The Association of Car Importers in Lebanon (ACIL) has reported that total registered new cars are down by 20%, selling 7,909 cars in the first six months compared to the same period in 2006 whose sales reached 9,780. June’s drop alone was over 50% compared with June 2006, which has weighed down the average considerably. Mid-May through September is the car industry’s high season when dealers make nearly half of their yearly sales and, despite everything, July has shown promise of an upswing.
The car market is a traditionally important economic measure of consumer confidence. As the second largest investment for the average person, car sales can show how the economy is affecting individual lives. The industry has been hit by a number of factors — political uncertainty, a flaccid tourist season (the revenues from which would normally contribute 11% to Lebanon’s GDP) and a strengthening euro — all of which will contribute to what is expected to be a year of zero economic growth. The good news is that it’s a buyer’s market.
According to Farid Homsi, general manager of Impex Trading, the local agent of Chevrolet, Cadillac and Hummer, statistics show that over 70% of Lebanese buyers of new cars now choose from the $10,000 to $16,000 segment. He says that this change in consumer preferences is partly due to increasing petrol prices forcing most to search for more efficient and affordable cars. Not surprisingly, given the retail pinch, the mid-level luxury segment from $40,000-$50,000 has been most affected. The recession-proof luxury and SUV segment has remained unaffected by the dip.
Commericial sales are down
Another factor that has hit the car industry is the drop of commercial sales of cars for business fleets and car rental companies which account for 30 to 35% of overall sales. “We knew they were going to suffer,” said Abdo Sweidan, chief operating officer at Rasamny-Younis Motor Co. (Rymco), which represents Nissan. Most dealers expected corporate fleets would not be replaced this year and the same for car rental companies that would reuse the same cars. Despite this, year-to-date figures in June showed that 634 commercial cars — vans and the like — have been sold, compared to 726 for the same time last year.
“We are crisis managers more than marketing managers,” explains Bazerji. In his experience, “all cars which have a selling price of at least $35,000 are more heavily affected by the currency exchange.” Maserati has been negatively impacted by the rising euro forcing his company to improvise and find solutions.
For most dealerships of European cars — which make up nearly a third of the market — management have found ways to soften the blow of currency fluctuations relating to the euro. Christian Nehme, commercial manager at Kattaneh, representative for Audi and Volkswagen, said that his company has received its stock through their regional office in Dubai to hedge against the rising currency.
Luxury still sells
“High-end luxury buyers are unpredictable,” said Charles Tarazi, brand manager and partner at Porsche. While sales deliveries are down around 10% for Porsche, the ultra luxury segment priced around $190,000, such as GR3RS, the Cayenne Turbo SUV, and the 911 Turbo, are not only selling but even carrying with them a waiting list running until February 2008. What most impacted Porsche has been the used models which range in price between $30,000 to $80,000 and make up at least 40% of sales.
Other European brands have steadily lost ground from 47% of the market share three years ago to 29% today. Most brands are down for the first half-year compared with that of last year, except for Porsche — propped up by the best selling Cayenne — and the competitive Skoda both showing healthy sales. Peugeot remains the top selling European brand selling 607 units and making up 7% of the European market.
The combination of the trend toward compact and efficient cars in the last two years and the exchange rate for the yen has had a positive impact on Japanese models. This year, Japanese models captured almost 47% of the market share with Nissan and Toyota taking the lead. Nissan’s Tilda takes the lead as Rymco’s most popular model. Korean brands have also continued to increase their market share to just over 16%.
The impact of the weakening dollar has also helped to push American cars according to Homsi. American brands have a market share of 7%. Compact cars such as the Chevrolet Aveo have been his company’s most popular. Going up the scale, the Cadillac’s compact model BLS has been aimed at the younger clientele as well as Hummer’s H3 which is smaller and more compact, Homsi said. Known for their gas-guzzling engines and large bodies, American manufacturers have shifted to greater fuel efficiency and compact sizes.
Deals are to be had during these times as car dealers are forced to find creative ways to attract customers. “Buyers right now are very prudent, they want to wait and see,” said Nabil Bazerji, managing directory of GA Bazerji and Sons, representative for Maserati, Lancia and Suzuki. “We are advertising to motivate the market and improvising to reduce the price burden,” he continued. While many in the industry cite consumer tastes changing to affordability, Bazerji maintains that “Lebanese are still trendy, they focus on the brands and then look for affordable models of the brands they want.”
The car industry is capital intensive with high overhead. With import duties beginning at 20% for the first $13,000 of a car invoice and then 50% for the value over that, not to mention the 10% VAT, dealers must make a considerable investment to import their stock. The industry has lobbied for the duty to be replaced by a flat rate similar to those used in Europe and Dubai, according to Homsi, adding that sales would be higher if the duty was lifted. These fees are paid before the cars are sold on the market forcing dealers to recoup them in the sticker price and leaving little wiggle room for negotiations on prices. Taxes, registration and insurance tack on several thousand dollars to the price of a car.
Rymco came up with a campaign to remedy this whereby the sticker price was inclusive of all fees leaving off those last minute “surprises” like the 7% registration fee. Additionally, they provided a financial package with no down payment and free insurance for a year. “We had to think outside the box,” said Sweidan, adding that the campaign was so successful in the spring that their inventory vanished in less than a month. While most dealers are reporting decreasing sales, Rymco was able to report growth of 30% according to Sweidan. “The summer campaign has also been successful, I wish that I had ordered more cars,” he said. The success of their campaign is also due in part to their aggressive advertising campaign from newspaper advertisements to SMS messages, leaving only very few unaware of the offer.
Other dealers have followed suit by providing financing programs up to five years to lower the monthly payment as well as financing packages that include all fees and taxes to ease the financial burden as well as aftersales services, filling in the void between consumers’ wants and their financial means. Low interest rates have also helped to financing packages. Attractive leasing options are also gained much ground for consumers who are wary of long-term commitments.
Sweidan said the two most important lessons for Rymco in the last year after the Summer War and this year’s continued economic uncertainty has been that “there is never no market, there are always segments within the market that have growth potential. Once you have identified them, focus all of your resources on the target segment you want to attract and find a match between consumer wants and their means.”