Hassan Aboul Fotouh rebuilt his family's automotive business and put it back on top
This is how the story usually goes: The family patriarch running a business that was started in the late 1970s or early 1980s gets into financial trouble. He fails to pay off the multi-million (and sometimes billion) pound loans he took out when times were flush and loan policies unheard of, then either flees the country or is sentenced to serve jail time. The business is then run into the ground. Sometimes, years later, he comes to a settlement agreement with his creditors and can return home or be released. The end.
Hassan Aboul Fotouh, son of Hossam Aboul Fotouh, the former BMW agent in Egypt, is an exception to that typical narrative: He's not just kept the business alive but made it more influential than ever, bringing back the Aboul Fotouh name with the launch of the Speranza, a new line of high-end Chinese cars.
Budget-conscious A-class consumers across the nation have been lining up to get into the driver's seat.
Aboul Fotouh is the scion of an old-time industrial family. Hassan's grandfather after whom he is named went into the construction business in the 1950s, with projects in Egypt and Saudi Arabia. He eventually began manufacturing locks, sheet metal, artificial leather, zippers and timber.
In 1977, Hossam Aboul Fotouh became the sole agent for BMW in Egypt, eventually becoming the brand's sole assembler and top retailer in the nation. At the time of his financial troubles in 2002-03, he was chairman of 35 other companies operating in sectors as far afield as water bottling and tourism. In 1994, he augmented the family's automotive portfolio through Daewoo Motors Egypt, a joint venture with Korea-based Daewoo. The family owned 40% of the enterprise, with the balance taken by the Korean partner.
Tapping into the advantages of locally assembling cars, Hossam expanded the production line --located at the Nissan assembly plant in Sixth of October City --by building a factory of his own and rolling out Daewoo's Lanos, Juliette, Leganza and later, Nubira, models. Meanwhile, the BMW assembly plant was making the famous 3 and 5 series models and had an impeccable reputation for quality.
Then a streak of bad luck hit. In 2001, Daewoo went bankrupt. The next year, Hossam's financial troubles began, leaving his son to head the company in his place as he began serving jail time at the end of a complicated public ordeal.
"When Daewoo went bankrupt, GM bought Daewoo plants all over the world, except in certain countries, and Egypt was one of them, because GM already had a local partner here and they preferred to work with their current importer," says Hassan, who is now chairman and managing director of the Aboul Fotouh Group.
Hassan continued negotiations with Daewoo to buy its stake in Daewoo Motors Egypt, aiming to secure 100% ownership for the Aboul Fotouh Group. The family also looked to acquire an extension on producing Daewoo cars. "When my father's problems began in 2002, I took over the negotiations to acquire Daewoo's stake, while simultaneously looking for new brands to keep our factories running," Hassan explains.
Only in his twenties when he stepped up to fill his father's shoes, Hassan had to prove to Daewoo that despite his age, he was perfectly capable of running a company that was already becoming a household brand in Egypt.
"The first couple of meetings I went to in Korea were tough," he recalls. "They were expecting the 'Chairman Of A Company'," he says with a smile. Supported by a strong team and Aboul Fotouh Vice-Chairman and Deputy Managing Director Hussein Gad, Hassan got past the first impressions and down to business.
After securing a two-year extension, Hassan traveled the world looking for a new brand to produce back home.
"We looked at other Korean brands and we thoroughly swept the Chinese market until we came to Chery Automotive," he says. "Chinese automotive companies generally set up joint ventures with international companies such as Ford, GM and Nissan. Chery Automotive was not like that: They owned their own research and development centers and all their models are designed in-house, so they have the right to export them."
After almost two years of negotiations, test-drives and factory visits, Aboul Fotouh Group signed a contract with Chery Automotive in November 2005 to produce the Speranza A620 and A516, rolling out the first batch in August 2006 with a massive national advertising campaign.
Defying the general perception Egyptians have of Chinese cars, the launch of the Speranza saw potential drivers lining up for their chance to own one of Aboul Fotouh's latest products. The initial production run was sold out within days.
"We never planned for this to happen," Hassan says. "We were very conservative, especially with regards to the 2.0 liter cars because historically they haven't really been in such high demand like this," he says. Compared to other vehicles in its price range, the Speranza's two models are far more luxurious, with the higher-end A516 touting LCD screens, a sun roof and real leather seats for far less than any other car with similar options.
It took months for the company to produce a second batch of the highly popular Speranza, but customers were happy to wait.
"We are producers, not traders. For our [production] cycle to react to the demand, it takes a few months to order new kits, for them to arrive, for the 45% local content to be delivered and for the local suppliers to respond to my demand. This is what caused a drop in between the first batch and the next," he says.
Remarkably, Aboul Fotouh didn't lose market share despite the gap between delivery of the two batches. According to the latest figures from the Automotive Marketing Information Council (the industry association in Egypt), Aboul Fotouh controlled 19% of the market as of March 2007, with Daewoo making up 12% and Speranza a shockingly high 7%.
Hassan plans to grow that market share at Automech later this month, when he will unveil a new 1.3 liter sedan and hatchback, an SUV and a multi-purpose vehicle.
Unlike other providers of Chinese cars in Egypt, Aboul Fotouh's advertising campaign did not focus on what Chinese products are generally famous for: low price.
"Of course we're offering the cheapest price, but we don't have to stress on that," he says. "We played on the fact that it's a premium brand and of course our name helped build a little confidence in the brand as well."
