CAIRO: When the Egyptian pound's value crumpled in 2003 - idling, for a time, at nearly LE 7 per US dollar - the import-needy auto industry was among the hardest struck. For several months, the price of a car shifted almost daily. Car sellers weren't alone in the turmoil: Loan financiers, many of them fresh to a relatively new market, found they had their hands fuller than they had foreseen. "The most important thing we care about in finance is stability, said Hazem Moussa, executive director of Contact Cars, a financing firm that contends with banks to loan to car buyers. "Constantly changing landscapes, constantly changing prices, constantly changing market preferences - that's lack of stability. For a business like Contact, to whom constancy is the key to profit, working in Egypt can be tricky. As the financing industry matures, even good news can be a cause for renewed vigilance: Cheaper cars boost sales, but they also encourage smaller dealers to start up, ending in a more fragmented and less easily managed market. Auto sales in Egypt have more than tripled over the last three years, spurred by a handful of developments: The pound has largely stabilized and, against some currencies, is even rising; the economy continues to rumble forward; and in September 2004, the state more than halved customs duties on cars with engine capacity up to 1.6 liters. "More people can afford [to buy a car] firstly because it's cheaper, and secondly because there's more money in the economy, said Moussa. He said between 40,000 and 50,000 passenger cars were sold in 2001, when Contact opened its doors. Based on a 30 percent growth rate, investment bank Beltone Financial guesses sales will top 230,000 this year. Moussa's firm has blossomed accordingly. Though Contact does not release its earnings, he said it has grown about 80 percent annually over the past few years. Menatalla Sadek, an analyst at Beltone, said she expects the sector to keep growing. "Egyptians are normally risk averse, and have a strong tendency not to be indebted. However, car financing is quickly becoming a normal practice, she said. She pointed to Ghabbour Auto, which now offers a full-service financing shop to its customers through an agreement with Citibank. Favorable exchange rates are vital to auto dealers and financiers because so many cars in Egypt are imported. Even local automakers ship their parts from abroad and operate under foreign licenses, as with Ghabbour Auto's deals with Hyundai, Mitsubishi and Volvo. So when the pound is hearty, car sales climb; when it droops, so do sales. A car here sells, on average, for between LE 110,000 and 115,000. Though figures are hard to come by, Moussa guessed about 40 percent of car purchases are bought with loans, 30 to 40 percent are paid for in cash, with the remainder financed through other means. In recent years, car costs have sunk. This, along with an influx of direct imports from Gulf-area dealers, has left the local market fragmented, Moussa said. The number of small dealers, whose showrooms often cannot fit more than two cars, has mushroomed. More sellers means fiercer rivalry, which means salesmen are driven to move cars as fast as they can. "Unfortunately because the car market itself is pretty segmented, competition in the car market among the dealers is pretty high, said Moussa. They just want to move the car and get as much money as they can - and that's a natural thing. Short-term thinking causes some dealers to see financing plans as a hindrance, something threatening to siphon off some of their cut or just slow things down. Because demand for cars has exceeded supply for the last couple of years, many dealers have been able to turn a profit without depending much on financing, Moussa said. "When supply starts to meet demand you have to start being a little more creative, he said. The result is a balancing act, where the incentives of dealers, consumers and lenders must synch up, as is the ideal in any such system. "In the end, financing helps dealers sell cars, said Moussa. "That's the ultimate goal. There is also inflation - notched at 16.4 percent in April - which guarantees to breed anxiety among any loan-based business, as it goads central banks to push up interest rates and discourages borrowing. But if economy growth here holds up, the financing industry could get much bigger. Sector analysts point to a latent demand here, held back only by cars' prohibitively high costs. "Egyptians purchase cars because they really don't have another option, Sadek said. "Public transportation is oversaturated, you can't walk in most of the streets, and therefore if you can afford to buy a car, you will buy a car.
