Auto vendors fear for the future

Updated September 21, 2019

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Daily wage workers and helpers are being fired from the vending industry owing to falling sales, according to an ex-Paapam chairman..—Reuters/File
Daily wage workers and helpers are being fired from the vending industry owing to falling sales, according to an ex-Paapam chairman..—Reuters/File

KARACHI: Non-production days coupled with closure of Indus Motor Company’s plant for 15 days has the vendor industry on edge.

Other auto assemblers are also struggling to reduce their losses, and further production curbs among them will hit the vending industry hard who supply parts to the local automobile assemblers.

A leading auto part maker Aamir Allawala said the three main Japanese assemblers had closed down their second shift which means offloading of 3,000-4,000 employees, almost all daily wage and contractual workers, after they cut two shifts from their production schedule.

“The Auto Industry Development Plan 2007-12 states that for every direct job in the auto sector has a job multiplier of eight 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, he said.

Former chairman Pakistan Automotive Parts and Accessories Manufacturers (Paapam) and Director Mehran Commercials Mashood Ali Khan said he had imported a floor mate making machine worth $150,000 in December 2018 from Indonesia under a technical agreement. The machine, which he imported for providing floor mate to a leading Japanese heavy vehicle assembler, has so far remained idle due to massive drop in production of trucks.

He said demand for autombiles, especially cars, had plunged sharply due to skyrocketting vehicles’ prices after imposition of various taxes and duties in the budget 2019-20 and soaring interest rates, making consumers cautious towards buying new vehicles. Same lull in demand also exists in two-wheelers, heavy vehicles and tractors.

He said daily wage workers and helpers are being fired from the vending industry for the last few months owing to falling auto sales. Skilled workers are, however, being retained.

There are currently more than 350 tier 1 vendors operating throughout the country and supplying the engineering industry with parts for all auto segments ie car, tractors, trucks, buses and two-wheeler. The supply chain also includes a large number of tier 2 and tier 3 vendors that supply directly to the tier 1. Direct labour is about 600,000 and indirect 1.2 million.

He said currently 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 four per cent to 11pc and additional sales tax (AST) 3pc on imported parts and raw material and high interest rates.

He said 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.

He said shutting down production by the existing assemblers is affecting the cash flows of the vendors and this can lead to closure of vending industry and higher unemployment if sales continue to remain depressed in future.

Published in Dawn, September 21st, 2019