1.

Introduction
1.1. Automobile Industry
1.1.1. Pakistan’s Automobile Industry
1.1.2. Auto Policy 2021-2026
1.2. Covid-19 Overview
1.2.1. Covid-19 in Pakistan
1.2.2. Impact on businesses
1.2.3. Impact on Automobile sector
1.3. Companies background
1.3.1. Toyota
1.3.2. Honda
1.3.3. Pak Suzuki

Chapter 1: Introduction
The emergence of the coronavirus SARS-CoV-2 resulted in a global pandemic crisis in late
2019. It took no time for it to grow into an extreme and far-reaching challenge for everyone,
disturbing the social structure of societies and economies worldwide, including Pakistan. The
government implemented a lockdown across the country in an effort to contain this outbreak.
The lockdown severely impacted the nation, disrupting the whole value chains of the most
significant industries, even if it may have helped to slow the disease's spread.

This chapter provides a comprehensive introduction to the automobile industry and the COVID-
19 pandemic. It starts by setting the stage by providing a worldwide perspective on the
automobile sector and studying its importance on a global level. Then, shifting focus to the
specific context of Pakistan and examining the dynamics and significance of the automobile
industry there, after this analysis, the study provides an overview of COVID-19, its progression
in Pakistan, and its impact on their automobile sector. To gain a deeper insight into the
importance of our study concerning the effects of COVID-19 on Pakistan’s automobile industry.
It’s crucial to have a general understanding of the pandemic and automobile sectors.
1.1. Automobile Industry
The global economy depends on the automobile sector. Along with other manufacturers with
global headquarters like Toyota, Volkswagen, and Hyundai, the "Big Three" U.S. automakers,
General Motors, Ford, and Stellantis, contribute considerably to the gross domestic product of
numerous nations. This industry, which produces significant amounts of income globally, is
made up of a number of areas, including production, sales, and marketing. It makes heavy
demands on resources from various supply chains, including those for rubber, steel, plastics, and
oil. It also has a significant impact on the construction of highways, gas stations, and
transportation networks, all of which support regional development. Currently, the global
automobile industry is being led by newly built eco-friendly automobiles and developing
technology. (Green, 2023)

The Automobile industry have grown to be a vital component in the economy of the
industrialized countries. One of the main indicators of the health of the economies is the
manufacture and sales of automobiles. The continuing existence of strong international trade
balances is contingent upon the export of motor vehicles to nations such as the United Kingdom,
Japan, France, Italy, Sweden, Germany, and South Korea. The automobile industry is enormous
nowadays. It is the biggest single manufacturing firm in the United States in terms of overall
product value, manufacturing value added, and number of wage earners employed. The sales and
receipts of automotive companies account for more than one-fourth of the nation's retail
commerce and more than one-fifth of its wholesale trade. These ratios are slightly lower for other
nations, although Western European nations, South Korea, Japan, and the United States have
been catching up quickly.

The manufacture of motor vehicles has a significant impact on other industries as well. Almost
one-fifth of America's steel and three-fifths of its rubber manufacturing is used by the
automobile sector, which also happens to be the biggest user of machine tools. Furthermore, the
unique demands of mass-producing automobiles have greatly impacted the creation and
advancement of extremely specialized machine tools, as well as promoting technological
advancements. The numerous auto-related enterprises, such as motor freight operators and
highway building companies, have significant indirect benefits as well. Moreover, the global
truck transportation industry has been expanding significantly.

