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Cover Story

Assembling Vs Manufacturing

By Syed M. Aslam
Jan 31 - Feb 06, 2000

A silent yet significant transformation is taking place in the Pakistani auto industry. The transformation has already started changing the face of competition in the passenger car and light commercial vehicle segments of the market. In coming months it will be spread to 4x4 and commuter vehicle segments.

Thus far Pak Suzuki, Honda Atlas and Indus Motor were the three Japanese assemblers who dominated the passenger car and light commercial vehicles market in the country.Suzuki which started assembly operations seventeen years ago faced no competition in 800 and 1000 cc passenger car market as well as 1000 cc Jeep, Potohar. Toyota which commenced commercial operations in May 1993 and Honda Atlas which followed in July 1994 were the main competitors in the 1300-2000 cc segment, though Suzuki’s 1300 cc Margalla/Baleno was able to snatch about 19 per cent share.

The dominance of the passenger and light commercial niches of the market by Suzuki is obvious from its production and sales volumes for the year ended June 30, 2000. See table one.

According to Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) Suzuki has achieved a maximum deletion level of 60 per cent on its 800 cc Mehran car. The localisation on its other models are — 1000 cc Khyber 42 per cent, 1300 cc Margalla/Baleno 32 per cent, 800 cc pickup 50 per cent, upto 10 passengers pickup 47 per cent, and 1000 cc Potohar jeep 40 per cent.

Toyota has achieved a maximum localisation of 30 per cent on all its models of Corolla cars which range between 1300-2000 cc. It has achieved an 18 per cent deletion on its 24 cc Hilux trucks. Honda has achieved a deletion level of 30 per cent on both 1500 cc and 1600 cc models of its Civic cars and 28 per cent on its 1300 cc City cars.

The Emerging Competition Dewan Farooque Motors

Dewan Farooque Motors Limited (DFML) has signed technical collaboration agreement with two Korean auto manufacturers, Hyundai and Kia. The assembly of one ton Hyundai ‘Shehzore’ light commercial vehicle has already started at the Sindh Engineering plant in Karachi with whom DFML has signed a contractual agreement. The first Kia Classic 1300 cc car with such loaded features as power windows, four-way stereo system and central locking system, has already rolled off the assembly line of DFML’s interim plant in Sujawal, District Thatta. DFML plans to assemble and progressively manufacture a number of other Hyundai and Kia models this and next year. The new models include 1000 cc Hyundai Santro Plus car, a 1600 cc 4x4 sports utility vehicle Shuma this year and a 12-15 seater diesel commuter van next year.

The entrance of Dewan Farooque Motors and its impact on the market, the potential benefits that the competition would offer to the potential car buyers, and the auto and vending industry is highlighted with PAGE’s exclusive interview with Dewan Muhammad Yousuf Farooqui, the Managing Director of DFML on the following pages.


The competition in the small car segment will heat up with the entrance of 850 cc Daihatsu Cuore car this year. Daihatsu which has developed a Rs 750 million project in the premesis of Indus Motor at Port Qasim promised to produce Cuore cars. The first Cuore is expected to roll off the assembly line during the first quarter this year. Daihatsu has signed an agreement with Indus Motors to market the Cuore cars in Pakistan. Suzuki which thus far has enjoyed a virtual monopoly in the small car market will be facing a competition for the first time.

Toyota now controls the majority shares in Daihatsu, the oldest Japanese manufacturer specialising in small car segment for ninety years. It would be for the first time in the world that Daihatsu cars will be produced in Toyota plant in Karachi.

The assembly plant will have a production capacity of 10,000 Cuore cars per year. Daihatsu expects to produce some 5,000 cars in the initial year.


Another Korean auto manufacturer, Daewoo, is also in the process of entering the local market. A technical collaboration agreement signed between Daewoo Motors Company of Korea and World Korean Motors (WKM), a subsidiary of World Group of Companies, in August last year.

The Group has wide experience in auto distributionship rights for locally assembled as well imported new vehicles in the past including BMW, Mercedes, Nissan, Mazda, Isuzu, Mitsubishi and Daihatsu. In 1998-99 the total paid up capital and reserves of the Group was Rs 556.891 million, annual turnover Rs 1964.5 million, fixed assets of Rs 400 million and current assets of Rs 828 million. Sixty per cent of the Group’s revenues comes from automobile sector.

The agreement allows WKM to assemble and progressively manufacture Daewoo vehicles in Pakistan. WKM plans to assemble 800 cc Matiz passenger car, 5-door 4x4 Musso 2900 cc Jeep. WKM has a total paid-up capital of Rs 500 million. WKM also claims that the total Lcs and other finance lines available will be Rs 750 million from the various financial institutions.

