Honda shuts plant in Pak amid crisis, cites supply chain disruptions

Amid the ongoing financial crunch in Pakistan, another car maker company Honda on Wednesday announced to close its plant citing severe disruption in supply chain as major reason, reported Geo News.

Honda Atlas Cars --the assembler of Honda automobiles in the country blamed current economic situation for its decision and said that the plant will remain closed from March 9 to 31.

The car maker company said that it 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," reported Geo News.

"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."

Earlier, Pak Sukuzi Motor Company (PSMC) and Indus Motor Company (IMC), the assembler of Toyota-brand automobiles in Pakistan, also announced to completely shut down its production plant.

Pakistan's auto industry, which is heavily dependent on imports, has been caught in the midst of an exchange-rate crisis, as the SBP, after unabated rupee depreciation, imposed restrictions on the opening of Letters of Credit (LCs), reported Geo News.

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, reported Geo News.

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 USD 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 State Bank of Pakistan's forex reserves, reported Geo News.

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 USD 1 billion.