Car sales down

Khaled El-Ghamry, Tuesday 31 Oct 2023

Khaled El-Ghamry reports on how the automotive market is dealing with shrinking sales


Car sales in Egypt are seeing a year-on-year decline, with 38,000 passenger vehicles being sold this year, down from 110,000 in the same period in 2022, according to a report by the Automotive Information Council (AMIC).

Spikes in car prices are one of the main reasons for the drop in sales.

General Manager of the El-Seoudi Group Ahmed El-Seoudi said that problems in the vehicles market were leading to problems for industry professionals. Import restrictions have hit agencies hard, he said, adding that they had been able to cover their expenses thanks to after-sales services, maintenance, and the sale of spare parts until last year.

However, now that cars sold between 2019 and 2021 are out of warranty, things have become much more difficult for car agencies, he said.

The limited number of cars received by distributors has driven up prices and given rise to overpricing. The operational costs of showrooms, previously covered by the sale of 100 cars or more, must now be met by the sale of a much smaller number of vehicles, leading to a significant increase in prices.

Car-marketing expert Ahmed Al-Mazahi said that car prices have not doubled due to import restrictions in the current economic crisis. But global factors including inflation, increased freight costs, the depreciation of the pound against the dollar, and a shortage of supply have all contributed to problems, giving rise to the appearance of a black market and overpricing.

El-Seoudi believes that the current decline in car sales is attributable to various reasons, including hikes in car prices due to reduced imports and the depreciation of the pound, as well as apprehensions about the future among customers, which have prompted them to save their money in anticipation of further inflationary waves.

Concerns about the impacts of regional and global conflicts is another factor affecting car sales, El-Seoudi said.

Restoring market health and reducing prices to reasonable levels hinges on several factors, the most important being the development of Egyptian industry, increasing production and exports, and the enhancement of product quality.

These measures could lead to a stronger Egyptian pound, improve economic indicators, and lead to market recovery, he said.

According to Noha Al-Meligy, brand director for the Seat and Cupra brands in Egypt, said that the car market is still far from seeing a recovery. It is unstable and unpredictable due to a shortage in supply and surging demand, resulting in price hikes and the import of cars that may not be suitable for the Egyptian market, she said.

While some may see the expansion of some companies as a result of stability in the market, the truth is that customers may choose times of economic downturn for repairs and upgrades, Al-Meligy said.

The expansion of showroom networks is associated with the entry of new brands into the Egyptian market or changes in agency affiliations, she added.

Al-Mazahi said that relatively few companies are expanding their branches because of the challenging market conditions. These expansions often serve as early preparation for the post-crisis phase, when companies may re-launch strongly once the crisis subsides, he said.

Even though Egypt’s passenger car market is currently contracting, companies have managed to mitigate substantial losses. When faced with reduced demand, especially in the middle and lower market segments, the largest portion of the Egyptian market, many companies have adjusted by increasing their profit margins, Al-Mazahi said.

Vice president of Great Automotive, a Cairo car agency, Mohamed Ghounaim said that rises in car prices have brought about changes in market composition and in the demographics of buyers. The middle segment, the largest portion of the market, is striving to increase its investment in cars while holding onto them for more extended periods.

People have also turned to importing cars on an individual basis, particularly following the introduction of customs exemptions in international economic agreements, to counter the issue of overpricing and dwindling supply, Ghounaim added.

Due to the reduction in the number of imported cars, agencies have decreased the number of distributors and increased the number of direct sales to increase their overall sales and profits.

Some distributors have turned to China to secure an alternative source of cars, and this has necessitated the establishment of new maintenance centres and after-sales services and new sales showrooms to make up for declining revenues.

Car prices will not go down until the Egyptian pound becomes more stable or stronger, with this lowering inflation and leading to lower interest rates on car loans and making financing more attractive, El-Seoudi said.

Restoring letter of credit on cars and production inputs could also increase supplies, fostering more competition among companies and driving down prices, he added.

Al-Mazahi said that there would be promising opportunities for the Egyptian market if customs restrictions on products coming from the BRICS group of countries — Brazil, Russia, India, China, and South Africa — were lifted. This would increase availability and ultimately lead to lower prices in the medium and long terms, he said.

As a result of Egypt’s joining the BRICS group, there are now opportunities for greater investment in local automotive technology and exports, Al-Mazahi said. This would help to ensure that the market is not flooded with finished products, making the greatest profit potential lie in partnerships, local manufacturing, and exports.

Egypt has been supporting this strategy, Al-Mazahi said, adding that the impact of Egypt’s BRICS membership on car prices is expected to materialise in the medium or long term.

* A version of this article appears in print in the 2 November, 2023 edition of Al-Ahram Weekly

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