Auto industry likely to shrink over 30% in FY23: company study

After a record year, car makers in Pakistan are now bracing for a massive slowdown in the next 12 months with rupee depreciation, additional taxes, and high fuel prices all taking a toll on the industry’s prospects.

The auto industry of Pakistan is about to close a blockbuster year where it is expected to record its highest-ever industry sales of over 360,000 units, nearly 50% higher year-on-year. This number includes passenger cars, light commercial vehicles, jeeps, trucks and buses.

However, a deteriorating economic situation that has forced Pakistan to knock harder on the doors of the International Monetary Fund (IMF) will likely curb demand amid measures such as hike in fuel prices, curbs on auto-financing, and high inflation.

Additionally, difficulties in opening letters of credit amid falling foreign exchange reserves will also cause a slowdown in production.

According to research conducted by Changan Pakistan related to car sales trends, Pakistan is in for a bleak FY23 with overall industry sales dropping to nearly 240,000, a one-third decrease.

“An important issue is the production loss of around two months due to LC approval constraints,” Director Marketing and Sales Changan Pakistan Shabbiruddin told Business Recorder.

“But the main reasons will be high interest rates, price increases due to rupee depreciation, additional taxes and fuel prices.

“This could impact all auto and mobile phone assemblers.”

He said that all automakers are expected to experience a reduction in sales.

“But I am hopeful that companies offering higher value for money will experience a lower fall.

“Customers also downgrade to a lower price-segment due to purchasing power issues.”

In March, Indus Motor Company (IMC) CEO Ali Asghar Jamali had also said that the overall market would see a minimum 10 to 15% reduction in sales in the coming fiscal year.

However, at the time, higher taxes and fuel costs were not factored into the equation. Additionally, since then, the State Bank of Pakistan (SBP) has also twice raised the key interest rate, first by 250 basis points after an emergency meeting in April, followed by another hike in May.