The auto parts industry seems to be in dire straights due to lower profit margins, a surge in input costs, and various obstructions in revenue streams.
According to a media report, up to 15 percent of the parts manufacturers are on the brink of bankruptcy while the rest are under intense financial pressure due to operational difficulties.
Chairman of the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) Abdur Razzaq Gauhar requested the Original Equipment Manufacturers (OEMs) during a seminar organized by the PAAPAM to grant at least 1o percent of the net profits to the parts suppliers.
Gauhar expressed his displeasure regarding the existing policy rates by highlighting that the auto part vendors fared terribly the previous year as they had no financial assistance or relief from the OEMs.
He said:
Auto part makers are getting no benefit rather, they are facing huge losses due to high production cost in the midst of soaring energy prices, constant hike in policy rates, and the mounting cost of raw materials.
He emphasized that the massive price hikes for petroleum are also a concern for parts suppliers, and requested the government to aid the industry in this regard.
The attendees of the seminar pointed out that there has been an increase of over 159 percent in the prices of raw materials in five years. Moreover, electricity rates have surged by over 76 percent while the cost of gas has escalated by 158 percent.
Petroleum product prices have risen by 95 percent and the rates of freight charges had gone up by a massive 712.5 percent, and this is gradually becoming detrimental for the industry, the participants lamented. Additionally, the depreciation of the Pakistani Rupee (PKR) against the US Dollar (USD) is also worrisome.
A Pertinent Concern
Despite the introduction of the Automotive Industry Development and Export Plan (AIDEP) 2021-26, Pakistan’s parts industry still remains a forgotten child. It has been highlighted several times that to ensure industry-wide sustainability of the car and parts industry, the government has to offer exclusive incentives to dedicated parts manufacturers.
Multiple car companies use the components produced by common part makers. Enticing the local market with these companies could complement the local production of carmakers and reduce the cost of CKD imports while increasing the country’s exports.
