Deadly Israeli airstrikes pound Gaza as Doha talks raise hopes for ceasefire    Egypt accelerates coastal protection projects amid rising climate threats    Egypt's PM calls Israeli war on Gaza 'most dangerous crisis' at BRICS summit    Egypt's FinMin urges BRICS to support debt sustainability    Egypt's gold prices up on July 6th    Venezuela vows to uphold sovereignty on 214th independence anniversary    ADIB Egypt publishes second sustainability report for 2024    Egypt, Saudi FMs discuss Gaza truce, Iran-Israel tensions    Over 215,000 projects funded under Mashrouak, exceeding EGP 33bn in May: Minister    Egypt, Norway hold informal talks ahead of global plastic treaty negotiations    Greco-Roman tombs with hieroglyphic inscriptions discovered in Aswan    UN conference cites Egypt's 'NWFE' programme as model for development finance    Global tour for Korean 'K-Comics' launches in Cairo with 'Hellbound' exhibition    China's factory output expands in June '25    Philip Morris Misr announces new price list effective 1 July    Egypt teams up with private sector to boost university rankings    Egypt reveals heritage e-training portal    Three ancient rock-cut tombs discovered in Aswan    Egypt condemns deadly terrorist attack in Niger    Egypt's FM, China's Wang discuss Iran-Israel escalation    Egypt's EHA, Schneider Electric sign MoU on sustainable infrastructure    Sisi launches new support initiative for families of war, terrorism victims    Grand Egyptian Museum opening delayed to Q4    Egypt expands e-ticketing to 110 heritage sites, adds self-service kiosks at Saqqara    Egypt's EDA joins high-level Africa-Europe medicines regulatory talks    Egypt's Irrigation Minister urges scientific cooperation to tackle water scarcity    Palm Hills Squash Open debuts with 48 international stars, $250,000 prize pool    Egypt's Democratic Generation Party Evaluates 84 Candidates Ahead of Parliamentary Vote    On Sport to broadcast Pan Arab Golf Championship for Juniors and Ladies in Egypt    Golf Festival in Cairo to mark Arab Golf Federation's 50th anniversary    Germany among EU's priciest labour markets – official data    Cabinet approves establishment of national medical tourism council to boost healthcare sector    Egypt's PM follows up on Julius Nyerere dam project in Tanzania    Egypt's FM inspects Julius Nyerere Dam project in Tanzania    Paris Olympic gold '24 medals hit record value    A minute of silence for Egyptian sports    Russia says it's in sync with US, China, Pakistan on Taliban    It's a bit frustrating to draw at home: Real Madrid keeper after Villarreal game    Shoukry reviews with Guterres Egypt's efforts to achieve SDGs, promote human rights    Sudan says countries must cooperate on vaccines    Johnson & Johnson: Second shot boosts antibodies and protection against COVID-19    Egypt to tax bloggers, YouTubers    Egypt's FM asserts importance of stability in Libya, holding elections as scheduled    We mustn't lose touch: Muller after Bayern win in Bundesliga    Egypt records 36 new deaths from Covid-19, highest since mid June    Egypt sells $3 bln US-dollar dominated eurobonds    Gamal Hanafy's ceramic exhibition at Gezira Arts Centre is a must go    Italian Institute Director Davide Scalmani presents activities of the Cairo Institute for ITALIANA.IT platform    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



Car prices accelerate despite revolution's red light
Burdened by heavy tariffs, price controls and inefficiencies, Egypt's automobile trade is a potent example of market distortions
Published in Ahram Online on 30 - 05 - 2011

