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Lower demand is what this government desires. By hook or by crook. In the automotive industry, whether demand is down or not—supply is certainly constrained, and by design. As a result, volumes thus far in 3M of the fiscal year have shrunk 61 percent. During the period, auto volumes that include passenger cars, pickups and LCVs, stood at some 34,000 units compared to 87,500 units the same period last year. Nearly all auto assemblers have closed down shops for days at end because they are unable to import the required completely knocked down (CKD) kits and parts for assembly.

Continued and insistent dependence on imported kits by an industry established decades ago is certainly a perennial problem here, but one which has made the government’s job that much easier. In its not-so-novel pursuits to limit imports and reduce the current account deficit, the government has imposed restrictions on the imports of several goods (in the form of requiring banks to seek prior approval before issuing an LC for import and thereby allowing banks to issue on a certain number of LCs based on quota). The goods a number of products including CKD kits for motor cars (others include: power generation machinery, electrical machinery and apparatus, and CKD of mobile phones). The results are visible. In the first quarter of the fiscal year, CKD and CBU imports of motor cars alone have dropped by nearly half, 1.8x to be precise (or 45%) compared to the same period last year. The current imports are certainly not lower than the pre-covid era but have fallen from the peak in post-lockdown FY20 and FY21. They will continue to shrink. CBU imports have dwindled to a near halt. In Sep-22, imports of $1million in CBU motor cars were made; negligible compared to last year’s monthly average was about $26 million.

In value terms, this quarter, dollar imports from motor cars alone fell by $226 million which is precious dollar. This translated into reduced economic activity. In terms of the share of total imports, motorcars are not significant enough; since Jul-22 standing at 2 percent of total imports. But in the past 3-4 years, monthly imports of car CKD and CBU never exceeded 4 percent. At their peak, they stood at 3.7 percent (Apr-22), falling thereafter to below 3 percent. The shrinking to 2 percent from the government’s perspective should be a policy win, even if it does not put that much of a dent from the dollar perspective.

Let’s be real—the chants on “localization” have been well replaced with import bans and curtailments, because there haven’t been solid and convincing policy pushes to achieve the former. Auto assemblers have certainly not found the right motivation yet, or they would not be keeping shops closed due to reduced imported kits.

Demand though is another ball game. Pakistani consumers are hungry for cars that have always been short in supply. But only when these government restrictions ease will the demand dynamics and the ability of the consumers to absorb the exorbitant car prices (and taxes), and the costlier bank borrowing expense would come into play. But this is where the SBP stepped in a long time ago. Demand damaging tightening measures for vehicle financing (by the SBP) include limits on loan amount, reducing loan tenors and raising the equity requirements that have already begun to yield results by shrinking auto financing. At least, one policy is working.

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anwer Oct 21, 2022 02:02pm
The way they have pegged their profits to usd despite the use of local parts and manpower, one kinda likes when they go down. In fact, I wouln't even care if they are shut down.
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