Who thinks it is a good idea to build cars in North Korea where almost no one knows how to drive? Would it even be possible to open a profitable factory in the communist state? Kim Byeong-gyu, an executive with Pyonghwa Motors, says it can be done. Not only that, he says it is possible to make money in the process. Mr. Kim’s company, which started assembling cars last year in the southwestern port of Nampo in North Korea, projects it will soon be making a profit from its new car plant.

Seoul-based Pyonghwa, principally a car dealer that imports Ford Motor Co. products into South Korea, is associated with the Unification Community. Some members paved the way for Pyonghwa’s investment.

As a participant in the inter-Korean economic exchange programs, the company was authorized to build an automobile factory in the North by the governments of both Koreas in 1999. Pyonghwa Motors has plunged $100 million into the project so far, while its Northern partner, Ryonbong Corp., has provided labor and other support. In April 2002, a production line was completed in Nampo, and the first car named the Hwiparam, or "Whistle," rolled off the line.

The Hwiparam is actually a 1,600-cc Fiat Siena. The Italian carmaker’s model is being assembled in the Nampo factory backed by South Korean capital and North Korean labor. The assembly line also recently started producing Fiat’s commercial Doblo van under its own name, Ppeokkugi, or "Cuckoo." Pyonghwa says its will be able to design its own models soon.

The basic Hwiparam is priced at $10,000, which puts it beyond the reach of most North Koreans whose per-capita GDP last year was $762. Mr. Kim says most buyers are foreign residents in the North, as well as North Korean government officials.

Pyonghwa has been promoting its cars on the streets of Pyeongyang with billboard advertising. "It is the first time anyone has put up a commercial billboard in the North," says Mr. Kim. The billboard shows a North Korean boy next to a Hwiparam expressing "happiness and awe," a facial expression North Koreans usually reserve for their "Dear Leader" Kim Jong-il.

Mr. Kim says Pyonghwa even produced a seven-minute-long commercial for North Korea’s state-run television network, which he claims was the first commercial to be broadcast in the North.

Pyonghwa has not produced a profit yet, but the company expects to be in the black by 2006, when production is forecast to reach 12,000 cars per year. It plans exports to China, Vietnam and other countries, including South Korea.

A little-known company, Pyonghwa is just four years old. So how could the upstart successfully establish a business in the North, overtaking Hyundai, a world automobile giant, whose former parent the Hyundai Group is the South’s trail blazer for North Korean business projects?

"We started contacting the North even before Hyundai started," says Mr.

Kim. "We initiated our business with a higher aim that we would help the North, which was not for monetary gain, and we thus gained their confidence." Pyonghwa has also gained such benefits from the North as an exclusive right to car production, tax exemption until 2007, as well as additional exclusive rights to buy and sell used cars.

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