Holland Car blames AA transport bureau for bankruptcy

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Zemen Bank to transfer it to a new owner

The first car assembly plant in the country, Holland Car, filed for bankruptcy in court late last week.
Tadesse Tessema (Eng), General Manager and founder of the plant, said that his company was unable to continue assembling vehicles due to  lack of finance.
The car assembly that was in business for the past seven years and was popular with its Abay and Awash automobile brands, has also failed 120 clients from a total of 600 who have been waiting on deliveries for years.
During his phone interview from the Netherlands, Tadesse informed journalists that he had been trying to obtain financial support from local and overseas financiers and parts suppliers for the company but failed to do so. He told Capital that he met with officials at the Ministries of Trade and Industry, including the Minister of Industry and his advisors plus the head of the metal industry department at the ministry, but he said that the officials couldn’t save the plant.
He said that the ministry office had written a letter to the state-owned Development Bank of Ethiopia (DBE) to find ways of financing the car assembly. But DBE declined the loan request stating that it does not  finance this kind of investment.
Last week Capital reported that Zemen Bank was contemplating foreclosure in regards to the car assembly plant because of the company’s failure to service its loan.
Tadesse said that the company is still looking for other means to settle its loan and deliver the automobiles to its clients that are still waiting.
Sources at Zemen Bank told Capital that Holland Car had lagged far behind in paying its loan and due to this factthe bank has been forced to write a warning letter to the client to get back on the loan settlement track. The assembly secured the loan from Zemen Bank SC a few years ago to expand the investment.
“In the past three years the car assembly has been losing hugely due to several problems occurring in and outside the country,” the founder and general manager said.
According to him the twenty percent devaluation of the birr against major hard currencies in September 2010, foreign exchange shortage, inflation, the bus assembly investment and lack of investment plot have greatly harmed the company.
The contract that the assembly plant had with its first customers in 2009 and major part of 2010 had not foreseen the devaluation and other price escalations, which forced Holland Car to deliver the automobiles at a loss.
“We lost 80,000 birr on each Abay and Tekeze automobile brands we delivered, and we paid an additional 130,000 birr for the delivery of each Awash brand vehicle. These and other additional and unexpected price hikes are some of the reasons why the car assembly slowed down its activity,” Tadesse said.
The transportation cost increment, spare part price hikes from the original supplier, delay to access foreign currency for letters of credit (LC) from local banks, and customs charge increases are some of the major factors that have led Holland Car to default on its loan payments and delivery, he added.
Tadesse also blamed the Addis Ababa City Administration Transport Bureau for its bankruptcy.
Tadesse said that his company and the City’s Transport Bureau have agreed to assemble buses to solve the transportation problem in the city, following several discussions between experts from the city’s relevant offices and officials of the company on how to commence the project.
He stated that in July 2010 the car assembly and the city officials reached an agreement that was proposed by the group formed from the city administration and experts that came from The Netherlands.
“With a total cost of 8.5 million birr we completed the assembly plant and introduced the first bus named Ahadu in October 2010 in the presence of government officials including President Girma Woldegiorgis,” he said. “But after we spent that much money government officials said they do not have an interest to work with us,” he explained. He said that this is one of the major contributing factors for the company to go bankrupt. He said that one of the major costs for the company was rental fees and complained that the company’s effort to get a plot for office use and maintenance service was not fruitful. He also said that the investment law of the country has to clearly state conditions that favour local investors over other foreign firms. “Investment securities and other support need to be made available for local investors, otherwise the involvement of foreign investors that come with huge financial back up and capacity will kill the local investors,” he said.
According to the head, in the past fiscal year the company has lost 20 million birr.       
He further said that his company is looking for solutions to deliver automobiles for clients who already paid the full amount for the company.
A year ago the local auto assembler signed up over 600 customers, who entered a contract with the company from 2009 to 2011, to jointly undertake the letter of credit (LC) process to import spare parts in order to assemble automobiles more quickly.
After delays in transferring cars, customers created a committee and agreed to pay in full so they could get their cars in a few months. Previously, when someone bought a car they only had to make a 30 percent down payment but had to wait for a longer period of time to receive their car.
According to our sources, the auto assembly has delivered 480 cars for its customers from the total of 600 orders.
The local car assembler was importing parts from the Chinese state-owned automotive company JAC. He said that the Chinese company officials have also been interested in facilitating financial support for the company, unfortunatly the process did not go with the timeline.
According to our sources, the owner has been out of the country for the last few months. He stated that he was in the Netherlands to look for other options to revive the assembly. 
After the announcement of bankruptcy Zemen Bank Management sent a statement to Capital stating that the fact that Holland Car has been going through financial difficulties and was unable to meet contractual obligations it has with its customers, Zemen Bank, as well as with its other creditors will not affect the bank in any way.
The bank stated that in line with normal banking practices, and at the appropriate time, Zemen Bank will announce specific administrative and legal actions to be taken regarding the car assembly plant and other facilities that the Bank is holding as collateral. “At this point, Zemen Bank would like to inform Holland Car customers, employees, and the public that the Bank is working on a solution that will try to address the concerns of the key stakeholders involved in this case,” the statement indicated. 
“The Bank expects that, in due time, the car assembly operations could be transferred to a new owner, thereby making it possible for the car assembly to continue assembling,” Zemen’s statement added.
Some observers in the industry said that the current condition of the company is a good indication for the government to consider different directions to save and give more consideration for genuine local investors and investments.
“Both the current financial and other problems that have not been solved in the past year will continue to harm other private investments in the country especially local based investments, unless the problem gets immediate solutions” observers said.
Holland Car was established in 2005 through a joint venture (JV) by Tadesse Tessema (Eng) and Trento Engineering, a Dutch company, to supply assembled vehicles for local and export markets, with an initial capital of 11 million Br equally contributed by both shareholders. Holland Car assembles its vehicles at its factory located in Mojo Town, Oromia Regional State, 70 kms south of Addis Ababa. The company has 250 workers.