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Economic challenges, policy hurdles drive down automobile production

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ISLAMABAD, June 06 (INP) — Pakistan’s automobile sector is grappling with significant challenges as automobile production plummeted by 52.9% during the first half of the ongoing fiscal year (1HFY24) compared to the corresponding period of last year as economic slowdown bites, reports WealthPK.

“The automobile sector is a significant contributor to Pakistan’s economy, providing employment opportunities and contributing to the country’s GDP. However, in recent years, the sector has faced considerable challenges, which has caused automobile production to decline,” a senior representative of the Pakistan Automotive Manufacturers Association (PAMA) told WealthPK on the condition that he remain anonymous.

This sharp decline in 1HFY24 follows a 28.8% reduction in the same period last year, signalling ongoing and deepening challenges within the sector.
The recent data released by PAMA paints a bleak picture for the industry. Auto sales have also slumped, recording a 35.6% drop in the current review period compared to a 40.4% decrease in the same period last year. The decline in both production and sales is broad-based, impacting multiple segments within the industry.

The PAMA representative said several factors contributed to this downturn. “The slow pace of economic activity has dampened consumer demand for automobiles. Additionally, increased borrowing costs have made it more expensive for consumers to finance vehicle purchases. Higher prices for automobiles, driven by inflation and increased production costs, have further restrained demand.”

He added that import constraints had also played a significant role in the decline. “Restrictions on the import of Completely Knocked Down (CKD) and Semi-Knocked Down (SKD) automobile kits have exacerbated the drop in production. These kits are essential for local assembly and manufacturing, and their reduced availability has directly impacted the industry’s output.”

The PAMA representative said that without substantial policy reforms and economic stimulus measures, the automobile industry in Pakistan was unlikely to recover soon. “The industry is grappling with multiple challenges, including economic sluggishness, high borrowing costs, and restrictive import policies.”
He said to revive the sector, they needed targeted measures to boost economic activity, reduce borrowing costs, ease import restrictions on essential components, and reconsider import policies that hindered the industry’s supply chain.

He said that the government’s role in addressing these issues was crucial. “Policymakers must focus on creating a conducive environment for the industry to thrive.”

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