Ticket to ride

As weak demand in the Lebanese car market has taken its toll on dealer profitability, new opportunities emerged through several automotive brands that had been under-represented in Lebanon, or are new to the country. To address niches, distributors played their strengths, and some opted to mobilize synergies that they might not otherwise have utilized. In reviewing distributor strategies for compact, mid-sized and luxurious automobiles, EXECUTIVE talked to distributors of cars that range from the very new to the legendary, asking them about their experiences, alliances and expectations.

Think small, think smart

In the small car segment, the latest marque to enter the Lebanese market is ambitious and daring, while building upon a huge name and innovative technology. Smart cars are a division of Daimler Chrysler and a tremendous success story in Europe. Lebanon’s Mercedes importers, Toufic Gargour & Fils (TGF), believe that the Smart concept will work here as well and they have committed to a substantial investment to position the car in the local market.

“After five weeks on the market, sales are already up to our expectations, and a bit more,” said Cesar Aoun, Smart brand manager at Gargour. “We are really optimistic about the trend that we will create with Smart cars.”

If Smart has a beginner’s handicap in the Lebanese market, its main challenge lies in the misperception that a small car is neither powerful nor safe, Aoun said. In his opinion, Lebanese customers had an incorrect first impression of the Smart car, because gray market importers had been bringing the vehicle into the country for about one year without communicating the brand identity. Some people mistook it for an electric car.

In reality, the current second generation base model of Smart – a 2.5 meter short two-seater with high seating profile and plenty of visibility – is powered by a Mercedes Benz manufactured engine that has been prepped up after the first generation achieved remarkable sales results and reviews. TGF’s first priority after launching sales in mid September was to present the brand value of Smart, as a car that is safe and performs.

Official entry of the brand to the Lebanese market was somewhat delayed due to factors the importer would not specify. However, the late start brings the benefit that the Smart range has in the meanwhile increased to the Smart roadster and roadster-coupe, very sportive versions of the Smart concept. And TGF is expecting Smart to really climb in local sales with the introduction of a four-seat version in April of next year and a four-wheel drive Smart in 2005. With these latter models, the distributor aims to also break into a market share held presently by some compact cars, and with the complete palette of Smart vehicles, TGF want to conquer a handsome share of new car sales in Lebanon – at least 5% by early 2006, Aoun said. For the moment, however, the manager is treading with a certain restraint on the marketing front. For instance, he is reluctant to widely discuss the price of the vehicles until consumers have become familiar with the value that the Smart offers for the purchase amount. TGF is constructing a new showroom in the Beirut Central District to sell Smart where its main market is: the city. The facility is not large but in a key location at the portside Saifi entrance of the BCD and represents a substantial investment, the exact height of which the manager did not want to disclose before the project’s completion. The showroom will be dedicated exclusively to Smart cars.

Until the new showroom opens at the end of the year, Smart cars reside in a temporary and slightly unusual cohabitation with Mercedes vehicles in the main Dora showroom of Gargour. The arrangement is extraordinary because worldwide and in Lebanon, Smart and Mercedes are careful to maintain separate brand identities. “The image of Smart is totally independent from Mercedes Benz,” Aoun said, and TGF therefore developed a distinct Smart team that will present the make to customers. The brand separation does not extend to the back office and maintenance, however. As the three-cylinder engine of the Smart is a Mercedes product, the two brands share much of the same diagnostic equipment, and the Smart team here also wants to emphasize that drivers of these cars benefit from the after sales service at TGF, which has become a benchmark for service quality in the region. Economical, practical and innovative fun, are the three markers, which Aoun is attempting to set for the identity of smart in the Lebanese market, first to individual clients. However, the company also harbors a number of ideas for bringing Smart cars and Lebanese companies together.

Middle of the road

The segment of middle-of-the-road sized vehicles with their sedan, hatchback and station wagon varieties is especially crowded with contenders. The new competitor here is Skoda. The brand is no stranger to the Lebanese market but the name has been up for rebirth after the Czech car manufacturer was taken over by Volkswagen. The chance of introducing the new flair of Skoda to the local market enticed two of Lebanon’s big car agents to launch a joint venture, VW/Audi/Porsche importers Kettaneh and Mercedes/Maybach dealers Gargour. Since beginning of this year, the partners operate a Skoda Showroom on the Damascus Highway in Hazmieh, under the joint venture name Kettaneh-Gargour Automotive.

The objective of the Skoda dealership is to replicate the success that the automaker has had elsewhere since VW took the reigns at the Eastern European company. “The Skoda today is a well-sold car in many markets,” the joint venture’s marketing manager, Gergi Murr, told EXECUTIVE. “In Lebanon, the brand is also promising. However, we should give it some time.”