However, there’s some adverse effects of the industry too. It is already possible to see the
industry's tendency toward consolidation. The primary driver of this tendency is mass
manufacturing, which can only be achieved by huge organizations because of the high equipment
and tooling costs involved. Upon implementation of the strategy, the large business has a
commanding advantage from the consequent economies of scale, assuming that the market can
absorb the quantity of cars that must be created in order to justify the investment. Consolidation
has also been influenced by more expensive and restrictive rules designed to repair
environmental harm caused by an increase in the number of automobiles on the road. (Binder &
Rae, 2023). Electric vehicles (EVs) are rapidly gaining popularity in the automotive industry,
and this is creating an exhilarating uncertainty of the automotive environment. A significant
obstacle still exists, however: even if EVs are the answer to a more sustainable future, the high
prices of battery technology have made most OEMs and giga plants less profitable. (Wicks,
2023)

1.1.1 Pakistan’s Automobile Industry

Pakistan's automotive history is extensive and diverse, having begun with the importation of
automobiles during the country's independence. The sector has expanded dramatically over the
years and is now home to many domestic and foreign automakers. The automotive industry in
Pakistan has exhibited remarkable growth, a testament to its emergence as one of the fastest-
growing sectors in the country. As of 2018, it contributed approximately 3% to Pakistan's GDP
and employed over 3.5 million individuals, reflecting its substantial economic significance.
Pakistan ranks as the 35th largest global producer of automobiles, and its contribution to the
national exchequer stands at an impressive Rs. 50 billion (around US$220 million). Honda,
Toyota, and Suzuki currently hold a majority of the market's share, but international automakers
like Renault, Nissan, Proton Holdings, Kia, SsangYong, Volkswagen, FAW, and Hyundai have
expressed significant interest in the "Auto Policy 2016-21" since its introduction in 2016.
(Murtaza, 2023). A new auto policy was approved in 2016 that provides tax breaks to
automakers that establish production facilities inside the country. Numerous businesses indicated
their desire to join the Pakistani market. Several incentives were provided to new investors in the
automobile sector under the Auto Policy 2016–21. A significant inducement was the five-year
reduction in customs tax on non-localized components. Additionally, the charge on customs was
reduced from 32.5% to 10%. The duty was lowered for current investors from 2.5% to 30%
beginning of the 2016–17 fiscal year. Additionally, localized components might be imported for
five years at a 25% tariff according to the program. The import tariff on localized components
was lowered to 45% for current players. For a period of seven years, the existing tariff structure
was maintained for new investors. (Zahid, 2023)

Currently, Pakistan's automobile industry is now dealing with a number of issues that are making
it difficult for producers to continue turning a profit. Completely Knocked Down (CKD) kits
continue to face import limitations, which is one of the main problems. Kit imports are causing
plant closures and capacity reductions. Along with declining consumer demand, the business is
negatively impacted by the devaluation of the Pakistani rupee, increasing inflation, and stricter
fiscal and monetary policies. Furthermore, the sector is suffering financial losses as a result of
outstanding LCs (Letters of Credit) and the strong US currency relative to the Pakistani rupee.
The current drop in auto sales is a result of all these issues. As to the most recent statistics
released by the Pakistan Automotive Manufacturers organization (PAMA), the total number of
cars sold by members of the organization in February 2023 was a mere 5,762. This translates into
a significant 73% year-over-year fall and a 47% month-over-month decrease. Toyota Indus
Motor Company (IMC) reported a 49% decrease in sales from the previous month with 1,803
vehicles sold, according the statistics. Honda Atlas Vehicles Limited (HACL) had a 39%
decrease in sales with 1,636 vehicles sold, while Pak Suzuki Motor Company (PSMC) saw a
dramatic 67% reduction in monthly sales with just 978 cars sold. (Zahid, 2023)

The domestic car manufacturing industry, which contributes 4% of the nation's GDP, is vital to
the growth and stability of the country's economy. This is one of the main justifications for the
federal government's attempts to support domestically produced automobile businesses. Due to
their high demand in Pakistan, low-cost hatchbacks and mid-size sedans are now the primary
focus of both governmental and private automotive industry players. We are all aware that
Japanese companies, namely Suzuki, Toyota, and Honda, have dominated Pakistan's car sector.
Their affiliation with regional businesses has earned them the local nicknames Pak Suzuki,
Toyota Indus, and Honda Atlas Cars. Though things are anticipated to change soon since new
players are entering Pakistan's automobile sector. (Mazher, 2023)

