Pakistan’s auto industry seeks ‘remission’ after failing to meet export target during FY23

The auto industry is seeking a remission from exports for fiscal year 2022-23 and has urged the government to resolve the issue over the Original Equipment Manufacturers’ (OEMs) certificate that would allow them to continue operations.

“We urge your kind immediate intervention to resolve the present impasse by granting remission from exports for the year 2022- 23 and redeeming the industry from a complete shutdown,” Pakistan Automotive Manufacturers Association (PAMA), a representative body for the auto sector, stated in a letter addressed to the Secretary, Ministry of Industries and Production Islamabad.

The letter, dated September 27 and of which a copy is available with Business Recorder, also referred to a meeting on September 25 with auto industry representatives “that was put away inconclusive and the decision to be taken was sadly deferred”.

“In its implication, after three more days, the crucial date September 30 shall arrive, beyond which the Manufacturing Certificate of all OEMs shall expire, the quotas to import materials shall not be uploaded, no further invoicing of even ready products possible, consequently, all industrial operations shall come to a halt thus shutting down the industry,” PAMA added.

The development comes after the auto industry missed a mandatory target set by the government to export 2% of what they imported during fiscal year 2023.

The renewal of the manufacturing certificate was contingent on the industry meeting the target.

Without a manufacturing certificate, consignments cannot be cleared through customs – Web Based One Customs (WeBOC) – while finished goods (assembled vehicles) also cannot be sold.

PAMA said the export target could not be met “primarily for reasons beyond the industry’s control”

“The industry has been repeatedly drawing attention of the authorities in the meetings and umpteen letters were written throughout the outgoing years,” stated the letter.

“The reason exports were not possible was something obvious – in the year 2021, the auto industry was in the post Covid revival phase.

“Then suddenly it was caught up by imposition of import restrictions by the State Bank of Pakistan (SBP). This followed closures and non-production days and the losses of the sorts.

“Production and sales plummeted that even local supplies could not be met. Other macroeconomic factors like inflation, exchange became oppressive. Exports became unattainable.”

PAMA said that data/information called for with regard to imports and exports has already been submitted by its members and “it would not be possible to add anything more to it”.

The country’s auto sector, hugely dependent on imports, has been hit hard by the government’s decision to curb imports and restrict issuance of LCs amid a severe dollar shortage. Additionally, higher finance cost and massive increase in car prices have also reduced demand from consumers.

On Wednesday, Indus Motor Company – one of the major players in the sector – made its eighth announcement of production closure this year.

“Escalating car prices, expensive auto financing, and low purchasing power of consumers are among the primary reasons for the decline in YoY sales,” brokerage house Topline Securities said in a report earlier.

Car sales in Pakistan witnessed an increase of 49% on a month-on-month (MoM) basis in August 2023, clocking in at 7,579 units, but the numbers are nowhere close to levels usually seen in the industry.