Executive met with Samir Homsi, president of the Automobile Importers Association (AIA), to discuss how dealers are surviving in the current economic climate and the overall downward shift in the market, with 90 percent of registered cars compact vehicles at prices of around $11,000.
- Do you think the A and B categories (compact and small cars) will dominate the market from now on, as is the case in Europe and Japan?
Definitely. We are seeing these segments grow more and more, particularly A. The country needs low cost cars with friendly fuel consumption. It reflects the economic situation.
- So the car market is now very much a volume game?
There is a race between brands that is causing dealers to sacrifice profit for volume. That is a definite statement. Volume is going back and losing momentum, and if the crisis persists, we will see monthly losses.
- Are European, Japanese and American brands likely to make inroads and remain competitive through more segment offerings?
In the C category volumes are low and it is a very crowded segment. I believe today the dealers are not making good margins, certainly not as much as people believe. Margins are even lower than 7 percent. But manufacturers are investing more in the A segment, which just a few years ago was not a crowded segment. People have started accepting the baby cars, whereas before they were overlooked [in favor of] used cars. Behavior has changed.
- So dealers are surviving through after-sales?
After-sales facilities, such as repairs, labor and parts should cover 75-80 percent of fixed expenses. Once you learn how to tackle this, you are a successful dealer. The rest, the 25-30 percent, will come from car sales. So the dealer should count on offering excellent service in order to keep customers and repairing customers, and cover the fixed expenses. A good dealer can then survive. If it doesn’t perform well in after sales then it will go down the drain. Otherwise the dealer has to sell a lot of B category cars, which are not as available in the market.
- With three brands — Kia, Hyundai and Nissan — accounting for some 60 percent of total sales, how is this affecting the overall market? Could we see some brands eventually disappear from the market?
The Lebanese dealers are resilient and they will not give up. If you look at the history of automobile markets, the leaders change. A long time ago it used to be Fiat and Renault, then Peugeot, and then came the turn of Nissan, and now it is the time of the Koreans, with Hyundai and Kia. You don’t know when the manufacturer will introduce a new A segment car at an unbeatable price and great fuel economy. It will then change the whole market specifications.
- Chinese brands are moving in and adding further pressure to the market. What do you make of established dealerships moving into Chinese brands? A forward-looking strategy?
They have presented their credentials and got dealerships from China. Why are they interested? For the A segment. Everybody is after the A segment car. If anybody makes an A segment at a cheap price, people will buy it as that is where the volume is. Take out the [A segment] Chevrolet Spark, and my sales [at IMPEX] would go down, as it is 60 percent of sales. What is selling Chinese cars is the brands associated with the dealers, as people trust the dealers.
- Luxury cars accounted for 2 percent of sales this year. Do you foresee an uptick in years to come?
If the economy is better, and we get out of this crisis, it will pick up. But for the masses, they will have to dream about them, as they can’t buy luxury cars anymore. Banks won’t give them credit, so it is simple, it comes down to dollars. And given the crisis under way, people don’t want to risk being indebted to a bank for a car that could be blown up in front of them.
- Do you think we’re likely to see a return to the 2008 benchmark of over 35,000 units sold a year?
No. We have large inventories, we are competing with each other, it is a small market, and we are playing the volume game while marketing and advertising like crazy to get rid of inventories. We all make offers, and I think it is the best time to buy a car, as it is cheap and [there are] many offers. I think we will end the year on a sad note, with declining sales if the situation persists.
