have to shut down all production operations.
Letter of Credit (LC)
The Letter of Credit is a financial instrument that businesses use when importing goods from other countries through international banking transactions. LCs must be processed through a country’s central bank, such as the State Bank in Pakistan’s case. A sovereign guarantee is provided by the State Bank to foreign exporter’s banks that importers in Pakistan will honor their payment contracts. In the absence of State Bank approval, companies cannot import.
Foreign exchange reserves have depleted to dangerous levels, forcing the State Bank to curtail imports. Even the chairman of Changan has issued a statement saying that the company might have to shut down production for two months due to the LC issue.
