Pakistan’s two leading car assemblers, Toyota and Suzuki, plan partial plant shutdowns next month due to unavailability of raw material amid import restrictions and exchange rate volatility, officials at both companies said on Wednesday.
The government in recent weeks has attempted to curb imports in the face of fast depleting foreign reserves, a declining currency and a widening current account deficit, because of which the rupee has lost over 20% of its value this year.
The move has had a cascading effect on industries that rely on imports to complete finished goods as they say the central bank has delayed the clearance of letters of credit with banks facing a shortage of dollars, affecting their ability to import materials.
“There will be 10 working days next month, only if central bank allows us to open letter of credit based on the quota they promised,” Ali Asghar Jamali, chief executive at Indus Motor Company Ltd (INDM.PSX) which assembles Toyota vehicles in Pakistan, told Reuters.
He said the company was offering refunds to customers facing delays and markups on their payments, with deliveries likely to be delayed by at least three months and prices to be revised as the country does not have dollars available.
Reserves with the central bank have fallen to as low as $9.3 billion, enough to cover less than two months of imports. The current account deficit for the last financial year touched 5% of GDP with imports hitting record highs.
Pak Suzuki, which assembles Suzuki vehicles locally, echoed the sentiment, citing the central bank’s new mechanism for prior approval for imports.
“Restrictions had adversely impacted clearance of import consignments from ports,” the head of public relations for Pak Suzuki Motors, Shafiq A. Shaikh, said.
He said the unavailability of materials may result in a plant shutdown in August.
“If the same situation continues, then from August 2022 we have big problems,” Shaikh said.
State Bank of Pakistan did not respond to requests for comment.
The sale of locally assembled cars in Pakistan surged by around 50% from July 2021 to May 2022 compared with the same period of the previous year, according to the data of Pakistan Automotive Manufactures Association.
Meanwhile, Toyota Indus Motors announced to refund 100 percent amount and mark-up on booking cancellation.
A statement issued by the Indus Motor Company, said that it is facing unprecedented difficulties in its operations due to factors beyond the company’s control.
The company stated that “we will continue to do our utmost to facilitate and support our customers during these difficult times.”
It said: “Taking the economic challenges and uncertainty into consideration, customers who wish to cancel their order bookings will be refunded 100 per cent of the deposited amount along with a mark-up payment.
“Mark-up shall be paid from the date of receipt of payment by the Company to the date of cancellation of the order, without any deduction of administrative charges.
“In light of this uncertainty, the tentative delivery timelines mentioned in the PBO for pending orders are being provisionally pushed back by at least 3 months. The price prevailing at the time of delivery shall continue to be applicable.
“We extend our sincere apologies to all the customers who are facing delays with their orders due to these unforeseen circumstances and would like to reassure our valued customers that we are working closely with the Government and the regulatory authorities to minimize the delay as much as possible.
“The unforeseen devaluation of the Pakistani Rupee, coupled with the Government restrictions, including the LC approval constraints rendering it impossible to import CKD kits without prior permission, and the continuing financial instability have led to a force majeure situation.
“Due to the current conditions, IMC’s production has been radically disrupted and we are unable to produce the requisite units as per full capacity, resulting in the delay in tentative delivery schedules.
“We are presently unable to foresee how long these and other external factors will persist, and cannot rule out the possibility of disruptions to manufacturing in the near future,” the statement concluded.