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Cover Story

An interview with Dewan Muhammad Yousuf Farooqui, Managing Director, Dewan Farooque Motors

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

The face of Pakistani automobile industry has changed with the entrance of Dewan Farooque Motors which is a part of Dewan Mushtaq Group whose diversified activities comprise sugar mills, textile mills and fibre manufacture.

Dewan Farooque Motors Limited (DFML) has a technical licensing agreement with Hyundai Motor Company and technical collaboration agreement with Kia Motors to produce and market a number of models of cars, light commercial and 4x4 vehicles of the two South Korean companies.

DFML has also signed an agreement with Sindh Engineering in Karachi to facilitate the assembly of Hyundai ‘Shehzore’— one ton light commercial vehicle. At present, Hyundai ‘Shehzore’ is being assembled at the Sindh Engineering assembly plant in Karachi. DFML will produce 2,400 trucks in the initial year and has plans to gradually increase the volume three-fold to 7,000 units in next five years.

DFML has developed an interim plant to assemble 1300 cc Kia Classic passenger car in Sujawal, District Thatta, some 100 miles southeast of Karachi. The first fully loaded Classic rolled off the assembly line on the 15th of this month. DFML plans to produce 3,500 units of Kia Classic in the initial year with 5-6 per cent growth every year after that.

The permanent plant at the same site is in its first phase of construction and will be completed in July. The total cost of the project is Rs 1.8 billion. The plant will have a production capacity of 10,000 vehicles on single-shift basis which is expandable to 20,000 units. The plant will be equipped with the latest assembling and related facilities including state-of-the-art C.E.D paint shops.

DFML will also assemble and progressively manufacture 1000 cc Hyundai Santro Plus cars aimed at small car niche of the market for middle income group. The assembly will start next month and the cars will be launched into the market by the end of the same month at its plant.

In addition, there are plans to manufacture 1,600 cc EFI Kia Shuma car by third quarter this year plus a 4x4 Kia ‘Sportage’, a sports utility vehicle (SUV), by end of this year. DFML has plans to introduce two more models of Hyundai including a 12-15 seater diesel commuter van next year.

Dewan Muhammad Yousuf Farooqui is the Managing Director of Dewan Farooque Motors. The young and dynamic entrepreneur also holds the portfolio of Minister for Labour, Transport and Industries of Sindh. PAGE talked to him about the issues concerning the automobile industry in general, and DFML in particular.

Dewan Yousuf feels that deletion programme thus far has only resulted in the localisation of small parts only. He is also worried about the absence of economy of scale and the overall low production volumes. The failure to induct the localisation of hi-tech and precision engineered parts and most of all the incessantly increasing prices by local assemblers, all of which are Japanese, also seem to bother him.

The entrance of Korean car manufacturers such as Hyundai and Kia with whom DFML has technical collaboration agreements will bring real competition in market which is driven more by price than anything else. The collaboration with Korea would not only be more cost effective but will also result in increased transfer of technology as Korea is more open to it than the Japanese, he added.

He foresees an expansion in the demand of cars as the emerging competition will provide better choice at competitive prices to the people, who thus far had no option but to buy Suzuki cars which have remained unchanged since the start of their local assembly in 1983. "We are retailing the fully loaded 1300 cc Kia Classic sedan at a competitive ex-plant price of Rs 475,000 compared to the 1000 cc Khyber Limited which retails for Rs 484,000."

Dewan Yousuf also expressed concerns at the absence of Research and Development and the non-committal attitude of the local assemblers towards it. It took Suzuki 17 years to achieve 60 per cent deletion and that was forced and unvoluntary. Seventeen years should have been a long enough period to at least achieve a respectful deletion level of 90 per cent, he added.

Dewan Yousuf said that selection of Sujawal, an area in interior Sindh, shows the commitment of the Dewan Group towards its social obligations. In addition, he said, we have plenty of undeveloped land in the vicinity of the Sujawal plant (which was completed in a record time of just five-and-half months) to invite vendors to develop their plants. This has never before happened in Pakistan. Unlike other auto assemblers, we would like to help the community to benefit from the development of an area which thus far has failed to draw attention from any industrial concern. The bonus point is this that Sujawal is less likely to suffer from the incessant law and order situation and political unrest if the plant had been located in or around Karachi, he added.

The initial deletion target set and achieved for Hyundai Shehzore pickup is 28 per cent, Kia Classic 31.5 per cent and Hyundai Santro Plus 38 per cent. To promote localisation, the government should encourage vendor-to-vendor collaboration plus better financing facilities for the vending industry at reasonable interest rates. It should also encourage foreign investment in the vending industry which requires heavy capital investment.

He said that the rationalisation of import tariff is necessary to help reduce the prices of locally assembled vehicles. However, it should be linked to the deletion level of an individual company — the tariff should be lower for those assemblers who have achieved a higher deletion level.

In addition, he said, that the automobile industry needs certain protection from the government to help develop the economy of scale to ensure better return on investment which in turn would result in increased investment in this important sector of the economy. The importance of a consistent long term policy is one of the basic pre-requisite while the government should also consider to abolish the 10 per cent withholding tax on the payments made by local assemblers to their foregone principals for the transfer of technology.

He stressed that Pakistani market offers a big potential which has yet to be fully exploited. Competitive prices, stable political situation and an improved economy can help boost the automobiles sales, particularly that of passenger cars in the country. Cars are no more a luxury but rather a necessity and the emerging competition will help bring down prices to affordable levels. In addition, newer car leasing schemes, such as the Citibank car financing scheme for DFML, would help push car sales in the near future, he added.

After all, he concluded, Dewan Farooque Motors motto is — ‘Driving the Economy Forward.’