Car companies are stuck in purgatory these days due to the dwindling state economy and various operational snags. However, a recent study has seemingly worsened the situation by calling out the industry for facilitating the ‘own money’ culture.
According to a recent study from Pakistan Institute of Development Economics (PIDE), car companies are deliberately holding back production. It claims:
Economic theory says that monopolists will supply less than market demand even if it means retaining spare capacity on hand. In keeping with this practice, car assemblers have a capacity of 400,000 units but produce only 200,000 a year, ensuring a shortage prevails in the market.
The researchers did not name specific carmakers in the study. It mentioned two main reasons for the own money culture — low supply of cars and advance bookings.
The study states that the ongoing oligopoly in the automotive industry has muffled the voice of consumers. It adds that the industry has been in the same sorry state for the past 5 decades.
The study also pointed out the PAC’s intervention in the matter, adding that it did not yield favorable results.
Points of Contention
While the study bashes companies for facilitating the own money culture by holding back production, automakers continue to face a now long-standing production crisis.
Honda Atlas Cars Limited (HACL) announced yesterday that it has halted production from October 4 to October 11, 2022. Likewise, automakers like Hyundai Nishat Motors Private Limited (HNMPL), Toyota Indus Motor Company (IMC), and Pak Suzuki Motor Company (PSMC) are observing regular non-production days (NPDs) to cope with the ongoing chaos.
In a notice to the Pakistan Stock Exchange (PSX), Honda Atlas and several other carmakers cited supply chain issues stemming from the government’s sanctions on imports and the deteriorating economy.
Similarly, automakers have argued that the state must formulate conducive policies for the complete localization of cars. A common consensus among experts suggests that, in such circumstances, the government and the auto industry should work together rather than lock horns with each other.
