Deals on wheels

Partnerships between banks and dealerships keep the car market hot

In a gloomy economic climate, new car sales increased just 1.76 percent in the first nine months of the year on 2012, compared to 7.37 percent reported last September on 2011, and 2.1 percent in 2010. The used car market is faring even worse, with sales down 15.5 percent last month in comparison with September 2012.

It seems Lebanese banks have been doing their utmost to keep the market saturated and have attempted to accommodate for buyers’ preference for new cars by offering rock bottom interest rates on new models. The 7 percent overall drop in the sale of new and imported used cars in the first nine months of the year has increased competition between dealers. It has given consumers the opportunity to snap up particularly low interest rate car loans — which the Lebanese Automobile Importers Association (AIA) claims that 60-70 percent of all new car sales are facilitated through.

“It’s best industry practice, because it [the car loan] is a secure loan, it’s part of the family of personal loans but more secure because you need to have the mortgage and total risk insurance on the car — so it’s different to a personal loan. These conditions reduce any risk and justify the low rate,” says Georgina Eid Dinar, head of group consumer and Kafalat loan products at Byblos Bank. Byblos Bank is one of the many banks whose interest rates currently fall beneath the 4 percent mark, along with Credit Libanais, Société Générale de Banque au Liban (SGBL) and BBAC.

However not all banks rely exclusively on low interest rates to boost their car loan sales portfolio. Bank Audi says they are not forced to rely on low interest rates, citing increased client loyalty as a result of their banking practices and comparatively quick approvals of car loans, as reasons for the bank’s success in the car loans market this year. Bank Audi, who claims to be the only bank to have increased its market share in 2013, reports a 15 percent increase in the volume of their car loan sales portfolio and 14 percent in terms of units so far this year.

Bank Audi has various partnerships with dealers, including an alliance with Kettaneh, the official distributors of Audi automobiles in Lebanon, and Saad and Trad, distributors of Volvo and IMPEX, which have brought about a 17.5 percent increase in their total car loan sales volume. If Audi automobile sales figures are anything to go by, the partnership is proving fruitful. Audi is one of the few European dealers to have significantly increased their sales this year, with an increase of 20.6 percent during the first 9 months of 2013 compared with the same period in 2012.

The retainment game

In a bid to retain their client base many banks are offering reduced rates to existing clients alone and often on new cars only. There are also cases of lenient arrangements where banks agree to match the interest rates of competitors, as Farid Homsi, general manager of IMPEX, has observed: “We work with many banks as consumers want their own bank. If you’ve a good relationship with a bank, they may give you a better deal — usually, the bank rates are quite close to each other as they also compete. The relationship is fed by both parties.”
SGBL launched their SOGECAR loan as part of their 60th anniversary this year at the rate of 2.79 percent, securing the loan by ensuring clients have a mortgage on the car and risk insurance included. The issue of inclusive and comprehensive insurance is also becoming increasingly important: “Mainly the customer chooses because of the insurance company…we as dealers try to get insurance companies to make sure consumers repair cars at the dealer…as the warranty is void if not repaired at the dealer,” says Homsi.

Used car trend

“The shift away from used cars shows how fewer people are willing to make risky investments” says head of the marketing and retail divisions at Banque Libano-Francais (BLF) Ronald Zirka.  BLF is attempting to capitalize on this increased consumer prudence by offering “insurance with zero excess for two accidents per year over five years, free car replacement in case of accident, five years repair at RYMCO and LL500,000 LBP of free fuel vouchers,” Zirka says.

For several years now AIA reports have also highlighted the trend toward smaller, more efficient vehicles — 91 percent of registered cars are small cars at lower prices (around $11,000). “The car market has shifted over the past years, from C segment to the smaller A and B segments, as consumers are seeking fuel efficient vehicles and brands at lower costs which reflects the limited income of customers and weaker purchasing power,” says Alain Hakim, assistant general manager at Credit Libanais. This is also no doubt due to rising fuel prices, the absence of adapted and structured public transport, and the strong competition between the car manufacturers and wholesalers.

