Democratising Pakistan’s Automotive Industry

AURORA: In Pakistan, the automotive industry has been through a rough patch in the last two years. Going forward, what is the current situation?
DANIAL MALIK: The auto industry experienced its worst years in history in 2018 and 2019. Since then it has recovered, and faster than expected, thanks to lower interest rates and the stimulus the government is trying to bring to the economy. Historically, the auto-market has been subject to cycles of ups and downs and when it goes up, it really goes up and when it goes down, it goes down fast – sometimes by 40 to 50%. An automobile is the most expensive consumer durable people buy in their lifetime. Because it is a high involvement purchase, it is also easy to put off; every time there is a hike in interest rates or the economy hits a rocky patch, people hold off making the purchase. Since the introduction of the Automotive Development Policy 2016-2021, a lot of new entrants have come to Pakistan, among them Changan, which is the only joint-venture with an Original Equipment Manufacturer (OEM) in the new entrant category. In fact, it is the first major joint venture to come to Pakistan in the last 25 years. It is exciting to see a principal willing to invest in the country rather than just sell kits to produce automobiles.

A: What are the benefits of a joint venture?
DM: Chief among them is the transfer of technology. In other words, the parts are localised and gradually deleted from the kit the principal sends, so their business decreases as we increase localisation. Another exciting aspect is that China is a left-hand drive market. When China’s auto industry was booming they did not need to look outwards and it was only when domestic demand contracted that they started doing so, and to achieve this they needed a strategic location to base their right-hand drive production. Other Chinese companies opted for Indonesia and Malaysia, but we convinced Changan to opt for Pakistan as their right-hand drive production base.

A: When did you start production in Pakistan?
DM: June 2019.

A: A rocky launch period?
DM: Absolutely. We had to close our plant during the lockdown; we entered the worst time for the market in Pakistan’s history.

A: What is the background of Master Motors?
DM: Master Motors have been assembling vehicles since 2002. My father started Procon Engineering in 1988 and Master Motors in 2002. The other companies in our group include Master Textiles, Master MoltyFoam, Master Wind Energy and a couple of other companies. We have been in business for over 50 years and I represent the third generation. My father started Procon by manufacturing seats for Sohrab bicycles. Then we moved into making seats for motorcycles and cars and then we started producing sheet metal components. Today, Procon produces over 250 different parts for all the major OEMs in Pakistan. In fact, Procon has become the backbone of the auto industry. Masters Motors have partnered with three companies. Foton, a Chinese joint venture with Daimler (the parent company of Mercedes Benz) to produce passenger vans as well as light, medium and heavy duty trucks. Mitsubishi Fuso to produce Japanese trucks; again light, medium and heavy duty. Yutong, the largest bus company in the world, to produce inter-city buses under the name of Master Yutong. Our business model is to partner with the best company for a particular product. When I returned to Pakistan, after 12 years working abroad, my father was in talks with Changan. Changan has the same technology that is used in Tesla and the German S-class cars, but the difference is that their technology is accessibly priced. We went to China to see their products and I was blown away. For me, Changan is the Huawei of the automotive industry. I am not necessarily a motor head but my background is in disruption and I thought this was a unique opportunity to come in and change the way the automotive industry functions in Pakistan by offering customers access to the kind of automotive technology that previously they could have only have dreamt of, and at a price point they could afford. This is the vision behind Master Changan. We believe that the future is here but it is not evenly distributed.

A: In what way are you intending to disrupt Pakistan’s automotive industry?
DM: By taking a human-centred approach and understanding our customers and their pain points. We identify their unmet needs and address them in our business model, product selection and service model.

A: Where does the disruption come in?
DM: Disruption comes in with the product selection and by identifying gaps in the market. For example, there is no comparable product in Pakistan that offers the features the Alsvin does; no entry-level sedan at that price point exists. Hatchbacks sell at Rs 2.2 million and entry-level sedans at three million rupees, and there is a big gap in the middle, so the only alternative is to buy imported second-hand Japanese hatchbacks. Think about a customer who is about 30; he has a family and he needs a sedan. Two years ago, he was able to buy one for about Rs 2.2 million, today for the same price he will have to opt for a three to four-year old sedan without extra features. It hurts him that he cannot provide a new car for his family; it is a big pain point. Or the customer who wants a second car for his family; in this case he will go for a hatchback and this would either be a Swift or a Cultus and both do not have extra safety features. Otherwise, he has to go for a Japanese imported hatchback, but here the question is whether he will find the parts in Pakistan. We have addressed these two big pain points and developed our product plan to address them. Even our entry-level sedans come with dual air bags and other safety features. We are focused on understanding these customers and the fact that they want all the features without having to pay an arm and a leg for them. They want a brand new car supported by after sales service, a dealer network, spare parts availability and a warranty. We provide all that and, even more importantly, with latest generation models.

