Rumours have been floating that Toyota Indus Motors will be shutting the production of Toyota cars in Pakistan in near future. Toyota Indus has been struggling with restrictions implemented by the State Bank of Pakistan over imports of completely knocked down units (CKDs) through letter of credit. Keep in mind Pakistan only mostly assembles cars locally; most of the raw material as well as important bits like engines, gearboxes, chips including ECUs, as well as sheet metal is imported. The company stopped production sporadically for a few days in the last couple of months.
The Pak rupee depreciated exponentially in the last couple of months or so when the current government came in power. To slow down this downhill spiral, the State Bank of Pakistan restricted issuing letters of credit. Businesses use this letter of credit or LC when importing material from other countries. It is a financial instrument issued from one bank to another guaranteeing that the specified person or a business will make a payment. And considering the lack of funds (dollars) to do the purchases, the businesses often rely on LCs. IMC is also one of those that haven’t be able to acquire a letter of credit from the state bank to do foreign purchases for necessary raw material to assemble vehicles in Pakistan.
Rumours also suggest that the company will be paying advance payments it took from the customers in the name of booking fee back to them considering it won’t be able to fulfil those orders. IMC will make an official statement in a week or two. The rumours have also been tweeted by some journalists as well giving it some weight.
This is a major blow to Pakistan’s auto industry if it comes to that. Toyota Indus, only a few months ago was doing record sales. And now it is on the brink of shutting down. The economic uncertainty in the country has led to this. The investors do not feel comfortable and have held their finances. The government policies are either draconian or just unclear. The auto sector was thriving but all has changed drastically. Hyundai raised prices of Tucson by upto one million. Considering how big an employer IMC is, there is a chance the government will either bail it out or make some exception for the company to do business once again. So it is not all doom and gloom at least for now.