Second chance

The pioneer car assembly Holland Car, declared bankruptcy in late 2012 and has been up for auction by a liquidity supervision commission. However it is currently trying to revive. General Manager of Holland Car and one of the two shareholders of the company, Tadesse Tessema (Eng.), returned to Ethiopia on May 12 after two and half years exile to rescue his company.
The general manager returned to Ethiopia after the Ministry of Justice gave him guarantee that he would not be tried and should come back to calm the situation that occurred after the company’s announcement of bankruptcy. Tadesse talked to Capital about the current situation of his company and its future plan. Excerpts;

Capital: What motivated you to join the auto manufacturing industry?
Tadesse Tessema:
When I lived in Holland, I regularly export used cars to Ethiopia. I eventually realized that I could get involved in the assembly process, so I brought the idea to the attention of the Dutch government. Given my background in electronics, they told me that I needed to find a partner, so I teamed up with an engineer in Holland. I was awarded funds by the Dutch government, which allowed me and my partner to come to Ethiopia and start the project in 2005. We were the first car assemblers in the country. Despite many difficulties in the beginning, we were able to overcome our challenges and persevere.
Our main obstacle was gaining the trust of Ethiopian consumers, who were skeptical about the quality of locally manufactured products. Many believed that secondhand foreign products were of a higher quality than brand new locally produced ones. As such, I think that our greatest accomplishment was to change this presumption. We were able to convince consumers that locally manufactured products could compete with imported goods.
Capital: How much did you invest?
We assembled 48 cars in total. The main problem we faced then was the aesthetics of the car. Its cubical shape failed to attract buyers. Despite being extremely powerful – the most resilient car we have ever manufactured – consumers were reluctant to buy them. Since we had to clear our inventory, we sold them at a loss and turned to Lifan. I went to speak with the company and we agreed to work together. In 2007, we started assembling cars from Lifan and had much more success with those. The difficulty then was to compete with Lifan itself, which had an assembly plant in Ethiopia by then. We therefore partnered with JAC and began manufacturing their product. JAC is known to produce some of the best cars in China, and is owned by the Chinese government. Their factories produce over 500,000 cars annually and are popular in the Brazilian and Emirati auto market.
Capital: How many Lifan cars have you manufactured?
We worked with Lifan for two and a half years and managed to produce around 1,500 cars in that time. Once we started offering JAC cars, we saw demands soar. That indicated the popularity of the product and consumers’ trust in what we had to offer. That is something we are very proud of.
Many followed in our footsteps and adopted our local assembly model. These include Lifan, Belay Ab and Mesfin Industrial. These companies contributed to the growth of the car assembly industry, making Ethiopia a leader in African auto manufacturing.
Capital: Holland Car had an agreement with Lifan: Lifan supplied parts and Holland Car took on the assembly process. The partnership broke apart while demand was still high. What caused this split?
The fundamental problem we had with Lifan was a failure to meet the agreement we committed to, which stated how many cars we were required to make each year. Despite high consumer demands, we faced a shortage of foreign currency that prevented us from importing the parts we needed. Lifan accused us of breaching the agreement. Ultimately, they decided to work on their own and ceased partnership.
Capital: Holland Car shareholders also had grievance. Some questioned the government for not providing enough support to local investment.
This was a private industry issue. They made it clear to us that the government could play no role in such matters. Instead, we were informed that we could seek the help of the Ministry of Trade or the judiciary system to address our concerns.
However, that process would have been too costly; it would have required a lot of money, as well as ceasing production for at least a year. We did not find this feasible given that we had just partnered with a new company. In all honesty, we suffered tremendously from what happened. We had invested a lot in promoting Lifan cars. Still, we had faith that our new product would allow us to reemerge victorious – which it did.
Capital: How long did it take to establish a partnership with the new company following your split with Lifan?
We ceased production for around 9 months. That gave us enough time to import and install new machinery as well as train new employees.
Capital: How many cars did you manufacture during that time?
We worked with them for three years, starting in 2009. Around 2,000 cars were assembled with this company. We could have sold more, but kept facing foreign currency shortages. Given the persistently high demand for our products, we did not have a market problem, but rather a deficit in product availability. Our assembly capacity grew from one car per day to up to 20 cars daily when we worked double shifts.
