KARACHI: Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam) on Monday asked the Original Equipment Manufacturers (OEMs) to pass on net profit to vendors and re-evaluate all the frozen variables to protect the financial benefits of auto parts makers.
Speakers at a seminar, which the Paapam organized, asked the OEMs to pass on at least 10 percent of net profit to the vendors to safeguard their business from falling into financial crisis.
The seminar titled: +ACI-Identifying Business Challenges Way Forward+ACI-, was aimed at to assess their financial condition and profitability of the businesses.
The speakers also called for re-evaluating all frozen variables of cost to help the parts makers, who are facing with the huge business losses, gain financially.
A high production cost from soaring energy prices, huge mark-up rate and the costlier raw material have cumulatively scaled down their returns, they said, adding that the OEMs only increase the rates of materials but have left all other variables unaddressed.
The inequity has brought the vending industry to dwindle with no working capital.
The Paapam members from various cities of Punjab attended in the seminar, which showed their unity to highlight their business problems.
Members were unanimous on pressing the OEMs to pass on at least ten percent profit on invoice value to vendors and indexing of frozen variables within 15 days on a variance of (+-5) percent occurs.
The participants emphasized that the matter affected vendors indiscriminately that requires the Paapam to intervene forthwith.
Paapam Chairman, Abdur Razzaq Gauhar observed that between 10 percent and 15 percent of vendors are compelled to shut their business because of the low returns.
Similarly, he said, the remaining businessmen are also under huge financial constraints because of the reduced profit margin to an almost negligible level due to the high cost of inputs and rising cash flow demand.
He said that the continuing rise in the key policy rate stands +ACI-too high+ACI- for the borrowing industries owing to its onerous implications at the cost of business.
The State Bank of Pakistan has recently scaled up the policy rate to 9.75 percent, which he termed a +ACI-negative+ACI- development that may further burden the industry financially with high cost of business and prices of inputs.
He expressed dismay over the huge rise in petroleum prices, appealing to the government for action to save the industry from the impact of costlier fuel oil.
The automotive parts manufacturers are worst affected due to higher mark-up rates on loaning while having no financial support from the OEMs, he said.
The situation, he said, has worsened due to the freezing costs of most of the inputs, for instance, overheads and the profit by the parts purchasing companies.
The Paapam Chairman lauded the M/s. UHF for conducting a professional study and presenting a detailed analysis for finding out the root causes of the problem.
He said that Paapam will support its member companies fully to present their cases for unfreezing capped heads of overheads and profits and bring all the input costs on actual levels while calculating parts prices.
Senior member of the Auto parts manufacturing industry, Adil Mansoor, pointed out that the hard-earned setups over the past 30 years have drained the sector within the last three years.
The seminar was also addressed by PIEDMC Chairman Nabeel Hashmi, Ex-Chairman Paapam Usman Malik, Capt Muhammad Akram (retd), CEO M/S UHF Consultants Faisal Jallal, Convenor 2-3 Wheelers Mohammed Nasim, and Convenor Tractor Committee Irfan Qureshi.
Other speakers, representing car, tractor, and motorcycle sectors, expressed their grave concerns over the squeezing profit margin of auto parts suppliers of the OEMs.
The speakers pointed out that average raw material prices have been risen by more than 159 percent (2.59 times) during the last five-year period while basic wages, including EOBI and Social Security expenses, have grown by 33.3 percent. Moreover, electricity cost has been skyrocketed by more than 76 percent while gas prices have risen by a whopping 158 percent (2.58 times). In the same way, the rupee value has been depreciated by almost 70 percent against the dollar.
The petroleum products, including lubricants and chemicals prices, have soared by 95 percent during this period.
They said that international freight costs had unprecedentedly been increased by 712.5+ACU- (8 times), proving destructive for the auto parts SMEs.
Copyright Business Recorder, 2021