Honda and Kia are joining Toyota and Suzuki in partially shutting down vehicle assembly operations in Pakistan due to computer chip and other raw material shortages, supply chain disruption, exchange rate volatility and curbs on the letters of credit (L/Cs) they need to import materials (DC World News, 1 August 2022).

The State Bank of Pakistan has restricted the flow of imports and limited the number of L/C approvals and cash against document import transactions until further notice with the aim of protecting depleted foreign reserves.

Dire straits

Honda Atlas Cars, the company that assembles Honda vehicles in Pakistan, said in its most recent analyst briefing that it expects a decline in sales of up to 35 per cent this year due to supply-chain challenges.

Kia Luck Motor Corporation, which assembles Kia vehicles in Pakistan, announced a massive 19.3 per cent increase in car prices effective from 19 July, blaming the sharp depreciation of the rupee against the US dollar.

Global problem

Problems for carmakers are certainly not confined to Pakistan. Worldwide, Honda's April-June profits fell 33 per cent from last year, down from US$1.7 billion to US$1.1 billion. The Japanese manufacturer blamed the global computer chip shortage, the pandemic-related lockdown in China and the rising costs of raw materials.

Regular production cuts have severely hurt Toyota's worldwide profitability. The corporation blamed the worldwide chip shortage, the supply-chain crisis, and other operational issues for a 42 per cent fall in its 2022 first quarter profits to US$4.3 billion from US$7.47 billion last year.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.