Inventory shortage forces Pak Suzuki Motor to halt production till May 9

KARACHI: Pak Suzuki Motor Company (PSMC) on Wednesday announced a week-long suspension of production at both its car and motorcycle plants due to a shortage of inventory.

The company made the announcement just after a day from five-day Eid holidays in the country.

Imports restrictions for past many months amid low foreign exchange reserves have put the import-led industries in Pakistan into a delicate situation. Banks have been denying letters of credit (LCs) for imports other than related to essentials, causing serious issues for industries like auto.

“Due to shortage of inventory level, the management of the company has decided to shut down motorcycle and automobile plant from May 02, 2023 to May 09, 2023,” read a Pak Suzuki notice to the Pakistan Stock Exchange on Wednesday.

PSMC is involved in assembling, manufacturing, and marketing of Suzuki cars and motorcycles in Pakistan. The company has taken a number of production breaks since last year, crying for inventory shortages.

Import curbs have also affected the auto sales, as inventory shortages forced companies to raise prices of their vehicles. A record 35 percent inflation in the country and devaluation of the rupee played a catalyst role in skyrocketing car prices.

Last month, Pak Suzuki increased its car prices by around five percent, from a minimum of Rs107,000 on the VX variant of Alto to a maximum of Rs235,000 on the top model of Swift.

The company bore a massive Rs12.9 billion loss in just three months of 2023, making its highest-ever quarterly loss to date. A sharp decline in sales, coupled with the elevated finance cost, were the key contributing factors behind the dismal financial performance of the car manufacturing firm in the first quarter of 2023. Loss per share (LPS) came in at Rs156.94/share, compared with LPS of Rs5.59/share in the same quarter last year.

PSMC’s financial performance fell short of industry expectations due to higher-than-expected finance cost, according to Topline Securities. “Finance cost, which includes exchange loss, markup on late delivery, and demurage and detention charges up 12x YoY [year-on-year] and 3x QoQ [quarter-to-quarter] to Rs12.8bn in 1Q2023,” it said.

Other companies such as Honda Atlas have also been observing non-production days for many months, citing the current economic situation of the country and commercial banks’ inability to facilitate the imports of the auto sector.

Car sales, including sales of non-PAMA (Pakistan Automotive Manufacturers Association) plunged 68 percent in March 2023, against 22,799 units in the same month of the previous year on non-production days and also a decline in purchasing power.

Tough fiscal measures helped Pakistan to post a current account surplus after two years in March, but at the cost of industrial unit closures, job losses, and an overall slowdown in a over $350 billion economy.