Credit Libanais reports that while their overall unit sales are increasing, their sales volume remains the same. Hakim attributes their increasing sales to customer relationship management, which focuses on tailormade loans to individuals depending on their personal financial situation.

Credit Libanais also attempted to boost sales by reaching out to demographics often not catered for. One particular group is the public sector. Because of “the major success of the personal loan for public sector employees launched earlier by the bank…and based on Credit Libanais’ strong presence in the public sector…they [public sector workers] can take advantage of a longer repayment period reaching up to 6 years for new cars and 5 years for used cars, special interest rates, 0 percent down payment on new cars and a minimum of 20 percent on used cars…and fast loan approval within 24 hours,” says Hakim.

A robust marketing approach

Despite aggressive promotional and advertising campaigns in recent months by various automobile holding companies, the total number of cars registered dropped by 26 percent from August to September, compared to the same period last year, according to AIA.

One company clearly on the rise as a result of a carefully executed marketing campaign and strategic partnerships with banks is A.N. Boukhater, official distributors of Mazda in Lebanon, “We have amazing deals [on Mazda cars]…0.99 percent with BLF, 1.49 percent with Byblos Bank, and 1.69 percent with BLC and SGBL…with over 50 percent of sales through financing,” says CEO Anthony Boukhater.

“We have a partnership with the bank, insurance company and the dealer. For banks, the interest is that they are able to cross sell products to the Mazda customer, who is a different customer from others, and good for banks to have in their portfolios.” Indeed the figures would suggest the strategic partnerships are working. Mazda has reported an 18.21 percent sales increase for the first 9 months of the year compared with the same period in 2012, selling over 570 vehicles so far this year.

The company has adopted an aggressive marketing strategy. “We are focusing on television advertising at the moment. We’re advertising on Future TV, MTV, and Jadid TV, to cover all regions and political sects linked to different television stations” says Mazda’s assistant brand manager Anthony Fakhoury. With seven showrooms across the country — from Tripoli in the north, to Shtoura in the Bekaa, and Sour in the south — they have the market covered.

Although Mazda are unwilling to disclose exactly how much they have spent on their advertising campaign, they are not the only wholesaler to benefit from substantial marketing investments. According to the AIA September report Japanese Mitsubishi have the highest increase of sales on last year, at an impressive 141 percent.

It’s not all credit

However, Nippon Motors Corporation, of the Dagher Khayeck Group, seem indifferent to cooperation with the banks. Their commercial manager Tony Khairallah emphasizes that sales success has more to do with the macro determinants of the automobile industry — “For us it’s all about the Yen and the dollar, the Yen is very strong against the dollar at the moment.”

However this is not to say that distributor of American giants GM, Chevrolet and Cadillac, IMPEX, are not making headway. In alignment with current trends their best seller is the Spark, one of the smallest ‘segment A’ motors. Banks such as Fransabank group and BLC are attempting to respond to macroeconomic conditions that are making competition based on perceived value for money harder by partnering up with American automobile dealers IMPEX and offering 0 percent down payment, as well as a 3-month grace period. The wholesalers have the added challenge of going against the grain of the current trend as besides the Chevrolet Spark, American automobiles are traditionally thought of as larger gas-guzzling automobiles. Fransabank also offers the 0 percent offer for struggling SIDIA SAL and their sub-dealers, mostly covering Peugeot in the region. Other banks have also decided to take the 0 percent down payment approach: BLOM bank’s Siyarati offer is applicable to any given wholesaler, not only the American brands trying to do their long-standing image justice in sales.

If then the banks are working with a wide variety of dealerships, the latter will do the same. “Century Motor Company (CMC) does not discriminate one bank over the other. We are pleased to have good relations with almost all banks that have a retail car loan department,” says CMC’s Rachid Ramsamny.

However CMC’s sales through banks’ car loans this year are down approximately 9 percent in comparison with last year. “We attribute this contraction to…banks becoming more strict when evaluating credit worthiness of our customers [and] personal loans becoming more competitive.” Despite this financial contraction CMC have managed to win over higher net-worth individuals, evident in the increase of the average price of a Hyundai purchased in 2013 compared to last year.