Automobiles in Egypt are still being sold at exorbitant prices despite a drop in demand, in a situation that seems to go against all the rules of the marketplace.
After 25 January the car market slumped as sales volumes dropped to unprecedented lows, most markedly in February when economic activity essentially shut down across Egypt.
Passenger car sales for the first four months of 2011 declined 46 per cent on the figure for the same period in 2010, down to 32,055 vehicles, according to statistics compiled by the Automotive Marketing Information Council (AMIC).
In recent years, the lowest sales volume for the automotive market occurred in 2009 due to the world economic crisis when an estimated 37,000 cars were sold over four months.
Banks have already tightened conditions for granting auto loans, meaning the market is driven by cash-buyers, further squeezing demand.
Car dealers and agents, however, haven't tried to lower prices to stimulate the market -- rather, they have let them soar.
They claim it is out of their hands.
“Automobile prices depend directly on the foreign exchange rate of the local currency since most cars in the market are imported. The Egyptian pound lost value after the revolution adding to the cost of the cars,” explains Mohamed El-Kamouny, vice chairman of El-Kamouny Automotive.
The Egyptian pound has lost around four per cent of its value against the dollar and a whopping 12 per cent against the euro since the beginning of the year.
Ahram Online compared prices of 12 of the most popular passenger cars in the Egyptian market and found they rose by an average of three per cent, with the climb most notable among Korean and Japanese vehicles.
“The beginning of the year is a period when car-makers raise their prices which also contributed to the increase in prices,” says El Kamouny.
However, exchange rates may not be the most significant factor affecting car prices in Egypt.
“Supply and demand is not the main factor moving car prices in the market. Each brand agent forecasts customer needs and abilities and then sets a suitable price accordingly,” says Khaled Hosny, AMIC's spokesperson.
Brand agents are usually the sole importer and/or sole warrantor of a certain car brand.
“The [brand agents] usually determine car prices at their own discretion. There is no government body regulating this market,” says Mohamed El-Fouly, senior financial analyst at Beltone Financial.
“When dealers import cars independently, they are usually cheaper and come with better features. These cars are commonly called 'khaleegy' [Gulf] cars,” El-Fouly says.
He explains that brand agents drive customers away from 'khaleegy' cars as they “refuse to warranty and even decline to service these cars at the certified centers.”
Cars assembled locally also witnessed price escalations similar to those of their imported counterparts.
“Car assembly factories in Egypt are not very efficient; parts are imported and are heavily taxed and labor productivity isn't impressive either,” says El-Fouly.
“You might be surprised to know that GB Auto gains a higher profit margin on imported cars than on locally assembled ones. Most local factories are working at an average 50 per cent capacity, which isn't very efficient,” he adds.
In 2010, GB Auto, the only publicly-listed automotive maker in Egypt, realised a gross profit of 14 per cent and net profit margins of 4 per cent, according to El-Fouly.
The automotive industry in Egypt is often criticized for being an overprotected low value-added industry.
Despite that, the government has nurtured it through heavy protectionism.
Automobiles imported to Egypt are burdened with a basic tariff of 40 per cent and a sales tax of 15 per cent. For cars with engines bigger than 1.6 cc, the tariff goes up to 125 per cent.
Customers are the obvious losers.
“In Egypt we buy cars at prices far higher than what they cost in their home countries for no obvious reason,” complains Mahmoud Amin, a potential car buyer interviewed by Ahram Online in a car showroom.
“I used to drive a BMW when I was in Kuwait, now I'll pay more money to drive a Japanese car in Egypt,” says Amin.
Like many Egyptians who lived in the Gulf, Amin reminisces about the quality and affordability of cars in the oil-rich states.
A fully loaded Volkswagen Golf sells for around 14,000 pounds sterling in the UK (LE140,000) while the same car sells for around LE215,000 in Egypt. The discrepancy is even higher with more expensive cars.
This situation is about to change, at least in the case of European cars.
Egypt has signed a partnership agreement with the European Union that forces Egypt to decrease tariffs on cars by 10 per cent annually starting in 2010 for a ten-year period until completely eliminated in 2019.
Customers haven't yet felt the effect of the tariff cuts on European car prices. Observers say the tariff cut will materialise for consumers four or five years after the agreement is implemented, giving time for the cuts to exceed the annual growth in prices.
Despite the hike in automobile prices, dealers seem to be disgruntled with the market.
“Before the revolution, we averaged a profit margin of around three per cent per car; now we barely make one per cent,” a showroom owner who preferred to remain anonymous told Ahram Online. He blamed brand agents for setting these low margins for dealers.
For his part, El-Kamouny says that a lack of liquidity might force dealers to sell at cost just to cover operating expenses during the current market stagnation.


Clic here to read the story from its source.