Decisions taken on 21 March that led to the pound depreciating by 16 per cent and interest rates increasing by one per cent are leaving their mark on Egypt’s car market.
Car purchases and deliveries have come to a standstill, and the depreciation in the value of the pound has meant a 15 to 20 per cent rise in the price of passenger cars. This has led some car dealers to refuse to deliver cars at the old price even to clients who already paid a deposit before the depreciation of the pound.
Some such clients have filed complaints with the Consumer Protection Agency (CPA).
“All car agents and dealers are committed to delivering cars at the old prices to anyone who paid a deposit for a car before 21 March,” Osama Abul-Magd, head of the Egyptian Automotive Dealers Association (EADA), said during a recent phone-in with Sada Al-Balad TV channel.
Any client who reserved a car at the old price and has a document showing the amount paid and the full price of the car should get the car at the same price, regardless of the higher prices that have recently been announced, Abul-Magd added.
On the ground the situation is different, however. Following 21 March decisions, many car agents kept silent concerning their deliveries of cars booked prior to the depreciation. Some posted on their Facebook pages that they were committed to handing over cars to clients who had reserved them at the old prices.
But some customers resorted to the CPA’s Facebook page and claimed that some agents were backtracking.
“I reserved a car on 11 March at a final price of LE285,000, but after the depreciation of the pound they told us that the price would increase despite their announcement that they were committed to clients who had booked at the old price,” Eslam Ahmed Al-Doh, a customer, complained on the CPA page.
Nevine, who had reserved a German-made car in early March from a local agent and paid LE50,000 as a deposit, is suffering from the same problem.
“I paid a deposit from the total price of LE350,000, and I am supposed to receive the car in mid-April. After the depreciation of the pound, I called the agent to find out what will happen, but their reply was that they were not sure,” Nevine told Al-Ahram Weekly.
A few days later, the agent called Nevine and informed her that there would be a seven per cent increase on the car she had booked and that they would bear 30 per cent of the additional amount upon a decision from the CPA.
After thinking about the decision, she decided to go ahead and pay the additional amount, especially after learning that car prices are set to increase given current local and global economic conditions.
Last week, MP Amal Rizkallah submitted a request for a briefing regarding the re-pricing of cars and the charging of extra money. Rizkallah also tackled delays in the deliveries of previously reserved cars, explaining that the increase in car prices was due to the greed of some dealers taking advantage of the situation.
The MP demanded that the government intervene quickly through inspection campaigns and the CPA provide a hotline for complaints. Ahmed Al-Mazahi, an automotive marketing consultant, said car dealers were not to blame, as “clients, dealers, and agents have all been negatively affected.”
The reasons for the price increases include the depreciation of the pound and the increase in interest rates and the lingering impact of the Covid-19 pandemic which had affected supply chains and the global chip shortage. The Russian-Ukrainian war has deepened the crisis and increased shipping costs, Al-Mazahi explained.
Not all car agents or dealers have the financial solvency to bear such losses, he told the Weekly.
“Increasing the prices of stocked cars that were imported at the old prices is an opportunity cost aiming to prevent capital erosion. If the dealer cannot sell the cars at the new price, he will not get sufficient capital to import the same number of new cars,” Al-Mazahi said.
“The market is suffering. No one is buying, and everyone is watching and waiting for what will happen next. The dealer is the one who is suffering most,” he added.
The situation is contrary to the purchasing curve last month, when passenger car sales rose more than 20 per cent in February compared to the same month of 2021, according to figures from the Automotive Information Council (AMIC).
Nearly 20,000 cars were sold last month, up from around 16,000 in February last year. In 2021, almost 291,000 new vehicles were sold, 26 per cent higher than 2020, according to the AMIC.
Meanwhile, the new prices have pushed others to delay purchasing decisions or to look for cheaper choices.
Ahmed Samir, 39, was thinking of buying a new car but has postponed the decision until further notice. “I cannot meet such costs now as the increase is not merely in the car price but also in the rise in the dollar rates that have affected almost all commodities,” he said.
The Weekly surveyed various showrooms that sell new cars in Nasr City and Heliopolis, and the owners indicated that the market has been hit by a recession since the price hikes. Customers merely inquire about the new prices and then leave, they said.
The situation is not different in the used-cars market. Used-car dealers believe there is a correlation between the used and new car markets. An owner of a used-cars showroom in Nasr City, who preferred to remain anonymous, said that customers were refraining from buying.
“The purchasing of used cars is directly proportional to the situation for new cars,” he told the Weekly. Used cars that used to sell for LE200,000 before the crisis are now selling for LE250,000. Those that were sold at LE300,000 are now priced at LE365,000, he noted.
Mustafa Mahmoud, an auto merchandiser and expert on the automotive industry, told the Weekly that in addition to the hike in prices, the recently introduced 18 per cent investment deposit certificates were also behind customers’ reluctance to buy cars.
“The 18 per cent deposit certificates attracted many customers away from buying new cars. They decided to invest their money in the new certificates instead, while hoping for a decline in car prices in the first quarter of 2023,” Mahmoud said. The proceeds from the new certificates have exceeded LE500 billion since 21 May.
In remarks to the media this week, Abul-Magd said that “the recession the Egyptian auto market is going through is expected to last for up to four to five months.”
* A version of this article appears in print in the 14 April, 2022 edition of Al-Ahram Weekly.