Auto industry is experiencing difficult times as major players including Toyota and Honda have already cut down production by shutting down their plant in certain days amid deadening slowdown in sales.
The reduced vehicle production is going to hit the vending industry directly, which is responsible of supplying parts to local auto assemblers. The 3 main assemblers operating in Pakistan including Pak Suzuki had already shut down their second shift operations resulting in offloading up to 4,000 employees, almost all daily wage and contractual workers.
According to a leading auto parts maker Aamir Allawala:
“The Auto Industry Development Plan 2007-12 states that for every direct job in the auto sector has a job multiplier of 8 times for auto vending and ancillary industry. On this basis, the number of people who have lost direct and indirect jobs in the vending and ancillary industries is above 36,000 in the last three to four months.”
Demand for passenger automobiles had plunged sharply due to towering prices after imposition of various taxes and duties in the budget 2019-20 and soaring interest rates, making consumers drift away from buying new vehicles. Two-wheelers as well as heavy vehicles and tractors are also witnessing a similar dip in demand.
According to former chairman Pakistan Automotive Parts and Accessories Manufacturers (PAAPAM) Mashood Ali Khan:
“The cost of doing business has increased manifold on account of high cost of imported raw material due to rupee depreciation against the dollar coupled with additional customs duty (ACD) from 4% to 11% and additional sales tax (AST) 3% on imported parts and raw material and high interest rates.
These costs are being borne by the small and medium sized vendors, who have not received any price increase from the auto assemblers and the vendors are absorbing these losses on their balance sheets.
Shutting down production by the existing assemblers is affecting the cash flows of the vendors which can lead to closure of vending industry and higher unemployment if sales continue to remain low in future.