Lights to remain off as Honda, Suzuki extend plant shutdowns

LAHORE: Honda and Suzuki have separately announced to the Pakistan Stock Exchange (PSX) that they will be extending their respective plant shutdowns. Honda’s car plant will remain shut from April 16 until April 30, while Suzuki’s motorcycle plant will remain shut until April 28. Honda’s car plant and Suzuki’s motorcycle plant will remain shut for a cumulative 53 days and 39 days, respectively, upon their resumption of production.

Honda’s second-longest lockdown

Honda’s car plant originally shut down from March 9 to March 31. This was later extended until April 15, and finally now until April 30. The current spell of plant shutdowns is 4 days shy of Honda’s longest-ever spell of lockdowns, which lasted from March 24, 2020, to May 19, 2020.

Maqsood Rehmani, Vice President & Company Secretary at Honda Cars, told Profit that the government has mandated that they obtain 365-day usance letters of credit (LCs) from their suppliers for completely knocked-down (CKD) kits and other parts.

A usance LC is a type of trade finance instrument that guarantees the confirming bank (exporter’s bank) that the issuing bank (importer’s bank) will make the payment by a specified future date. “We have been instructed to obtain 365-day usance LCs from our suppliers and make the payment in 365 days,” says Rehmani. “However, it is highly unlikely that any supplier would agree to provide us with materials for payment one year later. Furthermore, it is difficult to forecast the exchange rate one year in advance. It is not feasible to operate a business under such circumstances,” he adds.

Suzuki’s motorcycles and the price of not being a Honda clone

Suzuki’s motorcycle plant originally shut down from March 20 to March 31. This was later extended until April 15, and finally until the current April 28. Suzuki’s motorcycle plant lockdown is notable because of its volume and sales relative to other competitors who have chosen not to observe plant shutdowns. Its plant lockdown is due to its deviation from the standard model of producing Honda Atlas clones.

This deviation has cost Suzuki dearly in these times, as it subsequently relies more on imported components rather than local vendors compared to its competitors in the lower price segments. “It’s the confluence of low localisation levels and limited availability of completely knocked-down (CKD) kits,” says Muhammad Sabir Shaikh, Chairman of the Association of Pakistan Motorcycle Assemblers.

“In Pakistan, only the Honda CD 70cc and CG 125cc models, which use older technology, are fully localised. All other models, including the Honda CB150F, Yamaha YBR125G, Suzuki GR 150CC, Suzuki GSX 125Q, Honda CG125 F, and Yamaha YBR 125cc, have low localisation levels of 40%, 30%, 25%, or even 0%. These models are based on relatively newer technology,” Shaikh muses.

 

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