1.1.2 Auto Policy 2021-2026

The tax incentives and other assistance provided to automakers looking to start up manufacturing
facilities in the nation are described in this policy. In the 2021–2026 auto policy, the government
suggested tax incentives for domestically built vehicles with engines up to 800cc. The Ministry
of Industry has suggested that extra customs taxes on compact automobiles be removed. The
government suggested eliminating excise tax on automobiles that are built locally in addition to
customs. Additionally, vehicles with engines up to 800cc will no longer be subject to the
withholding tax. The Auto Policy 2021-2026 states that for a period of one year, the import tariff
on electric cars will be lowered from 25% to 10%. There is a reduction in the regulatory tariff on
hybrid car imports that are completely built up (CBU) (15% for imports above 1,800cc and 0%
for imports under 1,800cc). The Pakistani automotive sector has not been able to become fully
self-sufficient despite efforts to apply localization rules since essential parts, including engines,
are still imported. The sector has mostly concentrated on manufacturing small components and
accessories, depending on imports for larger inputs. Consequently, more expensive components
for automobiles made in the country are still being imported. (Zahid, 2023)

1.2. Covid-19 Overview

In the last week of December 2019, a number of pneumonia cases that were not diagnosed were
reported in Wuhan, South China. The World Health Organisation designated the illness as
COVID-19 on February 11, 2020 (WHO, 2020). On March 11, 2020, the globe Health
Organisation declared the COVID-19 outbreak to be a pandemic due to the increase in cases,
which had reached over two million in various parts of the world other than the china. While the
number of new cases outside of China is still rising, the number of new cases reported inside
China, where the virus initially surfaced, is drastically falling. The top ten nations in the globe
with the most confirmed cases as of August 3, 2020, are shown in Figure 1. (J, et al., 2022)
1.2.1. Covid-19 in Pakistan
1.2.2. Impact on businesses
1.2.3. Impact on Automobile Industry

1.3. Companies Background

1.3.1. Toyota
1.3.2. Honda
1.3.3. Pak Suzuki

2. Problem Statement/Requirement analysis

2.1 Problem statement
2.2 Purpose of the Study
2.3 Problem faced by the automobile industry during Covid-19
2.4 Strategic assessment

Chapter 2: Problem statement

Problem statement
The main aim of problem statement is to focus on price and ratio changes for major
automakers like Toyota, Honda, and Pak Suzuki, the study intends to investigate the
complex effects of the COVID-19 pandemic on Pakistan's automotive industry. The
ultimate goal is to comprehend the disruptions experienced by these leaders and to suggest
methods for increased resilience, adaptability, and revitalization in the face of
macroeconomic and microeconomic challenges.

The COVID-19 epidemic has had a significant impact on several international businesses,
including the automobile industry. This problem statement seeks to explore the many ways that
COVID-19 has affected Pakistan's automotive sector, with a focus on changes in ratios and
prices. In order to carry out this thorough research, we will concentrate on the top automakers
and dealerships in the area, assessing their performance both before and after the pandemic.

 Toyota
 Honda
 Pak Suzuki

The goal is to tackle the complex issues that emerged in the Pakistani automobile sector as a
result of the epidemic. The objective is to comprehend how much disruption these important
industry players are facing. Through the analysis of several factors, this study will identify viable
approaches for industry revitalization, flexibility, and improved resilience. This comprehensive
investigation will clarify the macroeconomic and microeconomic effects of the pandemic,
providing a clear picture of the automotive industry's path through these turbulent times and
beyond.

Purpose of the study

The purpose of this research is to offer a thorough comprehension of the extensive consequences
of the COVID-19 pandemic on Pakistan's automotive sector. The main objective is to use
financial data to support the specifics of how the pandemic affected different aspects of the
industry. By providing insightful information that will help industry participants, such as
manufacturers, dealerships, and service providers, not only navigate current obstacles but also
develop long-term resilience. Specifically, this study seeks to achieve the following objectives

 Impact assessment
 Challenges and adaptation
 Strategies
The study's conclusions and suggestions will not only demonstrate the industry's toughness but
also act as a benchmark for determining its course going forward.

