Selling cars with ‘Chinese stigma’ can be tricky and may entail serious price discounts from other options available in the market even when an automaker is offering customers better quality and more technological features compared with its competition.

Adeel Usman, the managing director of Regal Automobiles Industries, was well aware of the ‘Chinese disadvantage’ when he entered into a technical venture with DFSK (Dongfeng Sokon), one of the top three Chinese carmakers, to produce light commercial and passenger vehicles in Pakistan under the Automotive Development Policy 2016-21. It was the first Greenfield project established on 26 acres of land near Lahore under the new policy, offering a complete range of light commercial, passenger and high-end SUV range to the consumers.

“Our biggest war is to end Chinese stigma,” Adeel told this correspondent in an interview. “The stigma has not gone away yet but it is softening. In 10 days of its launch a year ago, for example, we had around 3,000 orders for our 800cc hatchback and the demand has only grown since.”

‘Our biggest war is to end the Chinese stigma; it has not gone but is softening given the number of orders we have’

Adeel, a business management graduate from Brunel University, is hopeful that the stigma will eventually disappear and the buyers will start viewing Chinese cars just as Japanese or Korean cars are today. “It’s the product we’re bringing to the Pakistani market that is helping that, and beyond the product, it is customer service, strong warranty and after-sales care. For a new brand with a Chinese background like us, the most important thing is to attract consumers hooked to Japanese and Korean cars by offering them quality products at affordable prices,” Adeel smiles.

Pakistan’s car market is extremely price sensitive. Hence, the company’s strategy to give consumers better choices at a discounted price has worked well. “Our SUV — Glory Pro 580 —, which we’ve started assembling here, is a great value for money for the buyers. It is the only intelligent compact SUV that comes with seven seats at a substantial discount from other comparable vehicles in the market. So when we started to pre-book our SUV in August last year, we received 1,000 orders even before its official launch.”

Adeel says his vehicles are cheaper because Regal Automobiles and its Chinese principal, the Dongfeng Koson group, believe that Pakistan is an “important market where they need to first create a foothold for their brand. We aren’t taking margins that our competitors are at the moment. We are a new brand and we have the Chinese stigma attached; we need to first make our presence felt in the market and gain the trust of consumers before we can ask our customers to pay more money. Building our brand power is more important for us at the moment than increasing our margins.”

Adeel, who diversified his family business into textiles before launching the car company, does not agree with the perception that the Chinese cars are of low quality. “China is leading the world,” he pointed out. “All renowned brands have moved their manufacturing bases to China hence it is not fair to say that the technology China offers is of lower quality. The Chinese cars are now competing with Japanese and Korean brands in Europe and elsewhere because of their technology and quality. Lower prices can sell only so many cars. If you want to create your foothold in any market, you have to give the consumers quality products and new technological features for making the drive comfortable.”

In his view, 2021 is going to be an exciting year for both the Pakistani car industry as well as the customers with the market getting swamped with a lot of new choices. “By June before the present auto policy expires, the market will be flooded with new choices. About five new cars have come into the Pakistani market in the last few weeks. Over the next two months, our company is bringing another 1000cc hatchback variant. Similarly, other manufacturers are also planning new variants before the end of June (to take advantage of the massive tax incentives given in the Auto Industry Development Plan). I think new players are working hard to take full advantage of the policy which will be disruptive for the market,” the managing director points out.

Currently, the company has the production capacity of assembling 40 units a shift a day. “At present, we are doing a single-shift production cycle and making several different variants, a major portion of which is the hatchback. We can do up to three shifts in a day, so our total annual capacity is around 37,000 units a year,” Adeel says. “With more orders coming our way, we plan to double our production by the end of this quarter in March. Making a car is not basic. We need about 200-300 more skilled workers for the second shift. To train new people, the turnover has to be high. The labour situation will improve over time but not immediately.”

He says his company plans to achieve 60pc localisation of parts and components of its vehicles to keep the prices affordable. “We have already started it with smaller parts and moving onto bigger ones. We have localised batteries and tyres for instance. One major problem in localisation is an investment into parts. If we want to localise a certain part, we need a certain level of investment that needs to go into it and provide the necessary support to vendors. Localisation will be a steady but slow process. We have a benchmark provided to us that we are following to keep on track with localisation.”

Published in Dawn, The Business and Finance Weekly, February 1st, 2021