A: How would you define your target customers?
DM: I would call them the most intelligent customers within each segment. These customers are smart about how they choose to spend their money and we give them choices that let their money go as far as it can with each one of our products. For example, if they go for an Alsvin, the features and the value for money we offer is unparalleled in that segment. We offer the best-looking product in that segment, so that people feel good driving the product and enjoy the experience. Changan are working closely with us to produce a right-hand drive model and we make it a point to select the current generation model. If we were to adapt an older model, the investment for Changan would be much smaller. However, we insisted on adapting their latest generation models and all our vehicles are fuel efficient, environmentally friendly, look good and have the latest technology built-in. This is why we describe our customers as the most intelligent within each segment, because we are the most intelligent choice. Yes, there is still a question mark around the quality and durability of Chinese products. But this is the only question anyone has left to ask and we have the answer. In China, Changan have the largest testing facility in Asia and the second largest in the world. Then the question is: Will they work on Pakistani roads? The answer is that we test our products rigorously throughout Pakistan and make any adjustments based on local conditions. We broke the myth about Chinese quality and durability with Yutong and are doing the same with Changan.

A: How does your business model enable you to provide a sedan at the price point you are offering when other companies cannot?
DM: This is part of our long-term vision and Changan have bought into it. We are Changan’s first joint venture outside China and their flagship project. They are developing a right-hand drive model just for Pakistan and we are their number one focus; therefore, the needs of Pakistani customers are heard and met at the top level. For other OEMs, Pakistan is their third or fifth priority market, whereas Pakistan is Changan’s first joint venture outside China; they want to succeed and on this basis we convinced them to buy into our vision of bringing the best automotive technology to Pakistan at an accessible price point. They want volume and they want to make Pakistan an export hub. It is a strategic project for them. The Chinese have massive economies of scale that they can leverage across their domestic market and therefore have that kind of technology more accessibly priced. The Chinese have also invested in their skill sets, which is why they are able to produce high quality products at a lower cost.

A: Is this venture part of the CPEC framework?
DM: CPEC definitely helped to convince them. This is part of CPEC 2.0, whereby businesses can leverage the infrastructure that was built in Pakistan.

A: In Pakistan, it is unusual to see a CEO promoting his product in a television commercial. What prompted you to do so?
DM: Although Changan is the number one automobile company in China, most people outside China have never heard of the brand before and it was always going to be an uphill task launching a sedan in Pakistan, where the market is very competitive, so we had to do something different. I knew I could not use a celebrity to promote my product; that I had to stand by my product and speak to the customer directly and explain what our product was all about and our vision for the industry. We believe people don’t buy what you sell, they buy why you sell – and with Master Changan, we have a very strong why; a why which runs through our plant, offices and everything we do. We identified our customers’ pain points and gave them the solution. We believe in sharing our vision with our customers and exciting them about the why.

A: What is the why?
DM: The why is about the fact that the future is here, but it is not evenly distributed. That when it comes to the automotive industry, China is the future and we are making it accessible to every Pakistani customer – not just the rich. That we are offering them technology that they could only dream of before and at a price accessible to them. We don’t want them to think that this technology is available everywhere else in the world and not in Pakistan. The why is also about the fact that we respect our customers; we hear them and we try to address their issues through a transparent process. Since day one, my goal has been to give the genuine customer a fair shot at buying this product. A lot of black money is placed in real estate, automobiles and commodities. Our objective is to give the genuine customer a fair chance to buy this product without having to wait a long time, because investors have pre-booked it. To this end, we have taken multiple measures. We have created a booking process that never existed in Pakistan before. When we launched the Alsvin, we held a lucky draw and invited customers to book the car. Next, we went through every single CNIC to ensure there were no two bookings on one CNIC and that the pay orders were made from the buyer’s own bank account. We took these steps so that the genuine customer will not have to buy the product from an investor or dealer at a premium. We are taking these measures because we have the best interests of the customer in mind. As an unknown brand and entering a very brand loyal automotive industry, it is in our business and brand’s interest to put the customer first. We may not become the largest automotive company in Pakistan overnight but we can become the most loved automobile brand and this is what we strive for, and in order for us to be the most loved, we first have to show our love for our customers. I am proud of the fact that we have built an international standard plant capable of giving customers international level built quality. Customers have a concern that a car made in Pakistan is not of the same quality as an internationally built one; I am not saying this is true or not. However, in our case, as Changan’s right-hand drive export hub, the company has ensured that we not only install the same equipment they use in China, but we follow their processes in terms of quality systems. The result is that the end product is comparable to a Changan made in China; in fact, it is better because we have added stuff to take into account Pakistani road conditions. These vehicles are test driven all over Pakistan to ensure they are in sync with the requirements of Changan’s R&D centre in China and of the same quality as those made in China. We want to prove to Changan that we have the capability of building this quality in Pakistan.

A: How do you see the automotive industry shaping up over the next five years?
DM: We are confident about the long-term potential of the industry. The automotive industry is the mother of all industries and the backbone of any economy; you have glass, steel, rubber – every material goes into automotive. Automotive is the best of human engineering coming together in one product. It is also a strategic industry for Pakistan; Pakistan’s motorisation index stands at about 18 vehicles per 1,000 people, so the potential is huge. The industry’s goal is to reach half a million units by 2026 and the sooner we get there, the better. The most important thing we need from the government is stability in policy. New entrants were given a number of incentives to encourage them to invest and we need to ensure that they are protected over the next five years and nothing new comes in the middle and jeopardises everything. Initially, we invested $100 million for the project and the launch of the first three models, then another $36 million for the Alsvin and we are further investing for our next models. So we, as well as the other new entrants, need stability in this area.

Danial Malik was in conversation with Mariam Ali Baig.

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