Automotive sales have dropped 39 percent so far in 5MFY23, and assemblers blame the SBP for imposing restrictions on the import of CKD which is believed to be the primary reason for declining volumes. Monthly volumes are at their lowest over the past five-year period and imports of CKD have declined substantially over the past year – down 30 percent, and 35 percent in the cumulative period of Jul-Nov. The decline would have been even higher, at par with the volumetric decline, had the dollar not become more and more expensive.
That assemblers have to get prior approvals to open a Letter of Credit (LC) for the import of Completely Knocked Down (CKD) units for assembly has become a major supply challenge as approvals have become subject to industry-wide quotas in the SBP’s hot pursuit to curtail dollar imports and stop the current account from sliding. This ends now. The SBP has announced that it is rescinding all such restrictions at the end of this month either to appease the IMF as the fund is not a fan of such administrative controls or to reduce its own headache and passing on the responsibility to the banks who would decide whether to open LC or not and pick and choose between the clients if it comes to it.
In essence, it would now come to the market—for banks to open L/Cs for the imports made by assemblers, and on the other end, for consumers to reveal what demand actually exists in the automobile market today. Though it is expected that demand in the market would be low, that assemblers place the entire blame for reduced volumes on supply-side restrictions, as well as, having to stop booking vehicles or taking new orders does imply that demand has been persevering. This may seem surprising at first given sky-high prices for cars, overall inflation, and therefore reduced buying power and the criminally high cost of borrowing. But it may make more sense considering the other side. Pakistani car buyers have fewer options available in the used car market whose imports have all but halted, as they also typically hold the belief that cars are an investment asset and will make them money. With fewer saving options yet, folks at home use gold, plots, and cars as the more reliable saving instruments. Demand may go back up over the next few months if these factors come into play, especially for cash buyers. However, that still would depend on banks and whether they have enough dollars to satiate assemblers’ import requests.
Comments
Comments are closed.