Problem faced by the automobile industry during Covid-19

Impact on Manufacturing:
In Pakistan, the federal government's directives to enforce a lockdown in response to the
COVID-19 outbreak led to the closure of most of the automobile manufacturing and assembly
plants since March 23, 2020. The phased easing of the lockdown, with conditional plans for
labor-intensive industries, further disrupted production and operations in the auto sector. Auto
manufacturers have halted production in regions such as China, North America, and Europe.
These disruptions have led to reduced work hours, short-time labor, and other measures. The
impact on manufacturing stoppages, coupled with reduced demand and employee safety
concerns, is expected to have a significant financial impact in the short to medium term.

In 2019, the global automotive industry already faced a 5% decline in production, marking the
end of a decade-long growth streak. However, in 2020, the sector encountered an unprecedented
challenge in the form of the COVID-19 pandemic. Extensive shutdowns impacted not only
automakers but their suppliers worldwide. The result was a staggering 16% decline in
production, which brought global vehicle manufacturing down to levels last seen in 2010.
Europe bore a more than 21% average drop, with all major producing countries experiencing
significant declines. The Americas, the NAFTA region, and South America witnessed drops of
more than 20%, while Africa saw a sharp decline of over 35%. In contrast, Asia, particularly
China, exhibited resilience with a mere 10% production decline. Although global sales figures
also showed a decline of around 12%, the industry managed a gradual recovery in the latter part
of 2020. President Fu Bingfeng highlighted the industry's ongoing challenges, including
producing cleaner, safer, and more connected and automated vehicles, emphasizing the need for
a sustainable and technologically advanced future in the automotive sector.

Impact on Metal Powder Sales:

The COVID-19 pandemic has wrought havoc on the global automotive industry, causing a
substantial downturn in sales of metal powder due to the volatile demand. Metal powder, crucial
in the manufacturing of automotive parts, experienced a notable decline in sales as automakers
reduced production capacities. The demand for metal powder declined as automakers postponed
or canceled production plans, resulting in reduced orders for metal powders. A decrease in
consumer confidence and limited access to showrooms and dealerships further strained the
automotive industry, affecting the need for metal powders. The metal powder market saw a
contraction of approximately 10% in 2020 due to reduced demand from the automotive sector.

Supply of materials:
The industry relies heavily on China for worldwide auto production, and supply chain
disruptions have affected manufacturing in Europe and Asia. Challenges include delays in
component supply and the need for synchronized production across the supply chain.

Storage of semiconductor chips:

In the COVID-19 pandemic, global storage of chips has caused a major effect on the auto sector.
Due to this, auto manufacturers fail to deliver cars on time. The prices were also increased by
suppliers around the globe. A report was published in the Daily Dawn in which they mentioned
that the global chip crisis has badly affected the supply chain and production of automobiles in
the country. Secondly, buyers face delays in the delivery of vehicles. Storage begins in the first
quarter of 2021 in Asia, resulting in demand for chips increasing after the lockdown.

Auto Dealers: Auto dealers have faced significant challenges, with a record of 30-45 days
(about 1 and a half months) of completed goods. It is anticipated that approximately 8%–10% of
these dealerships will close within the next six months.

Auto Suppliers: Auto suppliers heavily rely on immigrant labor, whose absence is expected to
further delay recovery post-lockdown, affecting the entire supply chain.

Finance Companies: Finance companies are likely to face increased loan defaults, lower new
loan origination, and challenges in assessing customers' creditworthiness. This is expected to
impact used cars, mobility solutions, and aftermarket service providers.
Strategic assessment
The automobile sector in Pakistan has a number of advantages that increase its potential for
development and success. Firstly, there is an increasing demand for cars. Pakistan has one of the
lowest car-to-person ratios among rising nations, with nine vehicles per 1,000 people. This
suggests that the auto industry, and particularly automobile production, has significant
development potential. The business is encouraged to develop and expand by rising per capita
income, shifting demographics, and the expected entry of 30 to 40 million young people into the
economically active labor market over the next few years. Because there are more spare parts,
warranties, and after-sale services available for locally produced automobiles, their resale value
is higher. For the past six months, used import automobiles have been selling for less than their
advertised costs in dealerships, but because of their poor resale value and trouble finding
replacement components, buyers are reluctant to purchase them. When auto imports were first
legalized, the quality of locally assembled cars was inferior, so high-class consumers began
purchasing imported vehicles, which caused local assembly plant sales to decline. As a result,
local automakers began to improve the quality of their products, and today we can say that
locally assembled cars are the auto industry's strongest suit.

