Mar 02 - 08, 2009

The government needs to save the automakers and vendors by some rescue package otherwise the local companies would have to face the same crisis, which has hit the leading carmakers in foreign countries.

The auto vendors and manufacturers now find themselves in hot waters due to alarming decline in demand of cars, as both have to pay high interest for the loans, which they had taken for long-term capital investments made in the auto sector, market sources told Pakistan and Gulf Economist.

The auto vendors and manufacturers are demanding of the government to provide some relief in the payment of principal amount for a minimum period of one year to those companies, which had invested heavily in plant and machinery through long-term financing from the banks. These companies may also be allowed reduced rate of interest so that they could absorb the current crisis.

It may be mentioned that the Engineering Development Board had devised a five-year plan envisaging the car production of 500,000 units by 2010 in view of shortage of vehicles. A target of 248,000 units of cars/LCVs was set for 2006-07, thus predicted to rise to 276,000 units in 2007-08. The target for 2008-09 was 348,000 units.


Stock market players told PAGE that the stock prices of all the leading automakers have fallen significantly. According to an internal Leasing Association of Pakistan paper, by October 31, 2008 investment in leases fell to Rs49.9 billion compared to Rs63 billion on June 30, 2007 implying that while sector players vigorously recovered their lease rentals (a tough job at present), they virtually stopped writing fresh leases. In spite of this recovery performance, banks reneged on their lending commitments to the leasing sector.

Of the money market and running finance lines, banks had sanctioned Rs15.6 billion to the leasing sector. They disbursed only Rs4.5 billion and stopped thereafter although leasing companies (except one) had a safe repayment record due to their robust recovery arrangements. To ride out the present crunch, the leasing companies sought extension in repayment periods; that was denied.

In 2008, steel prices surged substantially causing price hike in basic and auxiliary materials. Consequently, the auto vendors were forced to build a high priced inventory to cater to the increasing demand of cars. However, suddenly global economic recession hit the developed and developing countries.


They said that a long-term policy aimed at attracting new investment and opening new job avenues in the auto sector is direly needed.

India's automobile industry, which was zooming ahead on the fast lane for the past five years, has also abruptly slowed down, rattled by the global financial crisis. The sharp deceleration in the industry has come at a time when the hazard lights are on for overall economic growth in India.


The total liquid foreign reserves held by the country stood at $ 10,166.0 million on 21st February, 2009. The break-up of the foreign reserves position is as under: -

i) Foreign reserves held by the State Bank of Pakistan:

$ 6,734.3 million.

ii) Net foreign reserves held by banks (other than SBP):

$ 3,431.7 million

iii) Total liquid foreign reserves:

$ 10,166.0 million