Assembly plants for Indus Motors (PSX: INDU) will remain closed for another 6 days after the company completes its 31-day plant closure stint this time around. This is not a first. Indus Motors will have kept its plant shut for 67 days since the fiscal year began by Nov 17th. The company claims this is a direct consequence of parts shortages and, based on the “current level of inventory of manufactured vehicles”. In August, however, the company attributed its plant shutdown to low demand and inventory levels. The fact is, while supply chain skirmishes have not entirely ceased, the industry is struggling significantly on the demand front.
In the first quarter of FY24 thus far, volumes contracted 40 percent year on year. Compared to 1QFY22 which was a great year for automobile volumes, the market has shrunk by 70 percent or 3x. Motor car CKD imports (in $ million) are down 26 percent which coincides with the drop in volumes. It could be continued challenges to procure parts and replenish inventories, but it is more likely that there simply isn’t enough demand in the market for new cars. Borrowing costs are too high amid bone-breaking inflation.
Auto assemblers have predictably reduced prices and have been offering different buying options to lure customers to the showrooms but it might not be enough right now. Consumers will be straddling the line between need and want, and may lose on the “ability to pay”. Those with adequate motivation and ability to pay will be evaluated based on fuel efficiency, and resale. But most importantly, their own forecast of what waiting a few months could yield. This is not a doomsday scenario for the automobile industry, but cuts and scrapes do bleed, and, bleed they will.
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