Moreover, the local OEM in Pakistan has the necessary advanced technology and experienced
people to make parts that meet the required quality standards of any international business.
Purchasing locally produced automobiles has the benefit of having factory-installed CNG kits
during a period when fuel prices are growing faster than ever elsewhere in the world. While
foreign car availability is a bigger problem for the owners and, even if they are able to find one,
the mechanics charge much more than what is actually necessary, local assembled cars have
readily available mechanics who are also much cheaper, so the buyer need not worry about any
potential long-term problems with the car. (Zaheer, 2011)

However, Pakistan's automobile sector also has a number of flaws that might prevent it from
expanding and operating effectively. Pakistan’s political instability and different policies have
had a negative impact on the industry. The Pakistani government asked the World Trade
Organization (WTO) for permission to prolong the deletion program at the start of 2008. The
local content requirement (LCR) program, commonly referred to as the deletion program,
mandated that the automotive industry employ parts produced locally. The scheme was not in
line with the WTO's objective of liberalizing global commerce. This choice has caused
significant harm to the regional makers of auto parts. Another significant element that has
severely harmed Pakistan's car sector is inflation. Over the past two years, there has been a
significant increase in input prices due to strong inflation, which has prevented auto
manufacturers from producing affordable automobiles. Furthermore, the automotive industry's
situation has gotten worse as a result of the energy crisis, forcing them to shift towards expensive
self-generation, which has increased the costs even further. Modern automobiles cannot be
produced using conventional machinery with the same level of quality. The industry has to
purchase sophisticated machinery in order to produce cars that meet worldwide standards, but it
lacks experienced staff to operate the new machinery effectively. (Zaheer, 2011)

Despite these flaws, there are several chances for Pakistan's steel sector to prosper. Pakistan has
enormous potential to expand its automobile market, given its relatively low penetration rate of
only 13 vehicles per 1000 inhabitants and its quickly increasing urbanization rate of 40.5%. As
of right now, just three Japanese OEMs—Suzuki, Honda, and Toyota—assemble automobiles in
the nation; these companies clearly control the majority of the domestic car industry. In order to
provide end users more options, the Pakistani government is eager to provide incentives to both
new and established OEMs for the introduction of new models. Since there are now just three
OEMs, there is room for more to enter the market and meet end users' unmet needs. (Frost &
Sullivan, 2018). Moreover, Importing German machinery that is updated and meets global
standards can help Pakistani automakers improve the quality of their goods. Local automakers
may also start collaborative partnerships with their international competitors. They will be able
to manufacture premium cars at competitive pricing as a result. Numerous foreign nationals have
expressed interest in making investments in Pakistan's car industry. One of China's biggest
heavy-duty truck manufacturers, China National Heavy Duty Truck Corporation (CNHDTC),
has been in talks to form a cooperation with a local truck manufacturer in order to engage in the
car business. Similar alliances may be formed with foreign automakers, such as those in the US
and Germany.

Threats to Pakistan's steel industry, however, nevertheless exist and may have an effect on its
development. Numerous taxes are often imposed on the car sector; the presumed tax structure
has resulted in higher import input and finished goods costs. Used components are still being
imported on a large scale. Auto parts smuggling, undervaluing, and dumping Pakistan's
automotive sector is still in its infancy; if the government decides to remove import taxes,
foreign automakers would pose a severe threat to the sector. Even a small cut in import duties,
much less their elimination, would severely harm the business and perhaps put it in danger.
Moreover, given how much the price of oil has climbed over the past few years, as a result, there
is less of a need for cars. (Zaheer, 2011)