Pakistan’s Supply Chain Woes: Honda Forced to Shut Down Plant Until March 31
Honda Atlas Cars, the assembler of Honda automobiles in Pakistan, has announced the closure of its production plant due to severe disruption. The decision comes amidst an ongoing financial crunch in Pakistan, which has also forced Pak Suzuki Motor Company (PSMC) and Indus Motor Company (IMC), the assembler of Toyota-brand automobiles in Pakistan, to announce complete shutdowns of their production plants.
Pakistan
Country in South Asia
- President: Arif Alvi
- Capital: Islamabad
- Prime minister: Shehbaz Sharif
- Population: 23.14 crores (2021) World Bank
- Gross domestic product: 34,826.25 crores USD (2021) World Bank
- Official languages: Urdu, English
According to Honda Atlas Cars, the current economic situation has made it impossible for them to continue production, and the plant will remain closed from March 9 to 31. The company has sent a notice to the Pakistan Stock Exchange stating that the decision was made due to severe disruptions in the company’s supply chain, including the restriction of opening letter of credits (LCs) for the import of completely knocked-down (CKD) kits, raw materials, and halting foreign payments.
The shutdown of production plants has not only impacted corporate profitability but also unemployment in the country. The longer the shutdowns continue, the more it will test the companies’ ability to maintain staff strength, according to Fahad Rauf, head of research at Ismail Iqbal Securities, a local brokerage firm. Other manufacturing halts in the sector have been between two and 16 days.
Apart from the impact on production activity, the increase in the price of CKD has also affected the already diminishing purchasing power of the Pakistani people. The country is reeling under the impact of high inflation rates and high borrowing costs, which has eroded demand and plunged the rupee. Import of key automobile parts has become quite expensive.
The Pakistani auto sector has been hit by one crisis after another, with several automakers announcing complete or partial shutdowns in recent months. The reduced demand, companies’ inability to maintain inventory as they struggle to secure LCs used for imports, have led to these shutdowns. The coalition government introduced import restrictions to control the trade deficit.
Pakistan is currently in talks with the International Monetary Fund (IMF) to unlock the next tranche of $1.1 billion of a $6.5 billion bailout agreed in 2019.
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