Long road ahead

We are living in a brave new auto world. Still fairly early into the automobile’s second century, fuel economy and safety features of modern cars have reached levels that make automotive technology appear close to the point of quasi-perfection, where further improvements, short of reinventing the wheel, seem hardly worth the additional effort. A look at the latest auto salon, or report, by professional car testers is enough to prove the point. Up to 10 airbags, traction control and electronic anti-skid devices, on-board computers and self-diagnosing engines, all the way to rain sensors and distance alarms, manufacturers have developed more means than ever before to take the human risk out of the daily driving grind.

At the same time, the choice of designs, brands, and philosophies has reached a degree of diversity against which all earlier epochs in car making pale in comparison and car dealers certainly have the means and profits to make these dream machines available. But even if the painful taxes were taken out of the equation, it appears that between meeting customer demands, the need for continuous improvement of their services and the necessity to develop the Lebanese automotive culture, local dealers are facing a sufficient load of challenges when promoting the sales of their cars. In many ways these challenges are related to the evolution of the car. While the global automotive culture, as set by the small group of advanced primary car-manufacturing countries in Europe, North America and the Far East, has achieved immense progress, it has also undergone significant changes. Lebanon has kept up with many trends but has yet to catch up with many others. Take for example manufacturers, who build cars that are primed for high-tech servicing. With more electronics under their hood than your average home PC, these cars require specialized equipment and technical knowledge that car mechanics of earlier generations did not need. To provide professional service and qualified repair jobs on an ever-larger share of models, mechanics need manufacturer supervised training and regular updating of their knowledge, and workshops have to acquire expensive diagnostic equipment and tools. These make their repair centers look like veritable automotive clinics, but also make it almost prohibitively expensive for small independent mechanics to service contemporary cars.

Lebanese car agents have in recent years made substantial investments to upgrade their workshops and provide the service level mandated by the brands they sell. At large distributors such as Impex, Gargour and Kettaneh, these investments ranged from several hundred thousand dollars to more than $1 million. It is obvious that these investments have to be recouped over years, and some dealers admitted that they still have much ground to cover in educating drivers about service schedules and additional service concepts, such as full-care options where the sales contract covers all maintenance for up to two or three years. Besides the expansion of workshops, distributors need to follow the marketing development of the manufacturer they represent. Numerous agents in Lebanon recently faced the need to invest heavily into new showrooms to comply with the presentation strategy of the respective automakers. Impex is an example of a distributor that just embarked on a $300,000 showroom expansion and refurbishment to accommodate the General Motors strategy of separating Chevrolet presentation facilities and representing both GM luxury brands, Cadillac and Hummer. A related inherent burden for every brand dealer is the dependency on manufacturer policies. Whatever the marque, the agent has to go with product policies determined elsewhere. This can require adjusting to changes of the brand or waiting out periods when an automaker does not supply a model that fits the taste of a particular market if the distributor cannot generate interest in the vehicle through localized marketing and advertising. A brand such as Isuzu has been fairly dormant in the Lebanese marke because the image of its Trooper decreased with the ageing of the model. The rejuvenation of models by Swedish manufacturer Volvo could give the brand a boost in the Lebanese market, said Sleiman Khoury, sales manger at importers Gabriel Abou Adal. But he noted that the new target group of younger customers first has to be convinced of the new sporty identity of what used to be regarded as a boxy, conservative vehicle, known primarily for its workmanship and safety. On top of brand policies and perceptions, there are the relationships between local agent and manufacturer or his regional office to be managed. As Volvo was integrated into the Ford management structure, the channel of relationship switched from a direct link with Sweden to an American connection by way of a regional headquarters located in Turkey. According to Khoury, this arrangement impacted the dynamics of the relationship, when, for instance, it came to pricing policies. “In Lebanon, you cannot erase the human factor and personal contact,” he said, “with the Americans, you feel as if you are losing this human touch.” Dealing with two manufacturers revealed different business and communications cultures, observed also the marketing manager for the Renault brand at Bassoul Heneine, Philippe Leclerq. In his experience, communicating with the French manufacturer was sometimes easier than relating to the Dubai regional headquarters of BMW – a brand also represented by Heneine – because managers in Dubai tended to view Lebanon as they did other Arab markets and did not take into consideration their differences. On the financial side, recent exchange rate volatility between the euro and US dollar has been one major cost booster and factor of uncertainty for importers of European cars. Agents tried to absorb the exchange rate increases as best they could and some reached special agreements with their European suppliers to have prices based on the US dollar, but many importers were forced to switch to pricing their cars in euro.

