European car sales will increase every year due to an agreement made with the European Union, imposing an annual cut to custom tariffs and making prices more tempting for consumers.
The Association Agreement with the EU, which came into effect in 2004, implies a bilateral Free Trade Agreement. Regarding personal vehicles, tariff cuts began last January and a complete tariff abolishment is scheduled for January 2019.
As a result, in 2019 a LE300 thousand BMW will be sold at LE127 thousand (in an ideal scenario, where inflation rate is zero). Prior to the tariff reduction 135 per cent were added to the car original price.
So, in 2010, the first year of the agreement's implementation, customs stand at 121.5 per cent for big cars and 36 per cent for middle class ones.
By the beginning of 2011 these rates will stand at 109.5 and 32.4 per cent.
Citroen sales "rose by almost 30 per cent” in 2010 compared to 2009, especially those of high-end vehicles with engine capacities higher than 1600 cubic centimeters, cheered Sayed Farag, director of the Citroen-Agouza showroom.
According to him, though the annual 10 per cent tariff decrease played a role, the "Euro depreciation, at the end of 2010, is a catalyst too."
Tareq Mustafa, marketing manager of the Bavarian Group in Egypt, notes that an increase of European car sales is part of the overall rebound of car sales in 2010.
"The market is witnessing a recovery from the financial crisis that affected it in 2008 and 2009,” he says.
The group, which is the sole agent and local manufacturer of BMW, MINI and other luxurious brands, expects to see the full impact of the custom duties cut "starting 2012."
Until that happens, the market will keep on giving "mixed signals," as some clients postpone buying European cars so as to benefit from an extra cut, Mustafa claims.
But while buyers are cheering the cuts, others fear the bite.
The reduced custom duties could put pressure on the Egyptian automotive industry, which thrived mainly due to the high tariff level.
Regardless, Mustafa says, "(tariffs are) still too high to make a difference."
The tariffs cut on the European autos will not influence the local industry in 2011 since “the European vehicles represent only 20 per cent of the aggregate Egyptian automotive market,” Salah El Hadary, the general secretary of car manufacturers association, told Ahram Online.
The real threat, according to him, will begin in 2015, when "reduction of duties on European vehicles reaches 50 per cent."
The government must intervene and “support the local industry by subsidizing the Egyptian automotive production,” El Hadary suggested.
The government will indeed give a hand, but only to manufacturers of small cars. In 2011 it is set to launch a ten-year incentive package to promote car production, said chairman of the Industrial Development Authority (IDA), Amr Assal.
The ministry of industry has valued the amount needed to support the industry and "we are waiting for an approval from the ministry of finance," adds Assal.
However, the incentives package will target only cars with engine capacity of less than 1600 cc, explains the IDA chairman. Consequently, locally manufactured luxurious cars such as Mercedes Benz and BMW, will be left on the edge.