Capital: Holland Car also faced problems with its management. There have been reports of illegally sold spots on waiting lists for cars, as well as other reports of nepotism. How accurate are these allegations?
As the number of people on waiting lists increased, I was made aware of such claims. However, I had ways of personally monitoring these activities. I oversaw the waiting lists and assigned each customer to a car based on their date of registration. This data was available to the marketing team, the sales department and to me. No one could change the date of registration once it was saved in our database.
Therefore, to the best of my knowledge, I cannot confirm the allegations. Of course, there might have been three or four mistakes, but nothing further. Even if someone tried to manipulate the waiting list, they did not have access to the various other copies of the list.
Nevertheless, we did not implement that system until we started working with JAC. We adopted the practice after hearing rumors of foul play.
Capital: The Company had launched a program to provide cars through credit in partnership with Zemen Bank. How successful was that scheme?
We only sold around 50 cars through the credit program. Although Zemen Bank allowed some of our customers to use credit to purchase vehicles, it was a small program. We adopted the system shortly before we stopped production, which explains its limited scope.
Capital: What exactly was the relationship between Holland Car and Zemen Bank?
Holland Car was a client. We had a special relationship with the bank. We did lots of business with the bank, which I believe made us one of their most valued clients.
Capital: In the end, how much did Holland Car owe the bank?
11 million Birr in mortgages and 22 million Birr in other loans. Combined with the L/Cs, the total came out to around 45 million Birr.
Capital: Holland Car was asked to settle all of its loans. Can you explain this?
When Zemen Bank asked us to repay the loans, we already had a non-performing loan (NPL) status.
When we started working with Zemen Bank, we had a backlog of around 600 cars. With approximately 115 cars left to assemble, the Bank demanded that we pay the sum necessary to authorize an L/C. While this was within its legal right, our company did not have the funds to cover the cost.
Zemen Bank helped Holland Car in many ways up to that point, but could not assist us further. Foreclosing would have been devastating for both parties. Three months before the company was shut down, the Bank outlined a financial plan through which we could get an acquittal to settle the L/C, paying a total of 17 million Birr. In light of the financial proposal, it was obvious that a foreclosure would hurt everyone, including the Bank..
As a company, our interests lay not only with the bank, but also with our customers, who deserved the cars they paid for. I made it clear that I had obligations to many stakeholders and that I would declare bankruptcy if the bank were to foreclose the assembly. Ultimately, the bank decided to foreclose, and I immediately filed for bankruptcy and fearing for my safety, I left the country.
Capital: Was it feasible for the Bank to approve those loans?
Yes. A financial plan written by the Bank itself showed that it was a feasible transaction. However, since we were recognized as being in NPL status, Zemen Bank claimed that they could not provide loans according to National Bank policies. However, they were already in possession of an approved L/C.
Capital: How much is Holland Car’s liability now?
The latest accurate estimate I know of is 63 million Birr.
Capital: What has happened in the past two and a half years, following the bankruptcy?
After declaring bankruptcy, I approached both the Bank and the Customer Committee – establish to facilitate transactions – on numerous occasions hoping to continue negotiations. Professor Alemayehu Geda from Addis Ababa University also tried to mediate by submitting a recovery proposal to the Bank and the Customer Committee. They both rejected it. The only remaining option was to send the proposal to the government and seek their help. The government gave me legal immunity to return to Ethiopia.
Capital: What does the proposal consist of?
The proposal states that the remaining assets are enough to cover the debt and that the best way forward is to assemble the cars. To do so, it recommends that the management resume work under the supervision of experts appointed by Banks and other stakeholders. Once the parts have been turned into functional cars, revenue from sales would suffice to cover outstanding debts. The proposal also features a marketing strategy study that outlines how we would sell the cars.
Capital: What efforts have you made so far since you came back?
My first priority was to ensure that the parts will not be sold. Next, we need to devise a way through which a government committee can support us as we proceed to work. Our paramount objective is to deliver cars to 115 customers who have already paid, and repay other debts.
Capital: How many cars do you currently have in your warehouses?
In total, around 240.
Capital: If all goes well, how much time does the company anticipate it will take to resume assembly?
Tadesse: It will take at least two months from now on.