The Lebanese car market had its worse summer in decades thanks to the war and a two-month sea blockade, with the number of new registered cars dropping 81% in August compared to the same month last year. The sector is only slowly clawing its way back, with sales down 41% for September. With the economy running on half empty, tough times lie ahead.
“The car market is in complete chaos right now, millions of dollars have been lost,” said Samir Homsi, President of the Association of Car Importers in Lebanon (ACIL) and CEO of Impex Trading, the local representative for Chevrolet and Hummer.
Car dealers had high expectations for the summer, with 1.6 million tourists expected to visit the country and the economy picking up after a sluggish 2005 that was marred by a spate of bombings following the assassination of former Prime Minister Rafik Hariri in February.
“We were expecting the best summer ever in Lebanon,” said Charbel Abi Ghanem, marketing manager for Rasamny Younis Motor Co. (Rymco), the dealer for Nissan, Inifiniti and GMC. “Our hopes in the sector were high, believing that over 20,000 units would be sold this year.”
Until mid-July, sales had increased by a solid 4% with 11,624 new vehicles registered, of which 10,898 were passenger cars and 726 commercial vehicles, according to ACIL.
But with the outbreak of war, the economy at a standstill and up to one million people displaced, many dealers were forced to close or operate with a skeleton staff. Sales consequently plunged, with the number of new cars registered in August decreasing to 302 compared to 1,550 in August 2005.
Nagy Heneine, manager for BMW at Bassoul-Heneine, said July 2005 sales had been $7.6 million and until the war started, $3.5 million for July this year. “Business was stunning,” he said.
Business worsened in August however, with only $390,000 in sales compared to $5.8 million for August last year.
“We expected to sell 150 BMWs in the last two months, but September sales were close to August’s,” Heneine said.
Other dealers had a similar story. Negib Debs, sales manager at T. Gargour and Fils, the sole agent for Mercedes and DaimlerChrysler, said the company expected to have sold at least 70 cars this summer—over $5 million in sales. The company sold 90 vehicles between January and August this year.
But when Israel imposed a 56-day air and sea blockade on Lebanon, ships containing cargos of new cars had to dock elsewhere, adding extra costs to dealers.
“There were 117 BMWs coming to Beirut, and had to be returned to Genoa and then to Germany. We had to pay for all the port expenses,” said Heneine.
Due to the unpredictability of the situation, Debs said Gargour cancelled orders for 100 vehicles.
Rental car companies, which account for between 30 to 35% of overall car sales, were also badly affected. Tony Gebran, marketing manager at City Car, said July and August usually account for 75% of annual rentals, but instead resulted in tens of millions of dollars in losses for the sector.
Until the war, City Car had experienced 30% growth in the first quarter and 40% growth in the second quarter. “If rentals had stayed like this we would have had nearly 50% growth this year,” said Gebran. He added that the company had to cancel orders for new vehicles and is now working at 50% capacity, slashing fees to buoy rentals.
Cancelled orders by rental companies also put a strain on dealers’ marketing strategies, particularly as new models were slated for launch in the fall.
“We were expecting to launch four new models this year,” said Nadine Azar Ghostine, marketing manager at Gargour. “We will introduce nothing before the New Year as we have to sell the older models.”
A biannual Beirut motor show that had been organized for November has also been cancelled.
“Lots of people wait for the motor show to buy cars. It would have been a peak sales period for us,” said Abi Ghanem.
Scrambling to recover
Dealerships are consequently scrambling to make up for lost ground. Promotional campaigns are also underway to get rid of the 2006 stock by reducing prices, lowering interest rates, offering extras, and entering into loan agreements with banks.
The price of a GMC Envoy, for instance, has been slashed from $33,500 to $29,500. “So we practically have no margins,” said Abi Ghanem. “We will forget about the brand and go for the hard sell.”
Such a strategy appears to be working, with sales picking up slightly in September. According to ACIL, the number of registered vehicles decreased by 41% compared to September last year, from 1,187 registered vehicles to 691.
But with dealers only getting 6-8% net margin on each vehicle sold, Heneine said dealers are not able to drop prices significantly. He believes the onus now lies with the government to help jumpstart the sector.
“The government should take immediate action as they are also affected by reduced revenues from customs, taxes and registration. They should remove registration fees—currently 7% of a vehicle’s cost—as it would help hesitant buyers,” Heneine said.
Although after-sales have returned to normal, in the medium- to long-term, dealers will struggle in the face of sluggish economic growth and rental companies unable to pay back loans.
“The worst thing is that even though the war has finished, people have lost confidence in the country,” said Heneine. “People with purchasing power have left—the ones that usually buy luxury brands—and are not coming back. It’s a long-term disaster.”
Bassoul-Heneine has resultantly scaled back annual sales predictions of BMWs from 740 units to between 250 and 400.
Some optimism remains
Higher oil prices, which spiked due to the sea blockade, have also affected sales of larger vehicles. Debs said that Mercedes with V8 engines had previously accounted for 60% of sales but has dropped to 25% after the war, with higher demand for V6 engines.
Despite the gloomy outlook, however, some dealers remain optimistic.
“The situation here is unstable, and people would rather put their money elsewhere than buy a car. But with Ramadan and tourists from the Gulf coming, the economy could pick up,” said Layal Karam, PR coordinator at Rymco.