Toyota and Honda to observe non-production days in October

Toyota Indus and Honda Atlas will again be observing non-production days (NPDs) in the month of October 2019 as the local auto industry continues to slump with a decline of around 39% sales during the first quarter of the fiscal year 2019-20.

The trend of shutting down the production plants to reduce the production will continue during October as the market demand stays at a low level due to the higher prices of cars. This would be the fourth month in a row for both the Japanese auto manufacturers, including Toyota Indus and Honda Atlas, to observe NPDs. According to the media reports, Toyota and Honda are all set to keep their production closed for 15 and 18 days during the current month, respectively. This accumulates to as many as 50 and 62 days of non-production for both the auto manufacturers since July 2019. The current situation is not favorable for any automaker in the country as the overall sales have dropped by more than 39% in the first quarter of the ongoing fiscal year, according to the sales stats published by PAMA. Toyota and particularly Honda, have been the primary victims of the current economic slowdown process in the country. Pak Suzuki, on the other hand, has not yet observed any non-production days in this period, as explained in the table below:

As the above table suggests, the circumstances are becoming worse for both the high-end Japanese car manufacturers in the country. Apart from the sales of the 660 cc Alto, Pak Suzuki also stands with the other two auto companies. Suzuki Alto has been the driving force for the sales of the automaker in this period. In the first quarter of FY 2019-20, the company has sold 12,943 units of just Alto, which is more than the collective sales number of the company for all models, which are 10,204. Especially the significant drop of more than 72% in the sales of the company’s hot-selling Wagon R in this period has been a setback for Pak Suzuki. However, as a general perception, the customers of Wagon R have shifted towards the comparatively smaller in size and cheaper in price, Alto. Instead of observing any non-production days, Pak Suzuki recently discontinued the bookings of some of its models temporarily, which also indicates that the company is struggling in the current situation. Perhaps the automaker has extracted a significant benefit out of the whopping sales of its Alto. It has already hiked its price a couple of times since its launch back in June 2019. The hike in prices of automobiles is mainly affected by the Rupee-dollar parity; however, since the launch of Alto, the dollar rate has only come down, which raises several questions over its price increase.

The piled-up unsold inventories of Honda Atlas still count to 2000 units at its plant and authorized dealership networks across the country. The production plant of IMC is already working at less than 50% of its capacity. Indus Motor has already introduced several marketing campaigns for its Corolla model to boost up its sales, but so far, nothing has changed. In a bid to attract its customers, Honda Atlas has just recently introduced a minor model change in its compact crossover SUV BR-V termed as BR-V facelift 2019. Both the companies are keen to sell their units as they have already lost a considerable market share as per the September 2019 stats released by PAMA. But the current situation doesn’t seem to get better any soon. The drop in sales during September remained almost similar to its previous month and to say the worst; it’s expected to remain the same for the rest of the year. The car sales trend towards the back end of the year is generally slow, and we are already into the last three months of 2019. It means that no turnaround in the sales of cars is anticipated until December 2019. The customers usually wait for the change in the model year, and nothing is going to change their thought process this time as well.

It all began with the upward trajectory of the US dollar against the local currency. The car prices started to take a massive leap as the dollar touched the record mark around PKR 164 a few months ago. The government made the situation even worse by imposing several additional taxes and duties on automobiles. A significant portion of the vehicle manufactured in the country is supported by the import of raw material for which additional customs duty was raised by the government. Furthermore, the imposition of Federal Excise Duty (FED) by 2.5% – 7.5% on all categories of cars intensified the pressure on car prices. A significant increase in the interest rates of banks has also caused a major shrink in car financing. As much as 40% of the overall car price is paid as a tax by the consumer. All these factors have jointly affected the sales of automobiles in the country as the purchasing power of the consumers has dropped substantially.

According to various car assemblers and vendors, the government would face a shortage of Rs.2 billion in tax collection every month. In this situation, the government should reverse its decision of additional taxes like FED to let the auto sector survive. Also, the high amount of tax collection on a small volume of sales will anyway be less than the low tax collection on large volumes. The government needs to reconsider its tax impositions and at the same time, force the auto manufacturers to increase the localization of parts used in the manufacturing of vehicles to reduce the overall car prices. As a result of this gloomy situation in the auto sector, thousands of people have lost their jobs, which were linked either directly to the auto manufacturing companies or the vendors who provide them the parts.

That’s it from our side, drop your thoughts and suggestions in the comments section below. What do you think the Government of Pakistan should do in this regard. Stay tuned to PakWheels.com to know all the news, information and all other things regarding the local automotive industry.