Tractor production has come to a halt as assembly plants and their supply chains had been shut down due to fall in sales, bank defaults and revenue shortfall, Chairman Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) Ashraf Sheikh said on Monday.
Elaborating the current state of tractor industry of the country, PAAPAM chairman said that the assembly plant is supported by around 250 tier1 suppliers and employment per supplier range from 50.to 500 "The tier1 supply chain retained the work force in December, but with delay in payments from assemblers and no future orders have forced them to close their facilities making at least half of the work force redundant," he stated.
"The situation is particularly serious in Lahore area where majority of the tractor part manufacturers are located, added Mumshad Ali, former chairman PAAPAM.
He said that most of the part makers continued with part production in the month of December even though supply schedules and payments were cancelled or postponed by the assemblers.
This was done to convert stocked raw material into finished goods and to keep their work force employed. But with cash reserves drying up it is no longer possible to continue production and all the part suppliers will be closing down production causing major redundancies, Ali said
The other impact will be fall in tax collection and bank defaults. The assemblers and part makers pay income tax, withholding tax and sales tax, and with no sales in December and now in January, there will be no tax collection from this sector, which produced tractors worth around Rs 60 billion. Bank defaults are also highly likely as vendors become insolvent due to delays in payments and no fresh orders coming from assemblers.
The assemblers are also facing a cash crunch due to unsold stocks and stuck up sales tax refunds that hover around Rs five billion. Industry experts say that this drop in sales is caused by Pak rupee devaluation that has resulted in price increase of the tractor, slowdown in the public and private sector construction activity and delay in payments to sugar cane farmers.
Industry experts said that this year the cane crushing season started 2-3 weeks late and farmers still await payments for their cash crop. The sugar cane industry produces sugar worth Rs 450 billion and is carrying stocks from last year and also awaiting subsidy payments on exported sugar.
"The news of import of five-year old used tractors also curtailed demand for local manufactured tractors. It is estimated that tractor production in this financial year is likely to be 40% down compared to last year," Ali mentioned.