PAGE talked to the General Manager Technical of WKM, I.H.T Farooqui who said that the company plans to assemble and progressively manufacture a number of models and variations of Daewoo car as well as spareparts. The existing dealership franchise and expertise plus availability of dealer network nationwide would give WKM an edge over its competitors, he added.

Farooqui said that in the first stage WKM plans to assemble 800 cc Matiz cars, which he claimed enjoy a massive 80 per cent share in the Korean auto market. WKM has signed a contractual assembling agreement with the Ghandhara Nissan at Port Qasim for the manufacture of Matiz car. WKM intends to launch Matiz in July or August this year, he added.

He said that at present plant modification is in process at Ghandhara Nissan and the first Matiz is expected to roll off the assembly line in July or August. WKM plans to assemble 6,500 units of Matiz in the initial year which will be expanded to 10,000 units in the second phase, Farooqui added.

Talking about the demand and supply, he said that between 20,000 to 25,000 Suzuki Mehran and Khyber are being produced in Pakistan. These twenty-year old models almost entirely met the entire small car demand of the Pakistani market. The soon-to-be-launched Daihatsu Cuore 850 cc on the other hand will also be a 10-12 year old model.

He said that even if the production volumes of the two Suzuki cars is increasing at 5 per cent the gap between the demand and supply of the same is increasing between 5,000 to 10,000 units annually. WKM intends to launch the latest model of the Matiz car and is optimistic to take not only a significant share of this gap but also the thus captive share of Mehran and Khyber.

WKM ALSO plans to launch 4x4 Musso 2900 cc Diesel vehicle simultaneously with Matiz car— Musso may even be launched earlier than Matiz. Like Matiz, Mus will also be assembled at the Ghandhara Nissan plant and would be the first vehicle in this category to be produced in Pakistan. WKM plans to assemble 500 Musso initially.

Matiz and Musso would be marketed at competitive prices— Matiz Standard will retail for Rs 315,000 while its loaded air-condition variation will carry a price tag of Rs 350,000. The Musso, a combination of jeep and land cruiser, will retail for Rs 1.5 million, Farooqui told PAGE.

Farooqui expressed optimism that the entrance of Daewoo in the Pakistani auto market would have a stabilising influnce both on the small car as well as big car segments of the market.

He said that Matiz will also be produced in Japan where a plant is already under construction. Though Korean auto technology is basically based on Japanese technology— Matiz technology is highly influenced by Suzuki— the Korean products are more competitive, he added.

Farooqui said that collaboration between Daewoo and Pakistan vendors selected by WKM have already started and drawing and technical plans would be finalised within next two months. Once it is done the orders for parts would be placed with the local vendors. In addition, Daewoo engineers will help in modification works at the Ghandhara Nissan plant to facilitate the assembly of Matiz and Musso. They would also supervise the development of the localised parts and their quality assurance.

Vending industry

The automobile component industry is also in the process of transition in Pakistan to meet the challenges of the emerging competition in the local auto industry poses. The auto parts vending industry comprises some 750 various sized industries; large, medium and small. It provides jobs to half a million people and Rs 20 billion investment.

Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) was founded in 1988 to represent and protect the interest of auto vendors at various government departments and to provide technical and management cooperation to its members. It collaborated in the Pakistan Auto Parts Show at Karachi recently which was organised by the Export Promotion Bureau, Government of Pakistan. Some 150 participants, including many car assemblers, displayed their products to help promote the auto and vending industry of the country. The five-day event, the third since 1995 and 1997, was a big success.

PAGE talked to Sheikh Muhammad Ashraf, the chief executive of Yusuf Industries, which supply fabricated sheet metal parts to a number of auto assemblers as well as the two major tractors manufacturers of the country.

Sheikh Ashraf who is also a member of the PAAPAM managing committee, said that the absence of consistent and long term policies by the successive governments is the major reason to discourage investment as well as to increase production volumes in the auto industry. This has hurt the vending industry which employees 100,000 people directly and 400,000 indirectly.

In addition, he lamented, the assemblers have devised ways to deny vendors to get the right prices. They try to play vendors against vendors to deny them the rightful prices. For instance, they make arrangement with a number of vendors to supply a certain part and bargain with every one of them saying that another vendor is ready to supply the part at a lesser price. He demanded that assemblers should not be allowed to have more than two vendors for a component or part to help abolish the rampant practise. This is all the more necessary as vendors hardly enjoy any protection, he added.

