Pragoti imports and car sales plummet amid government austerity and dollar crisis

Pragoti Industries Limited, the country’s only public auto assembler, faces breaking its decade-long winning streak and plunging into losses as government institutions halted car purchases under a policy of austerity amid a dollar crisis.

In addition, the Bangladesh Bank has raised the Letter of Credit (LC) spread to 100% for luxury goods including cars in a bid to ease the country’s import cost burden.

As a result, the company’s import of auto parts dropped significantly.

According to Pragoti Industries, it typically sells over 900 vehicles each year. Even in the last fiscal year ending June 2022, after overcoming the Covid-19 pandemic, the company sold 711 cars. And in the 2020-21 fiscal year, it sold 342 cars despite the pandemic.

However, due to the government’s cost-cutting policy, government institutions have stopped buying cars. Consequently, sales of Pragoti cars decreased significantly. Normally, the company sells an average of more than 70 cars per month. But in the first two and a half months of the current fiscal year which begins in July, it was only able to sell 22 cars.

Similarly, Pragoti imports parts for 1,000 cars every year. He brings in parts at least five times a year, including those for 200 cars on each shipment. But in January this year, the company opened the last LC to import 200 car parts. Since then, it has not imported any parts for the past eight months.

On condition of anonymity, several company officials said Pragoti was at risk of losses because it depends solely on selling cars to state-owned companies. For it to continue to be a sustainable and profitable organization, priority must be given to the private sector as well as the public sector.

Even during the current crisis, private car assembly companies are doing business in the country while Pragoti faces risk of losses as it depends only on government institutions. This is why it is important to focus on improving marketing skills in a competitive market, they added.

On July 3, the government issued a circular halting the purchase of new vehicles for ministries and divisions in the 2022-23 fiscal year as part of its austerity measures to preserve foreign exchange reserves and controlling inflation.

A Finance Division directive du jour instructed all governmental, semi-governmental, autonomous and other agencies to suspend current-year vehicle purchases with allocations under operating and development budgets.

The directive specified that the very replacement of old cars would be subject to a new decision.

Mentioning that government institutions are the company’s main buyers, Md Akter Hossain, Managing Director of Pragoti, said, “Pragoti is in a bit of a crisis in the current fiscal year as the purchase of vehicles at government ceased.

“However, once the crisis in the country is over, Pragoti will return to exactly where he was before,” he added.

Md Akter Hossain expressed the hope that through the implementation of various development plans and projects, Pragoti Industries will brighten the country’s image in the world by manufacturing “Made in Bangladesh” cars.

He told The Business Standard that even during the pandemic, the company was in the profit stream in addition to providing a large amount of revenue to the public purse.

Due to the fear of losses for the current year, Pragoti Industries has always offered government institutions the opportunity to purchase cars in minimum numbers. But the Ministry of Finance rejected the proposal. Since then, Pragoti is at risk of incurring losses due to falling car sales.

According to data from Pragoti, in the financial year 2021-22, it recorded a profit of Tk 7.28 crore before tax and the amount was Tk 38.5 crore in the previous year.

The state-run assembler recorded profit of Tk 76.2 crore in FY 2019-20, Tk 101.33 crore in FY 2018-19, Tk 95.49 crore in FY 2017-18 and Tk 86.88 crore in FY 2016-17.

In fiscal 2018–19, it sold a maximum of 1,448 cars against its annual sales target of 900 cars. Although there is a production and sales target of 1,000 cars in the current fiscal year, company officials believe that 90% of the target will not be achieved due to the current situation. .

Pragoti Industries under the Bangladesh Steel and Engineering Corporation has been profitable for almost a decade. The company imports new auto parts from world markets and sells them after assembly.

The capacity of the Pragoti car assembly plant established in Barbakund, Chattogram is 1,300 units per year. The company assembles and markets 900 to 1,000 cars per year.

However, the implementation of government projects has slowed down after the coronavirus outbreak in the country. Car purchases for government work have also been reduced. Car sales have picked up again after the pandemic subsided, but lately the government has taken austerity measures due to various complications including the dollar crisis in the country. This stopped the purchase of government vehicles.

Gandhara Industries Limited was established in 1966 as a private car assembly plant in the port city, with technical support from General Motors of England. In 1972 the company was nationalized as Pragoti Industries Limited.

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