Executive met with Antoine Boukather, the recently appointed president of the Automobile Importers Association of Lebanon, to discuss the sector, the new regulations on loans, and regulatory issues in the transport sector.
It has been another difficult year for the sector, despite marginal growth.
Yes, the figures are the same, but they don’t reflect how the market is doing. We are suffering very much, in terms of marketing, competition and prices. Purchasing power has decreased, and in order to sell, you have to provide more advantages to customers.
So it is actually a good time to buy a car?
It is the best time to buy a car as circumstances are not always like this … Usually it is the customer that pays the interest but we — the dealers — are having to stimulate the market.
So dealers have increasingly tight margins?
Yes, for smaller cars around $2,000 and larger ones $8,000. I’ve never seen this before, as it means all profits are going toward the interest. This needs to change over the next few years because if the situation remains as it is, we’ll see a slide in sales.
Why are 90 percent of sales smaller cars?
There used to be no demand for small cars, but it is not the size but the price that is important [as small cars tend to be less expensive]. A car of $10,000 was not in demand before, as then it was common to take the bus or a service taxi, but now there are few buses and oil prices have gone up, as they have all over the world.
The government is not encouraging sales of electric or hybrid cars, wouldn’t that be part of a solution?
It will come, I am sure, as people can no longer accept prices due to low income — the minimum wage is $500, and people can’t live off of that. People are having to move out of Beirut, 10 or 20 kilometers out, which is why there is demand for cars with a low budget.
Will the new central bank requirement of a 25 percent down payment have an impact?
Definitely. With the new down payment [requirement], there will be a drop of 30 percent in sales, but I’m not only concerned about a drop in sales, but also in employment. You sell less, you don’t make money, fine, but with more people unemployed, it’ll make for a revolution. That is why they have to be very clever with financing. Before, the central bank and all the banks would provide loans to the distributor, so if there was any default, it was a major problem. But for the last 10 years it has been up to individuals, which is safer.
Was a rise in defaults one of the motivations behind the regulation?
There have not been too many [defaults] in the automotive sector till now. They fear a bubble in the making which would be bad for everyone, but you can’t force people to not move around, they need some form of transport.
Could the extra down payment be used somehow to pay for public buses?
It would be a very good idea. Have you ever been to a country without buses? They are a must. I don’t know how we’re working without buses. No wonder why there are so many cars blocking the roads, as everyone needs a car.
Which is why Lebanon has one of the highest rates of cars per capita in the world.
People would be happy to have public transport to save not only money but stress, as it is driving that is stressing people out.
So will the new traffic law help?
The law has been passed and it would make for a good system, but the government needs to enforce it.
Is there a need for carbon emissions standards and related taxes?
I don’t think it could be done in this part of the world, as the money needed to balance the budget comes from automobiles. You pay a lot on duty.
But surely for a car that costs over $100,000 the customer can afford to pay say $20,000 in tax to offset carbon emissions?
I don’t think so. People wouldn’t buy. Look at hotels, they are at 46 percent occupancy, and need 60 percent to break even, and we’re not getting the tourism we need for our economy. This is why there’s such a high percentage of sales of small cars.
What I am getting at is introducing environmental regulations with regard to vehicles.
They are thinking about it, and clean cars should pay less taxes than others. In a country that relies on tourism, we especially need this.
But in many countries, including Jordan, you pay no taxes on electric or hybrid cars.
There was a law being discussed for electric cars, to pay no tax, but it is not yet finalized.
Are you trying to pressure the government on these matters?
They have so many important issues of security and others to deal with, that we can’t pressure them. The laws are there, good laws, but you have to apply them.
It seems there is increasingly less respect for the law, especially on the roads, than a decade ago when for instance you were banned from talking on a mobile phone in the car.
Yes, I am not sure why, and it is dangerous to talk on a phone when driving. The law should be followed, it is there, and after the minister first passed the law nobody used phones, but after a few months it was forgotten about.
Last year, in the US, accidents were up by some 15 percent, attributable to the rise in use of smart phones.
Yes, with the smart phone it is even more complicated. It is practical, but we need to do things for people’s safety.
Are there plans to improve driving tests?
It is not a test; it should be reformed. They should be stricter on how people acquire licenses. It is easy to reform it. Our first priority is for people to be safe on the roads.
Another issue is that only 50 percent of cars go for the annual inspection.
Why do you think that is? So people don’t have to pay for it. If the law says that any car that has not been through the annual inspection will be confiscated, everyone would go and do it. But because that threat is not there, half of the people don’t do it.
And you can rent spare parts for the test.
Yes, everyone knows this, and it is still happening, which is bad. To change your tires — and you can die with bad tires — people rent tires for a few hours. You have to have people enforcing and checking this. It would take weeks but not months to apply.
Indeed, when parking ticket meters were introduced, many said it would not work but that has not been the case.
Yes, they are giving out fines, and it is well managed.
Update: Antoine Boukather has contacted Executive to clarify that margins are around 2 percent for smaller cars and 8 percent for larger ones, not $2,000 and $8,000, respectively, as said in the interview.