Depreciation of Pak rupee against all major currencies is one of the major challenges currently being faced by Pakistan’s auto industry. Pakistan Automobile Manufacturers Association (PAMA) believes that the loss of financial viability in automobile manufacturing could result in job losses of more than 50,000 working personnel.
The fallout of this economic disaster will not just be limited to the workers of local manufacturing plants, which are key source of employment generation, but would reach the vending industry as well. Since each car roughly requires at least 52 additional components/accessories from 52 different vendors (from outside the manufacturing plants), this outsourcing for accessories would also cease, causing these businesses to wind-up as well.
The auto industry is overall considered as the mother of all industries and an engine of growth, technology transfer, and job creation. If government policies remain unstable, then this vital sector of engineering and large scale manufacturing (LSM) industry would remain inactive and there would be no contribution to the national exchequer, no technological advancements, no employment generation and no affordable mobility to people in the country. In case the current situation gets worse, both consumers and employees would be affected – employees on account of job losses and layoffs and consumers in terms of the cost of purchase of automobile or spare parts.
Auto manufacturers said that the local Original Equipment Manufacturers (OEMs), who contribute at least 3 per cent to the national exchequer, are feeling the maximum pinch of rupee devaluation. Despite achieving 60 per cent localisation, the 27.1 per cent appreciation of Yen against Pak rupee has increased import cost of Japanese components used in the local cars by the same margin. Moreover the rupee has deprecated 5.8 per cent against the US dollar within a period of two years from June 2009 to June 2011.
The substantial decline of Pak rupee against Japanese Yen and US dollar has caused severe financial challenges for the local OEMs as they are barely absorbing the sky-rocketing input cost. It is essential for the government to effectively address the challenges concerning consolidation of macro-economic stability, mitigating the effects of the global economic crisis, in particular on manufacturing and exports, implementing tax policy and administration reforms and managing the security issues engulfing the nation.
The auto makers hope that the government would provide stable policies and would take proactive steps to encourage growth of the local automobile sector which has made healthy contribution to the national exchequer contributing heavily to economic prosperity of the country.
The said that the government needs to take prompt measures in order to control the rapidly depleting value of the rupee against major currencies. Otherwise the already staggering industrial base in the country will not be able to withstand the increasing input cost which could result in the toppling of the auto industry altogether.
