A new push on cars

Ahmed Abdel-Hafez, Sunday 21 Apr 2024

Favourable economic conditions are likely to drive prices down and sales up in Egypt’s automobile market.

A new push on cars

 

Price discrepancies have been the order of the day in the car market since early March, with car dealers and distributors appearing to be unable to agree on vehicle prices and some selling at exaggerated rates.

The confusion ensued after the Central Bank of Egypt (CBE) announced the floatation of the pound on 6 March, causing the pound to fall from LE30.94 to the dollar to LE50 and marking its highest official rate in the banks.

The dollar then lost some ground as foreign-exchange flows increased as a result of the Ras Al-Hekma deal on the North Coast.

With the stabilisation of the official dollar exchange rate in the banking sector, reports began circulating about a notable drop in car prices, given their correlation with the dollar’s value.

Alaa Al-Sabaa, a member of the Chamber of the Automotive Industry at the Federation of Chambers of Commerce, attributes the market confusion to the decline in the value of the dollar in the local market, which commenced with the government’s announcement of its intention to sign the Ras Al-Hekma deal.

The dollar also dropped by 10 per cent on the parallel market, prompting car dealers to lower their prices by the same margin. When the deal was inked, prices further decreased in tandem with the dollar’s decline by 12 per cent, culminating in a total reduction of more than 20 per cent compared to January 2024 prices.

However, following the liberalisation of the exchange rate, customs duties on imported cars surged by nearly 60 per cent as the pound depreciated against the dollar in the official market, plummeting from LE30 to LE48.

Al-Sabaa said that the currency floatation directly impacts customs duties and taxes on cars at the ports. European cars under 1,600 cc have been exempt from customs duties since 2019. Their prices are 17 per cent lower than they were at their peak in January, though they increased by approximately three per cent after the Ras Al-Hekma agreement.

European cars above 2,000 cc are also exempt from customs duties but are subject to taxes and fees based on the official dollar price. The surge in the dollar’s value neutralised the price reductions introduced by car dealers after the Ras Al-Hekma deal, bringing prices back to pre-reduction levels, Al-Sabaa explained.

Dealers of Asian, Chinese, and Japanese vehicles, which are subject to customs duties and taxes, have not implemented reductions.

Some sellers have reduced prices for certain models in recent weeks, however. The reductions can be attributed to decreased demand, with buyers waiting for market and price stability, Al-Sabaa said.

This was compounded by the Ramadan season, known for sluggish sales, which resulted in increased supply and therefore lower prices, especially for cars at the lower end of the price spectrum that are the most in demand in Egypt.

Al-Sabaa anticipates that the cautious mood will persist until the end of the first half of 2024. While he was not able to predict market conditions in the second half of the year, he believes the present is an opportune time for purchasing.

Osama Abul-Magd, chair of the Federation of Automobile Dealers, said that “pricing is currently arbitrary and inconsistent. Some dealers are pricing higher or lower than is reasonable, while others are imposing exaggerated charges. All these dealers are harming the market.”

Al-Sabaa said the Federation of Chambers of Commerce would convene following the Eid Al-Fitr holiday to address pricing mechanisms with dealers and agencies.

Automotive expert Hussein Mustafa, another Chamber of the Automotive Industry member, said fewer distributors were asking exaggerated prices, with more sellers offering vehicles for prices that were lower by 20 per cent.

More price reductions are expected to clear out older models before the arrival of next year’s models and reignite demand for lower-priced cars after a prolonged period of stagnation in purchases in this category.

Lower-priced cars imported from countries subject to custom exemptions, such as from the European Union and Turkey, will see the biggest price reductions within the coming months, Mustafa said.

He also said that locally assembled cars will see modest declines in prices.

Mustafa expects demand for lower-priced cars will increase, especially if the government resumes providing documentary credits for agents and importers and new car shipments are released from the ports.

According to the Automotive Market Information Council, sales rose by 17 per cent from January to February this year. December sales were 45 per cent higher than in January, and overall 2023 sales were 50 per cent higher than they were in 2022 due to the easing of the dollar crisis.


* A version of this article appears in print in the 18 April, 2024 edition of Al-Ahram Weekly

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