Auto sector slowdown

December 13, 2019

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AUTOMOBILE companies here have been reeling from contracting demand for several months now. The slowdown in the automobile industry is widespread and has affected every segment. But it is more conspicuous in the case of car assemblers who are compelled to reduce the number of shifts, shut down their plants for the better part of each month, and end jobs or furlough employees to save fixed costs. Overall, car sales have plunged 44pc during the first five months of the current fiscal from a year ago. The demand for some variants has dipped up to 75pc in spite of ‘special offers and substantial price discounts’ announced by companies to clear their growing inventories. The impact on local suppliers of parts to the manufacturers is much more devastating. Though no reliable data is available, the vendors are reported to have abolished at least 50,000 jobs since July.

The industry, especially the three Japanese car assemblers who have monopolised the domestic market for over three decades, blame the massive rise in their prices on the steep currency devaluation, spiking leasing costs owing to higher interest rates and imposing new taxes in the current budget. The trend is in line with the ongoing contraction in manufactured output in the country because of fiscal and monetary policies aimed at stabilising the economy and bridging the current account deficit by discouraging imports. Nevertheless, the automobile industry is in a bad state. Fiscal and monetary policies may have contributed a lot to the unprecedented decline in sales, but car assemblers must also share the blame for their current situation. The currency depreciation has laid bare their failure to localise their cars as they have done in India as well as exposed their dependence on imports, despite enjoying substantially large tariff protections for decades. There is a need for the government to help the industry and protect jobs. But its support should not be unconditional. The assemblers must agree to achieve maximum localisation in a specified period of time in exchange for such support.

Published in Dawn, December 13th, 2019