Summertime madness

This week the Japanese assembler of Suzuki vehicles in Pakistan, Pak Suzuki (PSX: PSMC) announced it would keep both its motorcycle and automobile plants shut down for another 2 weeks or so, extending the plant’s recurrent hiatus that began as far back as August of 2022. Based on its most recent statement, Suzuki will now have closed up both its shops for nearly 10 weeks since the summer of last year cumulatively, or about 69 days (excluding weeks where only the 2-wheel plant was closed down).

Since March in fact, the company has been operating for only a few days running, with either the motorcycle plant or both plants “observing non-production days” in want of imported supplies, and not meeting inventory requirements. It’s obviously not just Suzuki, except automobiles are luxury goods and likely facing a tighter fist on LCs. The pleas of industries to relax import restrictions have fallen on deaf ears as the government stumbles on its toes trying to reach the end of a very dark tunnel.

Earlier, Suzuki pleaded with the government to not raise taxes and levies for “minimal survival” citing the massive losses it has already incurred due to the bad economy. That’s nearly Rs13 billion in quarterly loss, by the way, a record no company wants to broadcast with pride. Pakistan is no strange to a bad economy, and it is certainly no stranger to bad economics; policymakers learning little to nothing from their past mistakes. But the ongoing economic crisis is an extraordinary failure that even Pakistan hasn’t experienced before. Most industries are suffering, evidenced by the decline in production by Large Scale Manufacturing (LSM) and unfortunately, the rather elite (and historically protected) automobile industry is garnering no sympathies, least of all from the government.

Though localization level in automobile assembling is far from desirable—Suzuki has a localization level on average of about 57 percent after operating in the country for over three decades thanks to failed policies that massively failed to spur competition and growth—what’s not untrue is that Suzuki is not the only one to suffer. The impact of the ongoing crisis on parts manufacturers, small vendors supplying a few parts for a handful of models, and on the other end of the supply chain, the dealers and supplier networks is existential. Even if assemblers don’t lay off their employees and manage to survive this crisis, many vendors and suppliers may not see the end of this summer if volumes persist at current levels.

To date from when the year began, import of CKD parts have plunged 61 percent compared to last year (in million-dollar value) which would be even higher considering the more expensive dollar. The drop in volumes –51 percent in 11MFY23—can almost entirely be explained by the decline in imports. Now consider the demand side where prices have ballooned, purchasing power has declined and cost of auto borrowing has grown dramatically owing to the interest rates.