COVID-19 brings further trouble for automobile industry in Pakistan

The automobile industry of Pakistan, which has already been on a downward trajectory since the starting of current fiscal year, has got an additional shock from the COVID-19 outbreak and is now on the edge of collapse.

COVID-19 brings further trouble for automobile industry in PakistanMajority of automobile manufacturing plants have stopped production and have remained closed since March 23, 2020 as following the directives given by the government for spreading of COVID-19.

The plants that have stopped production include Indus Motor, Honda Atlas Cars, Atlas Honda, Yamaha, Pak Suzuki Motor Company, Dysin Automobiles, Millat Tractors and Hinopak Motors.

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Pak Suzuki Motor spokesperson Shafiq Ahmed Shaikh pointed out that the automobile industry, which was already in a crisis, would receive a huge blow due to plant closures and suffer further losses.

Earlier, in the first eight months (Jul-Feb) of current fiscal year, automobile sales dived 44% to 90,834 units compared to 162,240 units in the same period of previous fiscal year. On the other hand, sales of trucks, motorcycles, jeeps and pickups also fell in the period under review.

He added that more than a million people are directly and indirectly employed in the automobile sector, therefore we request the government to draw up a separate plan for this sector.

He suggested that under the package, the government could eliminate the turnover tax for the ongoing year and slash utility bills to half from February to August 2020.

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He also requested the government to cut import duty to 10% on completely knocked-down (CKD) units for February to December 2020. Apart from this, sales tax should be slashed by 50% for the same period.

He further requested that we also propose a reduction of 75% in withholding and income taxes applicable to manufacturers, authorized dealers and showrooms from February to December 2020.

His comments came as Prime Minister Imran Khan, under the economic package designed to combat the COVID-19 outbreak, slashed prices of petrol, diesel and kerosene by Rs15 per litre.

JS Research analyst Ahmed Lakhani said the present situation is like a natural disaster, which has added to the woes of automobiles sector. He, however, added that the reduction in petroleum prices would have a positive impact on the automobile sector.

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The State Bank of Pakistan (SBP)  also reduced the key policy rate by 150 basis points to 11%, which is expected to support the auto industry but growing uncertainty makes it difficult to predict the outcome.

Prior to the outbreak of COVID-19 the rupee devaluation was the main reason behind the deteriorating situation of the auto sector as it turned auto parts and raw material expensive, thus raising the cost of production of carmakers. Initially, the companies bore the additional cost, however, later they passed it on to customers, which severely impacted their sales.

In addition to that, a steep interest rate hike had also gravely impacted the automobile sector as car leasing became costlier, which discouraged people from purchasing vehicles.

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