Korean automobile industry set to re-enter Pakistan market

A number of foreign automobile companies, including some from the Republic of Korea – Hyundai Motor Corporation, and KIA Motor Company among others, are keen on investing in setting up car assembling plants in Pakistan, a potential market with a member population of around 200 million.

Both leading Korean automobile companies used to assemble cars in Pakistan but they abandoned the market due to the liberal <used car import policy> that was introduced during the former military Dictator Gen. Musharraf’s regime.

Both of the Korean companies are willing to return as a result of the new auto policy that the Pakistan government announced in March 2016.

Very recently, Nishat Mills Limited (NML), one of the largest integrated textiles mills in the country, announced that it has resolved to enter into a Memorandum of Understanding (MoU) with Hyundai Motor Corporation (HMC, Korea) and Sojitz Corporation (Japan) to set up a greenfield plant to assemble Hyundai vehicles in Pakistan.

The joint venture will produce HMC passenger cars and 1-ton range commercial vehicles in Pakistan according to a notice recently sent to the Pakistan Stock Exchange (PSX). This project is subject to applicable statutory and regulatory approvals.

A few months ago, Lucky Cement, one of the largest cement makers in Pakistan, announced that it would set up a car plant in collaboration with KIA Motor Company with an investment balance of PKR12 billion.

The re-entry of Korean brands is considered to be a big success of the present government, which took over two years to announce the new auto policy to give attractive incentives to new entrants and those who left Pakistan earlier. The government wants to encourage new players to invest in the local market which is currently being dominated by only three Japanese players.

Analysts say the trust foreign companies have towards Pakistan is growing and the lucrative automobile market is attracting them to the country.

Pakistan’s car penetration of 13 vehicles per 1,000 persons is significantly lower than the regional average of 162, which shows there is a strong potential for automobile growth due to growing disposable income and the country’s low-interest rate.

South Korean carmaker KIA Motor Company’s local partner, Karachi-listed Lucky Cement, announced in a statement last year that it planned to set up a new company to start manufacturing and assembling KIA vehicles.

KIA cars were assembled here in the past, but disappointing political situations and other factors led to a halt in the manufacturing process.  Dewan Farooque partnered with Korean brands Hyundai and KIA to produce its first car on January 15, 2000. The company received positive responses particularly for its Hyundai Santro and Hyundai Shahzore (a one-ton truck).

Company sales grew well until 2008 but faced various challenges afterward and productions and sales dropped to zero-levels. After a gap of three years, Dewan Farooque Motors produced a few hundred cars in the fiscal year 2014 and 2015 based on its old inventory.

Lucky Cement also told the Pakistan Stock Exchange that the new venture will also market and sell, besides importing and exporting all types of KIA vehicles, parts, and accessories.

Kia’s re-entry into Pakistan will boost government efforts to shake up the Japanese-dominated car market and loosen the grip of Toyota, Honda, and Suzuki, which assemble cars in Pakistan with local partners.

The government believes increased competition would bring down exceptionally high car prices in Pakistan. Which is why in March last year, it introduced a new auto policy favoring new entrants into the market by offering generous import duties.

Pakistan is a potentially huge market, but only 180,000 cars were sold in the 2014/2015 fiscal year. That compares with more than 2 million passenger vehicles that were sold in neighboring India.

In November 2016, French carmaker Renault also agreed to invest in a new factory in Pakistan and the production phase is expected to start in 2018. Officials say they are talking to several other carmakers for further collaboration agreements.

Dewan Farooque Motors too is restarting its production by the end of October 2016 according to an official announcement made to shareholders. The company will be manufacturing vehicles of different segments under toll manufacturing arrangements for which the installations of jigs and fixtures are in the early process of going through assembly plants.

The company has also entered into a toll manufacturing agreement with Daehan—Dewan Motor Company, which is a joint-venture between Yousaf Dewan Companies and KOLAO Group based in Lao PDR and South Korea.

With the rising demand of automobiles in Pakistan coupled with an offer for incentives and tax relaxation in the government’s automobile policy, reports of developments were received that the automobile maker was flexing its muscles throughout the last couple of years. Nevertheless, it was formally disclosed in August 2016 that its management submitted a plan to resume productions in relevant authorities — Board of Investment (BoI) and the Engineering Development Board (EDB).

Besides offering incentives to new carmakers to enter Pakistan, the new auto policy, and the Auto Industry Development Program (AIDP II), Pakistan is giving opportunities to disabled automobile units for revivals that would be led by Dewan Farooque Motors. The revival is likely to see the re-launching of the Shehzore 1-Ton single rear wheel truck and Shehzore 1-Ton truck. The company plans to launch passenger cars, light commercial vehicles, and SUVs in collaboration with KIA Motors Korea in the years to come.

Recently, Dewan Group, on the behalf of Dewan Farooque Motor also finalized their agreement with SsangYong Motors Company, the fourth largest automobile manufacturer in South Korea. The company is undergoing negotiations with KIA Motors, which is a part of Hyundai Motor Group for local production of KIA range of vehicles in Pakistan.