CAIRO: Ghabbour (GB) Auto, one of the Middle East's biggest automobile manufacturers, may watch its contract with Hyundai to assemble its Verna model go unrenewed. “This would be a big loss for GB Auto,” stated Kamal Khedr, a research analyst at Beltone Financial, a Cairo-based investment firm. In a note from Naeem Brokerage, based in Cairo, analysts expressed concern over Hyundai's potential decision: “We are concerned about the total loss of Hyundai business and resultant significant excess capacity.” GB Auto is considering joining forces with either a Chinese or Indian firm to compensate for this possible loss, and ensure that the firm continues to produce at full capacity, Khedr noted. GB Auto has been assembling Hyundai's models since 1995; and by the end of the first quarter of 2011, the company will have expanded its factory's production level from 30,000 to 80,000, and will be producing at full capacity by the end of next year, explained a Bloomberg report on Oct. 11. In terms of market share, GB Auto currently has the largest portion of the market in terms of both sales value and volume for passenger cars, 28 percent in the first half of 2010, and more than 20 percent in the commercial vehicle segment of the market. According to Khedr, the recent news has surfaced that GB Auto is in talks with the Indian firm Tata Motors to ensure that it be able meet its production targets. Should the deal between GB Auto and the Indian firm be reached, it would see not only see Tata vehicles assembled in Egypt, but also models built from scratch, he stated. Tata's Nano model, the world's cheapest car, would be built from the bottom up in Egypt, with production beginning in 2013 at the earliest due to the need for high capital expenditures that would be required to get the project up and running. On the other hand, Khedr said, for assembling vehicles, also part of a deal with Tata, would take only up to six months to get underway. The possible Tata deal, Khedr highlighted, would be “major” as 60 percent of GB Auto's activity centers on passenger cars. Naeem Brokerage added that GB might additionally assemble pick-up trucks for the Egyptian market on behalf of Tata Motors. In spite of engaging in talks with a new partner, the Beltone analyst explained that it is still however possible for GB Auto to retain its current contract with Hyundai. Khedr continued by explaining that the root of Hyundai's decision is unrelated to any discontent with GB's performance in its partnership, but rather that Hyundai assembly workers have reportedly protested over increases in foreign assembly of the company's vehicles, pushing for the repatriation of some of the company's outsourced activities. Nevertheless, Colin Sykes, chief financial officer of GB Auto, told Bloomberg, “The indication is that [Hyundai] will stop supplying the current model by the end of 2012.” Moreover, he continued, “We cannot just wait till 2013 to look at our options, so we're studying other options now, especially as there is already excess capacity.” According to a note from Beltone Financial, market analysts are anticipating a final announcement toward the end of 2010. If the proposed deal is finalized with Tata or another comparable global automotive firm, Beltone Financial believes “it should have a positive impact on the company, and act as an upside trigger to the stock price.” Reuters reported Monday that GB Auto expects 2010 net profit to rise more than 50 percent year-on-year as sales pick up after global financial turmoil deterred many buyers during most of 2009. The firm plans to export buses to the Middle East and North Africa (MENA) region, as well as eastern and western Europe, according to Reuters. The company began selling vehicles in Iraq in mid-February, with sales amounting to 2,500 vehicles per month.
