Financial crunch leads to Honda plant closure

• The plant will remain closed from March 9 to 31. 
• Company blames current economic situation for its decision.
• It cites severe disruption in supply chain as major reason.

Honda Atlas Cars —the assembler of Honda automobiles in the country — on Wednesday announced that the company would not be able to continue with its production and will be shutting down its plant for the remainder of the month.

The automaker, in a notice sent to the Pakistan Stock Exchange, said that the decision has been taken as the company’s supply chain has been “severely disrupted.”

“Considering the current economic situation of Pakistan whereby the government resorted to stringent measures including restricting the opening of LCs [letter of credits] for import of CKD [completely knocked-down] kits, raw materials and halting foreign payments, the company’s supply chain has also been severely disrupted by such measures,” the company said highlighting all the reasons for the plant shutdown.

Consequently, it said that the company “is not in a position to continue with its production and ultimately has to shut down its plant from March 9 to March 31.”

Pakistan’s economic growth is slowing as one of the highest inflation rates — and higher borrowing costs — erodes demand and a plunge in the rupee makes the import of key automobile parts more expensive.

The auto sector remains engulfed in various crises, with a number of automakers announcing complete or partial shutdowns in recent months citing various reasons including reduced demand in the market and the company’s inability to maintain inventory as companies struggle to secure LCs.

The industry is also hit by import restrictions the coalition government had introduced to control the trade deficit.

Toyota Motors, and Pakistan Suzuki, among several other four- and two-wheel makers have time and again shut down their plants which have affected their sales. Not only the production activity has affected the companies also raised the prices of their CKD models which dented people’s already low purchasing power.

The country remains short of much-needed dollars to meet its import and other external payment commitments. The central bank’s foreign exchange reserves stand at just over $3.8 billion, barely enough for a month of essential imports. However, they are due to get a boost as a loan inflow from the Industrial and Commercial Bank of China (ICBC) makes its way to the SBP’s forex reserves.

Meanwhile, the government is constantly trying to woo the International Monetary Fund (IMF) to revive the stalled Extended Fund Facility (EFF) programme, which if approved by its board would release a funding tranche of over $1 billion.