The market for new heavy truck sales was hit particularly harshly by the euro factor, dealers said. In addition, they cited lower demand for lorries here after the government mandated closure of many sand quarries. “It is a very bad market,” said one importer, “people who want to buy trucks cannot pay for them and banks are very reluctant to provide loans for financing a truck purchase because they fear borrowers will default on their payments.”

Financing options for car purchases are more accessible and have progressed over the past few years, but consumers still do not encounter arrangements that are as appealing as distributors sometimes advertise. With interest rates for a new car loan, based on a 20% down payment, standing in the 4% to 5% bracket as a flat interest calculated on the finance amount and charged at that height for each year of the contract, these car loans may still require a bit of development. Especially in this area of financing, however, a cancellation of registration fees and/or reduction of entry duties for new cars could go a long ways towards improving the attractiveness and feasibility of packages. On a car with a factory price in the $20,000 range, for instance, a political decision for limiting excise tax to 20% and annulling registration fees would easily bring down monthly payments by $100 for a buyer with a five-year finance contract. All things considered, car agents in Lebanon face what one could call a double reality. The infatuation of the Lebanese with their cars is instantly recognizable. However, it may not be quite as inimitable as the international business magazine, THE ECONOMIST, suggested in its 2003 fact book. The publication placed Lebanon on top of the world for its population’s rate car ownership, at 773 cars per 1,000 inhabitants. The assessment appears to be primarily an indicator that even the most reputed business magazines and their researchers are not infallible in economic and business matters. While there are no recent census figures on the number of actual roadworthy and circulating motor vehicles on our roads, Lebanese ministries and planners commonly assume a stock of between 800,000 and 1.1 million vehicles, including trucks and buses, a number that is nowhere near a global record in relation to the size of the population. The last available representative survey of households, undertaken by the Central Administration for Statistics in 1997, found that 62.4 % of the nation’s approximately one million households owned one car, including 15.4% owning two or more. Furthermore, 83.8% of the cars under ownership by the Lebanese were at least seven years old, including 12% with more than 20 years on their chassis. The over aged stock of substandard cars on Lebanese roads will gradually have to be pulled out of circulation if the country does not want to ruin some of its most important assets – namely, the health of the population and its appeal as a vacation target. On the positive side, both the demand and supply should in the long term be encouraging to Lebanese car dealers. Indeed, more than one agency has already shown in recent years that it succeeded in improving its presentation, service quality and even sales. The market here is small but it definitely appreciates cars, and the social environment favors even expenditures that most European societies would frown on. Lebanon’s wealthy – and sometimes the not so wealthy – display a fascination with classy automotive appearances and large engines that seems to know no restraint. And although many manufacturers nowadays have their regional distribution centers in the Gulf, new car distributors here still like to speak of Lebanon as the automobile showroom of the Middle East.

On the other hand, the relationship between the Lebanese and their wheels still requires a lot of improvement. From education of drivers to enforcement of traffic rules, society has not yet left driving attitudes behind which work only in a very small and informal frame. Respect of others on the highway and in city traffic, proper care for cars and adequate disposal of unusable vehicles and the regular pollutants resulting from driving, humane urban planning and clean public transportation are all hallmarks of advanced automobile cultures, and improvements are warranted here in each realm. Regulations and business standards that protect people against fraudulent roadside importers of cars with undocumented problems are as much in the interest of society as of the official car agents. But car buyers and interest groups also deserve to enjoy a market where fair competition is ensured for large and small players. The public have a right to be informed of industry developments, attempts by agents to change customs rates or governmental fee structures, and the real costs of owning and operating cars in this country.

Regarding these issues, the industry concerns of professionally structured automobile importation businesses and auxiliary suppliers and service companies coincide with the interests of their stakeholders, which in the matter of autos clearly comprise the majority of the population. Meeting these industry concerns would also work towards an automotive culture where the pleasures of ownership and driving tie in with the responsibilities of care and respect for driving etiquette, traffic rules and for the environment. The possibilities are here and car agents, like Volvo’s Khoury, obviously agree. “Lebanese car dealers are nice people.”

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.

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