CAIRO: Ghabbour Auto this week announced its financial results for the second quarter of 2008. The numbers represent a mixed bag for the auto giant, though indications are that the company has pulled out of a nosedive brought on by the onset of the global economic crisis. Revenues for the company were up 67.1 percent over the first quarter of this year, to reach LE 1.1 billion. However, second quarter earnings were still 29.4 percent off second quarter 2008 numbers. As expected, GB executives heralded the earnings report. Considering the Egyptian passenger car market has been in free fall since August 2008 and that the market grew at a rate of more than 30 percent in the first half of last year, we're very satisfied with our comparative numbers for the first half of 2009, said GB CEO Raouf Ghabbour in a statement to investors. The fuller picture, though, is more complicated. Even though almost all of GB's numbers showed an improvement over the first three months of the year, the company's margins have continued to shrink. Margins for passenger cars, for example, were as high as 17.4 percent in the second quarter of 2008. By the first quarter of this year, they had fallen to 11.1 percent. The latest reports show comparatively anemic numbers, with second quarter margins of 9.8 percent. This means that even as sales volume rebounds, the returns will be less. GB executives, though, attribute the faltering margins to efforts to corner greater market share. "We increased our market share in the second quarter, but that didn't come for free, Bassem El-Shawy, GB's director of investor relations told Daily News Egypt. "It came at the expense of the margins. Investment analysts, though, say that macroeconomic conditions conspired to produce weaker margins for the company. They were the "result of a combination of factors, wrote Beltone Financial in a note, "mainly: a) Reductions in prices by GB Auto to maintain its market share in a highly competitive market; b) The incentives to dealers paid by GB Auto; c) The weakening of the Egyptian pound against the US dollar; and d) The low flexibility, in terms of pricing. GB says that it expects the margins to begin recovery this year. The 17 to 18 percent margins of last year, said El-Shawy, are "history. "We are targeting a 12 percent margin for the second half of the year, he said. Numbers from the passenger car division, GB's bread and butter, indicated a particularly strong recovery. Sales volume was up 130 percent versus the previous quarter, though still off 35.3 percent a year ago. Passenger cars represented 70.3 percent of sales in the second quarter. GB has also begun participating in the taxi replacement program, which is expected to help its recovery over the course of the year. Even though GB had already signed up for the program in the first quarter, it only made its first delivery in April. It sold around 1,400 taxis over the course of the second quarter, accounting for more than 12 percent of total passenger car sales. After GB's disappointing first quarter earnings release, it was widely reported that pent up inventory hurt the company's bottom line. It's a problem, said El-Shawy, that has largely been solved. "The first quarter was still closer to the crisis and the consumer sentiment was still closer to the show that happened in October, he said. "People also held back on the buying because they thought the dealers would offer deals later on. El-Shawy also blamed an unsophisticated financing system for the slump. Still a cash market, autos slumped because there aren't well-established mechanisms for financing.
