Low demand, high cost 150,000 lose job in troubled auto industry

[LRE]

Low demand, high cost 150,000 lose job in troubled auto industry



Tuesday, August 12, 2008
By Mansoor Ahmad

LAHORE: Current turmoil in the automobile industry has claimed jobs of around 150,000 workers, mostly from auto-vending industries which are now operating at around 40 per cent of their installed capacity.

A survey of the auto-vending sector by The News reveals most of the vendors increased their capacity substantially in the wake of sustained growth of over 20 per cent in automobile production during 2001-2006. This capacity is now lying idle as instead of registering some growth the automobile production is on the decline. Most of the auto-vendors, which were running three shifts a day two years ago, are now meeting their orders by operating one shift only.

These small and medium industries, which have been forced to reduce their workforce, are in deep trouble as they earlier went for expansion on low-interest loans when the industry was moving on a sustainable growth path. Then the demand for automobiles started declining with increase in mark-up rates on car finance while vendors are now forced to service their loans on current interest rates as they had borrowed money at floating rates.

At the same time, the vendors allege the deletion policy of the government is in doldrums. Even in vehicles with a deletion level of 70 per cent, they point out, the cost of imported components is much higher than the price paid to vendors for local components. In fact, for 70 per cent local parts the auto-vendors get only 30 per cent of the total cost of vehicle parts while the foreign exchange component for 30 per cent imported parts comprises 70 per cent of the total cost.

The vendors also deeply regret losing their skilled workforce due to low production as these workers were provided in-house training at a substantial cost in various skills. The workers, they say, would divert to other fields as currently there is no work for them in the auto industry, adding they would have to retrain fresh workers when the automobile industry resumes its growth in future.

“There are no chances of resumption of a growth cycle in automobile in the next two years,” says Syed Mansoor Abbas, an auto vendor. “By that time, most of the vending industries would go sick,” he says, adding many vendors would soon default on their bank loans and might be liquidated by bankers.

He says the cost of production has increased enormously due to high steel and energy prices and auto assemblers are not prepared to increase the rates of parts corresponding to the rise in the cost of production.

Even operating vendors, he fears, will close down if prices of parts are not increased by the manufacturers in line with the increase they have made in their cars and tractors.

The News has found that motorcycle manufacturers are also in trouble. Prices of motorcycles are going down while cost of production is increasing. Some vendors say many assemblers of various Chinese brands are in deep trouble as those producing 400 to 500 motorcycles a month are operating much below the economies of scale and some might close down. The minimum survival level, according to industry experts, is production of 2,000 bikes per month or above.

However, some vendors are still operating comfortably despite a negative growth in the automobile industry. They are few in number and their survival depends on finding new markets other than local original equipment manufacturers.

Pakistan Association of Automotive Parts and Accessories Manufacturers’ former chairman Syed Nabeel Hashmi says many vendors have opted for exports, developing stable markets after years of hard work. Moreover, he says, many vendors have entered the local after-sales auto market that until now has been monopolised by Korean and Taiwanese auto part producers. He says local vendors have expertise to produce auto parts of international standards. They now produce parts for many foreign brands and models that are not assembled in Pakistan.

http://www.thenews.com.pk/daily_detail.asp?id=129426