While March numbers would give pause and indicate there may still be ample demand in the market for newly assembled cars—despite expensive cars and awfully high borrowing rates for financing—the overall picture is fairly sombre. The main culprit is challenges facing assemblers to attain and maintain adequate levels of inventory to produce the number of the cars they deem are in demand. Import restrictions has auto assemblers twiddling their thumbs keeping plants shut down for days at end which had severely affected volumes. In 9MFY23, sales for vehicles(mainly passenger cars, LCVs, SUVs) were down 46 percent, according to numbers provided by Pakistan Automobile Manufacturers Association (PAMA).

Illustratively, let’s take Suzuki. The company (PSX: PSMC) has two plants; one for automobiles and the other for motorcycles. Though the notification by the SBP that required manufacturers to attain prior approval before getting a Letter of Credit (LC) from their bank for the import of goods was issued in May, the first plant shut down by Suzuki came in August. The company had halted all bookings long before that on the first day of July—a poor start to the fiscal year. Subsequently, the company kept shut down either the automobile plant or both plants several times between August and Feb. In total, the plant was unoperational for 37 days cumulatively during these months. In March, the company kept its automobile plant open but had to shut down its motorcycle plant for 11 days, which was then extended for another 15 days well into April and then further extended for another 13 days—almost half of March and the entirety of April short of 2 days.

In the first 10 days of May, both of Suzuki’s plants were closed for business for 8 out of those 10 days. And there seems to be no reprieve coming. Suzuki’s month on month volumetric trajectory is abysmal. In the first quarter of the calendar year (CY) 2023—i.e., Jan to Mar, the company is in significant loss as volumes for passenger cars shrank 74 percent in the quarter compared to the same period last year. Motorcycle sales dropped 36 percent during the quarter—likely because the 2-wheel plant was mostly operational for the better part of Jan and Feb. The upcoming volumes for the latter however will be dangerously low as the motorcycle plant has been unoperational for half of March, almost the whole of April and much of May till now.

The company’s loss of nearly Rs13 billion is the biggest loss in the company’s operational history but the reason is not plummeting volumes—at least not entirely. In fact, it is owed largely to the continuing import policy. In 1QCY23, the company incurred finance costs that amounted to 59 percent of the revenue which mostly consisted of exchange losses. That did the job in. The company has ballooning foreign currency liabilities—money it owes to foreign entities—which it is unable to pay due to government restrictions. Meanwhile, the exchange loss the company occurs only worsen as the rupee depreciates. The easing of import restrictions is needed not just so plants can start running again but also to restore the equity of this company and others that have ramping foreign liabilities.