Pak Suzuki expects relaxation in taxes, import for industry revival

Pak Suzuki Motor Company Limited (PSMC) is hopeful that the government may announce tax breaks and removal of import restrictions for the revival of the industry.

In a review the chairman of the company revealed that Pakistan is facing several economic challenges including high inflation, low growth, low foreign exchange reserves and other factors. These challenges have been compounded by ongoing geopolitical tensions, which have led to a rise in commodity prices and global monetary policy tightening.

In addition, the depreciation of the Pakistani rupee, high freight charges, rising interest rates, political instability, inflation, uncertainty over external financing, and government efforts to control imports have contributed to the current economic difficulties.

Recent floods in the country have added to these challenges, while huge interest payments and rehabilitation costs have also put significant pressure on Pakistan’s financial accounts. These are complex issues that require careful analysis and thoughtful solutions to address the underlying causes and promote sustained economic growth and stability.

The country’s economic indicators are not encouraging. The large scale manufacturing (LSM) sector witnessed a decline of 3.7% during the July-December 2022 period as compared to the same period last year (SPLY). During the period July 2022-January 2023, exports of USD 16.4 billion were achieved in SPLY as against exports of USD 17.7 billion.

The economic situation in Pakistan appears to be challenging, with many factors contributing to the country’s economic difficulties. The decline in large scale manufacturing (LSM) sector and reduction in exports have adversely affected the economy. Shortfall in remittances due to uncertainty in foreign exchange rates is another factor that has contributed to the economic difficulties.

Imports have declined due to stringent import restrictions imposed by the State Bank of Pakistan, resulting in a narrowing of the trade deficit and current account deficit. Despite these positive developments, the fall of the Pak rupee to an all-time low parity with the US dollar has adversely affected the economy.

Inflation has also risen due to higher global commodity prices and the recent PKR depreciation, and continued shortages in essential crops due to floods are preventing inflation from stabilising. The State Bank of Pakistan is following a contractionary monetary policy to control inflationary pressures, with progressive increases in the policy rate. Overall, the economic situation in Pakistan requires careful management to stabilize the economy and improve economic indicators.

The automobile industry in Pakistan experienced a decline in sales volume during the second half of 2022 due to import restrictions imposed by the State Bank of Pakistan (SBP) on the import of CKD vehicles. This led to a sharp decline in the sales volume of cars and light commercial vehicles from 135,976 units in July-December 2021 to 84,116 units in July-December 2022, which is a 38% drop in sales volume during the second half of 2022. However, the industry sales volume for cars and light commercial vehicles in 2022 is expected to be 227,407 units, a slight decline of only 4% compared to 2021. It is worth noting that the government imposed import restrictions on several industries, including the auto industry, in May 2022 due to the continued depreciation of the Pakistani rupee and rapidly depleting foreign exchange reserves.

The automobile industry has been hit hard by the import restrictions imposed by the State Bank of Pakistan. Material shortage for vehicle production has forced OEMs to temporarily shut down their plants, delaying vehicle deliveries.

Besides this, the industry is also facing high inflation, volatility in foreign exchange rates, supply chain disruption and increase in shipping cost. Shipments to overseas suppliers have also been delayed due to sanctions, and imported consignments have been blocked at ports, resulting in substantial detention and demurrage charges.

The sales volume of motorcycles and three-wheelers in the industry has decreased by 20% compared to the previous year, with the sales volume of cars and light commercial vehicles declining by 38% during the second half of 2022. By 2022, despite an improvement in sales volume in the first half, the overall sales volume in the industry is expected to decline due to import restrictions.

The economic crisis had an impact on the company’s sales volume, with a strong performance in the first half of 2022 followed by a weak second half. However, the company managed to maintain its sales volume at around 125,996 units, similar to the previous year’s figure of 122,922 units. The company aims to increase its market share from 52% in 2021 to 55% in 2022.

To match the demand, production volumes of automobiles and motorcycles were adjusted, with the company operating at 84% capacity utilization and producing 126,603 units of automobiles. The sales volume of motorcycles grew by 26%, which is attributed to the company’s sales strategy of expanding its network of 2-wheeler franchisees across the country. As a result, the company sold 40,674 motorcycles as compared to 32,384 units in the previous year.

The company’s net sales revenue increased by Rs 42,384 million from Rs 160,082 million to Rs 202,466 million. This was due to higher selling price, resulting in a 24% increase in sales revenue over the previous year. Gross profit also increased by Rs 3,513 million from Rs 8,171 million to Rs 11,684 million. The company’s gross profit margin as a percentage of net sales also increased from 5.1% to 5.8%. However, the company posted a net loss of Rs 6,337 million as compared to a net profit of Rs 2,680 million in the previous year.

The loss was mainly due to import restrictions, which resulted in reduced production and significant additional expenses, including compensation to customers for delayed deliveries of Rs 3,826 million, detention and demurrage charges of Rs 3,628 million, and Rs 3,555 million included an exchange deficit of Rs. ,

The company provides high quality products to its customers, which is supported by a wide network of 3S dealerships across Pakistan. This network helps us in providing efficient services to our customers, which includes reliable after sales service and easy access to spare parts. We are continuously improving and expanding our dealership network even during difficult times. In fact, in 2022, we will add nine new 3S dealerships and two 3S Branch outlets to our network.

Since sales financing accounts for 40% of our sales, we have focused on improving our auto financing sales by collaborating with partner banks to provide “value-added services” to customers. These services include innovative products such as residual value financing and low mark-up promotions with additional benefits, making car ownership more affordable for our customers. However, ongoing increases in markup rates and restrictions on consumer financing may have an adverse impact on our sales volume through financing.

Information Technology Division (ITD) is committed to achieve digital transformation to improve efficiency and security. The current macroeconomic conditions in the country have posed challenges for the automobile industry, which has been an important source of employment and revenue for the country. The industry has contributed significantly to the development of the country’s engineering base and provides direct and indirect employment to over 500,000 people. However, the industry is facing difficulties due to taxes and import restrictions, and is looking forward to government support to continue contributing to the country’s economic growth.

The Board and the shareholders wish to appreciate the management, officers, workers, dealers, suppliers and Suzuki experts for their contribution to the affairs of the Company. It is expected that the government will provide more support to the automobile industry to prevent significant damage to the economy and rising unemployment.

The government is focused on maintaining foreign exchange reserves and exchange rate stability through fiscal consolidation, which may affect short-term growth prospects, but contribute to long-term stability by increasing production capacity and productivity. Coherent and long-term policies are essential for the growth of the auto industry.