Hassan says marketing consultants encouraged the association of the Aboul Fotouh name with the new brand to build market confidence: "It worked out to our benefit, and the biggest proof of that was the list of people waiting for us to deliver their cars without having seen or tested them."
After the first batch of Speranzas hit the streets, Aboul Fotouh Group ramped up prices, a move Hassan says actually benefits buyers. "Some automotive producers will launch the car at a high price and when they find the market can't take it, they'll lower the price a little," he begins. "That kills your car's value. It's better to launch at a low price then go up so the client doesn't feel cheated and the value of the car will go up, as is happening with our cars."
To maintain Aboul Fotouh's reputation as a producer of high-quality vehicles, Hassan says the Speranza was test driven in Egypt before being launched. "We camouflaged the car and we drove all over the country taking readings and checking what needed changing at which mileage and what parts easily go faulty. Then, we started to make adjustments," he says. "We've adjusted many things in the car. Our car's exterior is different than the one made in China, and the Chinese even admit that ours is much better."
Introducing a new brand to a market that is skeptical of Chinese product quality is tricky business, Hassan admits. "A fault in a new Chinese brand is not like a fault in the Daewoo that has been in the market for nine years -- that's why we were moving slowly in the beginning."
Aboul Fotouh built a strong reputation for quality when it was producing BMWs and the group was known for its impeccable after-sales service. Hassan plans to put that experience to work as he ensures Speranza buyers get the same kind of trustworthy service.
"When we were the BMW agent in Egypt, BMW would carry out surveys and hire agencies for mystery shopping and they would call our clients [to check on the quality of the service]," he explains. "We were awarded the best service in the Middle East several times. Of course, China still hasn't reached this level of sophistication. In [after sales] support, they are lacking and we are much more advanced than they are in this."
Aboul Fotouh has its own internal monitoring system. "I can't say that we've reached the quality of service offered by BMW, but we are advancing and improving," Hassan says. "Our spare parts are available, and if we find a recurring fault in the vehicle, we send out to the development center in China, and they have been responsive."
Factory Work
The launch of the Speranza cost Aboul Fotouh exactly LE 100 million, including changes made to the group's existing factory as well as the jigs, fixtures and initial marketing campaign.
"We're still working in the same factory, we've just brought in new lines, but there are some common parts of the production process that we didn't need to invest in, such as the paint," Hassan says. "Car assembly is divided into the body shop then the paint shop then the trim and then quality control. Because each car is made according to a specific pattern, one line cannot be used to produce different cars, but the paint can paint any car."
With demand for the Speranza rising, Aboul Fotouh is working to increase the production line's unit-per-hour rate. "Back when we first started making cars, the unit per hour rate was three and then increased to six where it stabilized for a while," Hassan explains. "Now, with Daewoo, and after the improvements we've made at the factory, the rate is 10 per hour. The Speranza is not there yet, we make about eight per hour but we'll get to 10. We've made changes in the factory that will help us reach that; there was a bottleneck in the paint process, so we changed something in that, so it will help us increase the rate."
From German to Chinese
Some would say that Aboul Fotouh's shift from being the agent for BMW to producing Korean and Chinese vehicles is a step down on the automotive industry ladder, but Hassan sees things a little differently.
"For each car there was a time when it was not known in the market. At the end of the 1970s, BMW certainly wasn't what it is today," he says. "We're not looking for a brand from which to get an image for ourselves. On the contrary, we like to take a brand that no one knows and make it into something that's what happened with BMW and with Daewoo."
Following that logic, Hassan figures it will take close to a decade for Chinese cars to have the presence in the market that American, European and Korean cars will have. In the meantime, his Chinese line is already boosting profits.
"We believe in volume," he says. "We want to make small profits per unit, but sell a lot, and that's what happened with Daewoo. We started with a small margin but we sold large volumes," Hassan explains. "With BMW, we made a good profit on one car, but sold a maximum 1,500 cars per year. This year, we're planning to sell close to 30,000 Speranzas and Daewoos."
So far, the Speranza has found a market in Egypt, and Hassan plans to expand production to include a wider range of cars, rather than seeking out yet another brand. "The shape of the market is starting to change and people's taste in cars is changing as well. There's a demand for variety," he explains. "To be able to keep our market share, we have to expand our product range beyond the 1.6 liter and the 2.0 liter cars."
With plans for sales this year of almost LE 2 billion, Hassan explains that the company is self-financed. "We don't take loans from banks at all even though the working capital for the assembly line is huge [] we're talking about more than LE 200 million," he says. "Of course it's a huge burden to be financing an assembly plant from your own pocket but its better this way," he adds, referring to his father's current position caused by allegedly defaulting on loans.
Without getting into too much detail about his father's case, Hassan reveals that he hopes Hossam will be released by the end of this year a better year-end gift for the family than breaking the LE 2 billion mark would be.
"We're in negotiations with the bank to settle the debt and I'm optimistic. The people in charge are at least willing to talk, which is very promising not only for us, but for all those who were having financial problems," Hassan says.
"They discovered that they didn't benefit by putting people behind bars. Others fled the country and they still can't get their money from them, so the country lost out in the end. Idle factories are not valued by their assets, but by their potential productivity. It causes loss of jobs and we lose business. Who would benefit from that?"
By Fatima El-Saadani
© Business Today Egypt 2007