The distributor started to approach the local market seven months ago. This first year, it imported the Skoda Fabia and Octavia models in well equipped configurations with wide sales appeal. The priciest Skoda model, Prestige, is yet to be introduced to Lebanon, but will probably be available next year. The manager declined to provide sales figures for the first half year of sales of the brand.

“When I think about Skoda, I think about a car that offers highly regarded VW technology and at the same time, benefits from the Skoda image of being a good deal,” said Murr, describing the marketing message of the brand. He was quick to ascertain that the distributor first imported a stock of spare parts even before bringing the cars into the country, to counter an image of difficulty in making spare parts available that Skoda had been stuck with in the past.

As equal partners in the Skoda distributorship, Kettaneh and Gargour could utilize their joint expertise to develop a strategy that would position Skoda cars in a cost-efficient, step-by-step development of the dealership and gradual marketing investments. Presently, the direct team at the sales outlet is relatively small, with six members in all. But because of its access to market studies and expertise at the parent companies, the Skoda dealership benefits from a much larger pool of resources without additional staff costs.

The advantages also register on the service side. For the start-up phase, cars sold at the Skoda dealership are being serviced at the facilities of Kettaneh automobiles with their specialization in maintenance of VW automobiles, to which the new Skodas are closely related. With time, plans are to establish an after-sales service facility at the dealership equipped for standard maintenance and small repairs. But for all major works on body or engine, the Kettaneh workshop will remain to be the brand’s service address. In realizing their joint venture as, in Murr’s words, “a heavy deal between two heavy dealers,” Kettaneh-Gargour Automotive took a road that could prove viable for establishing Skoda in the Lebanese market, even in times of tough competition and difficult market conditions. As for Murr, he sees no problems on the road ahead. “There is no obstacle,” he said, “just a lot of work to position this good product.”

Dream rides

At the top end of automobile dream lists comes Ferrari – the Italian marque with cult status – which is doing well in Lebanon only because manufacturer allocations are proportional to the market size. Beirut Ferrari dealer, GA Bazerji, is one of only 40 Ferrari distributors worldwide. “Considering that our country is a small market, our allocation is small,” said the company’s managing director, Nabil Bazerji. “We are succeeding in selling our allocation because it is really small.”

Out of Ferrari’s annual production of 3,500 road racers, the Italian company earmarks four to five vehicles for Lebanon, where there is an established clientele of 70 plus individuals with the necessary means to own them. For Maserati, the other premier sports car brand sold by Bazerji, the number of vehicles sold wavers around 10 cars per year. As to the reasons why a customer will buy a Ferrari or Maserati, there are few surprises. The owner of the Ferrari will relish in the excitement of hearing that throaty roar of the engine, and he also cherishes the “pleasure of driving the world’s best sports car,” Bazerji said, but leaves no doubt that the main reason is image. “It is first of all a status symbol.” The importer has held the Ferrari dealership for three years and the Maserati agency since 1968, in addition to long-standing agency contracts for Lancia and Suzuki. Marketing the super luxury sports cars is a different endeavor from marketing the latter makes, which generally follow the advertising and communications strategies for automotive sales. The market approach with Maserati is selective, through the media targeting of high net worth individuals, along with event sponsorship and measures to build brand awareness. With Ferrari, the image is pretty much preset as that of a Formula 1 racing stable that builds cars mainly to finance its existence on the circuit. The manufacturer handles much of their communications directly, and Bazerji participates through being present in motor shows and organizing the occasional event for Ferrari owners, such as a dinner or a cultural rally.

There is no denying that buyers of a luxury sports car must be wealthy, but it is a misconception that they would dismiss their sense of cost scrutiny when it comes to pursuing their penchant. And that means that the super luxury sports car segment is no less dampened by the current taxation regime than other new car sales. While the country professes adhering to free market principles, Lebanon’s taxation system leans toward socialist style indiscriminate penalization of people who can afford to buy luxury products, Bazerji said, calling this approach “not correct.”

According to the dealer, the massive taxation resulting in an 80% surcharge on the factory price of your average Ferrari has made Lebanese buyers reluctant or unable to pay these charges even if they can afford an expensive car. These customers consequently reach for a vehicle residing one or two price tiers below what they would choose without the high taxation.

But Bazerji claims that in the luxury car segment, a further huge loss of opportunities lies in the erosion of sales to wealthy part-time residents. Arabs who own summer homes in Lebanon are deterred from buying cars locally and keeping them here because of the high annual vehicle registration fees. It is cheaper for them to have their luxury cars shipped in from their home country and drive them with foreign license plates, said Bazerji. “Hundreds of units are imported and re-exported every year, and the Lebanese government gets no revenue from these cars.” Not to mention that local dealers lose out on the chance to sell sports cars to this summer clientele. They do not even gain income from servicing these cars because they are shipped back to their stables in the Gulf.
 

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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