Crisis in auto-industry

Crisis in auto-industry

The financial crisis in auto sector has deepened as the sale of cars and trucks have significantly declined. Depressed sale, increased import cost of completely knockdown and semi-knock down kits due currency depreciation have stagnated the production activity. The overall demand for all brands of cars assembled by few monopolistic firms have dropped by 39 percent to 49,110 units during the past few months. The demand for cars above 1000cc has gone down town to 75 percent. Likewise the sale of trucks has fallen by 51 percent and of buses by 17 percent. Similarly, the sale of tractors has dropped by 48 percent. Millat tractors, the assembler of British version of Massey Ferguson tractors, have stopped production activity for three weeks till January 2020. Currently, it had witnessed non-production days every week.

The sharp decline in production of auto sector has taken a heavy toll on vendor industry which produces small parts for cars, leading to layoff of 40000 workers. The regular jobs in the cars assembling units are also at risk.

High bank financing cost of cars, trucks and tractors due high interest rates is also a contributory factor in lowering demand for the brand zero meter vehicles. It merits mention that in 2004-07 easy bank credit for the purchase of automobile products had given big boost to production in auto-industry. The situation would have not become worse if the deletion ratio of manufacturing big auto parts and component had been increased, which had remained stagnant at 30 percent. It would have partially offset the negative impact of exchange rate instability. If the shutdown in tractors assembling prolongs, then the vendors who manufacture agriculture implements such as mold bold ploughs, cultivators, harvesters and threshers will suspend production activities, turning more daily wage earners out of jobs.

Unemployment and poverty are directly proportional. The renowned economist Dr. Hafeez A Pasha has claimed that 18 million more people will go down to abject poverty line by June next year, the scenario which had never existed in the country before.  According to him the lower economic growth and double digit food inflation are the major causes of massive addition to population figures about poverty situation. Food inflation rate refuses to come down despite implementation of supply augmenting measures. Independent economists have time and again expressed reservation about greater reliance on monetary tools for combating the galloping inflation.

Poverty ratio stood at 31.3 percent in June 2018 and may shoot up to 41 percent by June, 2020. If it happens then the number of people who will live below the poverty line will increase from 69 million to 87 million. The social protection programmes of the government may not cover this much number of people. Permanente solution lies in job creations in private sector which necessitates provision of fiscal and monetary incentives to arrest the down turn in large and medium scale manufacturing.

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