The country’s economic woes are now causing the industries to shut down one by one as they are being starved of raw materials and components from abroad. If the government doesn’t take remedial action soon, the layoffs could go into millions. It has been learnt that recent plant shutdowns by auto assemblers (OEMs) have been causing ripple effects for the local tyre industry in terms of a decline in sales resulting in negative growth.
Due to administrative controls by regulatory authorities, local automakers have been facing issues with the opening of LC’s for CKD imports leading to frequent plant closures for the past few months.
This has badly affected the local auto industry as sales of autos were down by 53% QoQ during 1QFY23. In comparison, the auto volumes are expected to decline by up to 50% during Financial Year 2023 amid subdued demand, which was made worse by supply-side issues.
In terms of sales mix, GTR supplies tyres to almost all of the leading OEMs in Pakistan and has good share in Replacement market sales. The company primarily operates in automotive tyres, tractor, motorcycle rickshaw and OTR segments.
The CEO GTR Hussain Kuli Khan stated that despite the OEMs reduced demand the company will work on increasing its share in the replacement market and exports, if the Government takes the following actions,
The first one would be to allow it to open LCs for raw materials, as most of the raw materials are imported. However, the Government would ultimately save forex as local value addition is very high, around 40%.
The second step would be to curb smuggling. This happens through the border from Torkham and Chamman from Afghanistan. The Afghan transit trade agreement needs to be revisited as it is being misused.
Smuggling of tyres accounts for over 50 percent of the tyres sold in the market. If this was done through regular channels this would not only help GOP to raise tax revenue but also help the local industry to compete and grow. The Afghan transit trade agreement needs to be revisited as it is being misused. The estimated total value of smuggled tyres comes to Rs 300 billion which results in the loss of approx. Rs 50 billion to the national exchequer
The local tyre industry, in lieu of the growth of the auto sector in Pakistan, has invested heavily in increasing its production capacity to meet the rising demand of the market but the massive sale of smuggled tyres has put legal industry investment at risk.
“Though the FBR has improved enforcement by taking strict measures at the customs level, still a lot more effort is required. Also, it is necessary to check the stock in the markets and take action against sellers by confiscating the illegally imported tyres,” said Hussain.