The automobile market in Egypt is suffering badly, and the problem runs deeper than the current financial crisis, investigates Niveen Wahish "Let it rust and its model become outdated" are not the lyrics to a new rap song, but rather the slogan of a campaign launched by an Egyptian on Facebook, urging car dealers to lower their prices. In context, the slogan is actually very appropriate. If car dealers do not offer lower prices to encourage buyers, they will end up with stores full of outdated cars. The campaign touches a sore spot for car dealers. The market is, no pun intended, very slow indeed. So bad is the situation that some have taken to advertising that they will give each buyer an ounce of gold for the purchase of one of their cars. Others offer a year of free maintenance, and still others promise instalment without charging interest. Yet buyers are still holding back. Hyundai Franchise Director Mustafa Abdel-Halim says agents are now selling around 2,000 cars per month compared to a peak of 7,000 during the summer high season. A number of factors have led to this situation. According to Abdel-Halim, rumours that customs on cars are to be lowered and statements by Egyptian officials that prices are bound to fall as a result of the global slowdown have caused many to adopt a wait-and- see attitude. And although the government came out and clarified that there will not actually be any cuts on customs, "it was already too late," said Abdel-Halim. "People had already started to abstain." In fact, it wasn't only individuals who began to abstain, it was also the banks. While not too long ago most banks were aggressively promoting car loans, they stopped doing so as the sheer extent of the financial crisis became visible. One banker who preferred to remain anonymous said that banks, fearing defaults, put a freeze on retail loans in general, including car loans. And those who continue to offer loans, he said, do so very restrictedly. In reality the problem in the car market started months before the global financial crisis showed its ugly face. According to Raafat Masroug, former head of the Automobile Information Council, the corner the industry finds itself in is actually because of bad planning. He explained that although there was an 18 per cent growth in car sales in 2008 compared to 2007, there were already signs of decline. Masroug recounted that 2005 was the year when the car market in Egypt took off because customs were lowered by 40 per cent. This led to a 67 per cent growth in the market. This growth fell to 40 per cent the following year and 25 per cent in 2007. However, Masroug added, as banks started to aggressively offer car financing loans, this kept the market going and encouraged those who were postponing their purchases to make a purchasing decision. But this ate up part of the demand expected for 2008. In addition, the second half of 2008 brought with it factors which affected demand such as higher fuel prices, more expensive licensing fees and the last straw: the giant financial crisis. What is needed right now, said Masroug, is to boost the purchasing power, whether that of the average individual through car loans, or by getting the government and its affiliate bodies to create demand and using their resources to purchase locally. He is not advising consumers to bet on a drop in prices. Only what is currently in stock can theoretically be offered at a discount, he said, warning that prices could in fact go up because of the higher exchange rates against the Egyptian pound. Sherif Zaghloul Sobhi, dealer for the Egyptian American Automotive Company, agreed with Masroug. He said that car dealers are currently giving up most of their profits for the sake of getting rid of their stock. However, he does not foresee that cheap prices will be the trend. In fact, he sees prices rising not only because of the falling exchange value of the pound against major currencies but also because the overhead borne by factories is bound to reflect itself on the final price. "When the production line was rolling, the overhead was distributed over the large number of cars sold. But with a lesser number of cars being sold, it means that each will have to carry a larger part of the overhead," Sobhi explained. Some companies have meanwhile been trying hard to avoid piling up stock by adjusting production to demand. Mohamed Gamaleddin, public relations and communications manager of Nissan Motors Egypt, explained that his company's strategy is to operate as efficiently as possible seeing the circumstances. They do not keep their production line running continuously, but produce only as required by the market. "This guarantees profit and continuity," he said. Further, Gamaleddin stressed the need for banks to resume their financing of car loans. Moreover, he believes the government has a strong role to play by taking steps such as banning the entry of cars without certificates of origin and reducing the cost of storage in free zone areas until the companies are able to market their stock. Such assistance, local manufacturers believe, is necessary to keep them going. Without assistance, one local manufacturer who preferred to remain anonymous said, "we can keep going on for a couple of months, but if things remain as bad we will have to lay off workers. What good would that do keeping in mind that this industry employs around 250,000 individuals?" For his part, he was adamant that he is unable to cut his prices because his production input has not gotten any cheaper.