Two-wheeled option

Another interesting trend in the market is the increasing popularity of motorbikes.

“Over the last two years, wholesalers are providing for a new kind of customer. Their profile is normally males 35 years and above, more mature clients interested in classic motorbikes” said Eid Dinar. “I think since the car loans market really opened up in 1999, the market has become very saturated, and a new segment of customers is emerging that want a different kind of product.”

For sales of motorbikes, however, banks such as Byblos Bank are being more selective with clients, and working on a case by case basis with different dealers of Harley Davidson, Triumph, Toyota and Lexus across the board. “We set a max amount not exceeding $20,000 over 3 years, 35 percent of the bike price, [to a minimum of] 4.9 percent, nobody under 30, not less than $3,500” said Eid Dinar.

Rise of commercial vehicles

Other banks are focusing on preemption of underemployment and market stagnation. Bank of Beirut and FNB are offering tailored taxi, bus and truck loans with 0 percent down payments for those with red plates and 20 percent for those without, in efforts to help individuals increase their disposable incomes, albeit at a slightly higher interest rate of 5.5 percent and 5.25 percent for the two banks’ respective commercial vehicle loans.

Bank Audi do not currently finance taxis or bikes, but they report that sales of commercial vehicles, which make up 5 percent of their total loan portfolio, have risen 50 percent from last year. Bank of Beirut didn’t reveal exact figures but stated that a significant portion of their 2,000 customers and $40 million car loan portfolio is accounted for by commercial vehicle loans.

Such commercial vehicle finance particularly for truck drivers has been channeled mostly into the Japanese heavy loader kingpins, notably Toyota, Mitsubishi, and Nissan, who together have sold 971 commercial vehicles this year, up 13.17 percent on last year’s sales.
In second place are the European brands, notably the Romanian Dacia and French Renault trucks, with an additional 480 commercial vehicles juggernauting through Lebanon’s trade arteries. However despite being top sellers the European commercial vehicle sales are suffering, down 26 percent during the first 9 months of 2013 compared with the same period of 2012, their loss in market share appears to be to the advantage of the Chinese — whose sales have skyrocketed 107 percent.

Credit across the board

It would seem that Lebanese banks are generally showing confidence in automobile dealerships and consumers, since the industry is, of course, here to stay. However there has been one segment of the industry that has been something of an exception to low down payments and interest rates: the Chinese brands such as Chery, BYD, and Geely who are all fairly new to the markets. Despite reporting high increases in sales over the past year, banks are mostly only offering low down payment car loan programs for existing customers. “We are waiting to see how the Lebanese react to Chinese brands, as well as looking carefully at dealer credibility” says Eid Dinar. “We are more cautious as we want to make sure that they have spare parts and after sales service, so it’s a question of doing research, but I feel confident that by next year we will extend Chinese brand car finance to all clients.”

With various dealers including RYMCO, NATCO, (which has the KIA brand) and Rasamny Automotive Industries (which has the Hyundai dealership) having recently acquired import licenses for Chinese brands Chery, BYD, and Geely respectively, it may be only a matter of time before they reach out to banks in an attempt to establish lucrative car finance partnerships.

The law of luxury

The AIA estimates that luxury cars in the overall market represent approximately 2 percent of all registered vehicles. The degree of financing for luxury cars depends on consumer willingness to incur high levels of interest for the ride of their life, with various banks including BLOM, SGBL, BBAC, and BLF offering unlimited loans, provided clients can manage the down payments. “Maybe once or twice [this year] there has been financing for a Rolls Royce or Bentley purchase,” says Michel Trade, director of Saad & Trade, dealer for Fiat, Jaguar, Bentley and Rolls Royce.

It seems most likely that new car sales and the availability of low interest car loans will continue to rise as we approach the end of the year and into 2014, although banks are preparing to downsize in their market forecasts for next year.