Since the parent companies of three major local car assemblers belong to Japan, supply disruptions following the earthquake and the tsunami have been raising serious concerns amongst local manufacturers.
Fortunately, the parent companies have not been directly or severely damaged from the disaster, but theres a question mark over the survival of some auto vendors and autopart suppliers located in the affected areas.
"At present, it is difficult to assess the status of suppliers, therefore, we have adopted a wait and see approach, as any unconfirmed negative news might lead to car hoarding," an official of a local auto assembling company told BR Research.
Cushioned by possession of inventory, with both parent companies and local assemblers, local production seems secure till May, as few of the Japanese car manufacturers have started accepting orders and partial shipment.
It is difficult to assess the time the affected vendors will take to reach normalcy again, but, given the current scenario, if operations remain disrupted for the next two to three months, the worst-case scenario would be a slowdown in local production in the upcoming summer. This poses the question: who will be the major sufferer if these fears materialise?
Based on the information at hand, the market believes that Honda Pakistan might temporarily face supply shortages down the line. This view is based on news that Honda manufacturers in various countries, such as India, UK and Philippines, are planning to temporarily scale back their production.
Moreover, manufacturers with low localisation levels would also take the major brunt. However, this varies from car to car. Indus Motor hopes that the local production of Corolla is safe, as nearly half of its components are produced in Pakistan, while the localisation level is also high for PSMCs cars such as, Mehran, Alto, Cultus and Bolan.
"Our vendors and suppliers are safe since majority of them are located in the southern region of Japan. However, one car variant might face shortages of only a few small components; but overall, we are not worried because the sale of that particular variant is very small in Pakistan," an official at PSMC told BR Research.
Local assemblers who depend on imports of finished goods would face more danger of shortfall, than compared to those manufacturers who import semi-finished parts and raw materials.
However, despite serious concerns in sight, manufacturers believe that the situation is likely to ease shortly as some prompt alternatives are being taken by parent companies to cushion the blow.
To fill the supply gap, at present, parent companies - primarily Honda and Toyota - are looking forward to speeding up alternate production capacities located in Far-Eastern countries.
If alternate supplies resume, chances look slim that operators in Pakistan would face input shortages down the line, since the scale of assembling is very small in Pakistan compared to the size of total global production of spare parts. Parent companies are also capitalising on shipment lead time by exporting through air cargo.
Moreover, the Japanese governments intervention to cap the rise of yen would continue to benefit local manufacturers by reducing their cost of imports. However, as auto manufacturers are on the importing front, they don expect any significant benefit from the availability of forward cover, due to the high premium spread.
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