To elaborate the example further, he said that a particular company forced him to reduce the prices of a certain part by over five per cent on the pretext of lowering the retail price of its product as per the directive of the government not long ago. However, instead of lowering the price and passing the benefit to the buyers the manufacturer utilised the saving to offer bonus to its employees. "The company thus enjoyed a public relations bonanza with its staff and workers at the financial expense of us", he said bitterly.

Ashraf said that his company basically work with Cold Rolled Sheets (CRS) and Hot Rolled Plates (HRP) for the fabrication of sheet metal parts as per the specification of the assemblers. The use of the two in this type of work comes to an equal quantity. Though CRC is also made by the Pakistan Steel it is inferior to the imported counterpart as it usually breaks up while drawn to a specific size. However, the HRP supplied by the Pakistan Steel is OK.

CRC is subjected to an import duty of 35 per cent. Though C&F price of CRC, which fluctuates between $ 350-400 per tonne, translates into about Rs 21,000 per tonne which is Rs 10,000 lower than the CRC made by the Pakistan Steel the 35 per cent import duty alongwith sales and income tax at the import stage makes the landed price equal to that of the Pakistan Steel Product. In spite of lower C&F price of the better quality CRC the same is being made available to the local sheet metal vendors at the same price for that of the inferior quality locally produced counterpart.

Ashraf said that despite playing a vital role to help achieve the localisation target set by the government 95 per cent of the vending industry is being run on self-financing basis. The banks usually don’t treat vendors well and this deprives them the much needed credits which they rightly desrves, he added.

He said that the market of replacement auto parts in Pakistan is good— very good, though it differs from part to part. For instance, manufacturers of oil and air filter are in a much better position than say the makers of sheet metal part which has only a limited after-sales marekt.

He said that Pakistani auto spareparts and components have been able to make an inroads in such developed markets as Germany, Italy, UK, USA and Turkey— not only as replacement parts but also as original component in many of the vehicles produced there. Last year the auto components and parts exports helped Pakistan earn $ 1 million. Though this is a small amount, the receptive developed markets and their penetration by Pakistani vending industry offers Pakistan a huge potential in the years to come, he added.


It is imperative to take fiscal and administrative measures to reduce the smuggling of vehicles as well as components and parts into the country which often finds their way as ‘used parts.’ In addition, the culture of under-inviocing and misdeclaration should be seriously resolved by the government to help check the unethical practices which not only hurt the local auto manufacturers and the vending industry but the buyers ultimately.

A greater interaction between the assemblers and the vending industry would also encourage the development of the vending industry for the overall growth of the auto industry. It is imperative to take measures to ensure that vendors are provided with the financing facilities. The banks should be made to play a more significant role in the development of the vending industry.

The emergence of competition in the small car segment for the first time and in the expensive car segment in general would offer a better choice to potential auto buyers in price as well as in models. This last factor would offer the ultimate benefit to the buyers who would be in a much better position to dictate the market to help force assemblers to improve the quality of their products as well as make them better price competitive.

Unlike today, in the years to come buying a locally assembled vehicle would no more mean a thankless ordeal for the buyers. In near future the auto market in Pakistan, particularly cars, would no more be a sellers’ market. Indications are it would transform itself into a buyer’s market.

Financial Results for Year ended June 30, 1999






Ghandhara Nissan

Production Capacity





Production Volumes

32,805 units




Sales Volumes



Net Sales

Rs 8.9 b

Rs 6.9 b

Rs 2.56 b

Rs 290 m

Operating Profit

Rs 410 m

Rs 508 m

Rs 231 m

Rs 56 m loss

Pre-Tax Profit

Rs 339 m

Rs 501 m

Rs 239 m

Rs 281 m loss

After-Tax Profit

Rs 263 m

Rs251 m

Rs 207 m

Rs 285 m loss

No. of Employees






Source: Annual Reports

Vehicles Manufactured in Pakistan







Upto 800cc

Mehran 800 cc

Pak Suzuki



800-1200 cc

Khyber 1000cc




Above 1200cc

Baleno 1300cc




Corolla 1300 cc

Indus Motor



Corolla 1600 cc




Corolla 2000 cc




City 1300 cc

Honda Atlas



Civic 1500 cc




Civic 1600 cc




Sunny 1400 cc

Ghandhara Nissan



Sunny 2000 cc




Upto 1500 cc

Pickup 800 cc

Pak Suzuki



1500-2999 cc

Hilux Truck 2400 cc

Indus Motor



Upto 10 passengers


Pak Suzuki


Light Commercial Vehicles

Source: Pakistan Association of Automotive Parts and Accessoties Manufacturers