Egypt's car feeding industries feel the brunt of the post-revolution slowdown

Since their clients, car manufacturers, have ceased production due to low demand, 120 car feeding factories were forced to shut down

Since their clients, car manufacturers, have ceased production due to low demand, 120 car feeding factories were forced to shut down end of February and will remain closed until further notice. According to Nabih El-Semari, head of the feeder industries division at the Federation of Egyptian Industries, many of the other feeder industries have managed to stay open because they work at very low capacity utilisation.
There are roughly 480 feeding factories in the country, 60 per cent of which are car feeders, El-Semari said, adding that factory owners are dealing with the losses in different ways. "Some owners had to lay off employees, others cut down their salaries," he said.
Mohamed Abdu, business unit manager at Mobica, the furniture manufacturer and a feeding company for car manufacturers in Egypt employing about 600 workers, says that his company decided to keep all of its employees despite the absence of any work during February. "We have started to work at 20 per cent of normal capacity starting March when some of our clients, like General Motors Egypt, decided to resume production," he said.
Abdu says that Mobica, which manufactures car furniture for passenger cars and pick-up trucks through five factories, was expected to increase production by 15 per cent in 2011 before the revolution started. "We produced 68,000 full car furniture in 2010," he stated. "We would be lucky to produce half that amount by the end of the year."
"I expect a 50 per cent decrease in production at all feeding factories until the end of 2011," El-Semari said. He added that the division is trying to ease the burden on the factories by requesting assistance from the various concerned ministries such as the ministries of trade and Industry and finance. "We recommended a 50 per cent reduction on sales taxes as a start," he pointed out.
"Moreover, the real state taxes on these factories should be cancelled, permanently, because it has always been an added burden on the administrative expenses which results in a more expensive product and favours the competitors," El-Semari stressed.
El-Semari also disclosed that other recommendations have been sent to the former prime minister Ahmed Shafik, but he resigned before taking any action. "I also suggested a temporary halt to all international agreements, especially cutting down customs duties on imported cars, to give local manufacturers a chance to stand on their feet," he said.
El-Semari believes that the revolution is not the sole reason for the pitiful condition of the feeding industry. "The problems facing car feeding companies as a result of the political unrest have been maximised through poor planning by the Industrial Development Authority (IDA)," he explained.
There are now 13 factories for car manufacturing and assembling in Egypt, more than any other country, El-Semari said. "The big number of factories, allowed by IDA, makes feeding factories produce in small quantities for each car manufacturer, which results in a higher production cost and a lower profit margin," he added.
Nonetheless, El-Semari says he welcomes the opening of one more factory as an exception. "Toyota was planning to open a factory this year, and it would be of great benefit to the industry," he said, explaining that being the top seller in the world means more business for feeding companies because they can work with any of Toyota's factories worldwide in large-quantity deals.
"Now that the market is unstable, we are not sure if Toyota will continue its plans. It all depends on car sales returning to their normal levels," El-Semari stated.
Car companies are trying their best to get customers back. "We made huge discounts on all car brands," says Ahmed El-Deeb, branch general manager at Al-Masriya, the country's largest distributor of cars with between 2,500 and 3,000 cars distributed monthly. "Some cars are now being sold at cost price," he said.
El-Deeb added that the client can now pay instalments directly to Al-Masriya because of the banks instability. "Sales have dropped by 60 per cent since the beginning of February, and will never return to normal before customers feel that the country is safe and secure," he said.