A big market for small cars

Buyers take advantage of good deals on compact cars

Big market for small cars

For consumers, 2013 may go down as one of the best years to have bought a car, with dealerships touting offers galore, from free registration and buy-back schemes, to $300 fuel vouchers and extended warranties. But for dealers, the market is so competitive that margins are exceedingly tight, profit is limited, and sales staff are scrambling for every potential buyer. 

Difficult though the market may be, it has not descended to the level of Dubai in the wake of the 2008 crisis, when some dealers were offering deals of buy one car, get a second half price. The Lebanese car sector has not stooped to such supermarket retailer style discounts. But aggressive advertising and deals are indicative of the overall state of the car sector, which has become dominated in the past few years by the A category — compact cars — that account for some 90 percent of all new car sales in 2013, while the luxury segment accounts for just 2 percent.

As of the end of October, 29,198 new cars were registered, up just 2.2 percent on the same month in 2012. Overall, the total number of registered new and imported used cars has dropped 7 percent in the first 10 months of the year compared to 2012, according to the Automobile Importers Association (AIA).

“The best months for sales are usually June, July and August, but they were almost the worst months of this year,” says Nagy Heneine, general manager of Bassoul-Heneine, dealer for BMW, Renault, Alfa Romeo, Mini and Dacia. Indeed, the number of registered cars dropped by 26 percent in August, while September figures dropped 17 percent compared to the year before. The lack of tourists also caused car rental companies to refrain from upgrading fleets, further impacting sales.

“Before the summer season we used to have those dates locked in logistically and have the inventory to cater to rentals, but that is no longer the case,” says Farid Homsi, general manager of IMPEX, distributor for Chevrolet, GM, Cadillac and Isuzu.

But while figures are not rosy for the sector overall, sales are likely to reach the 30,000 mark by year-end — not a bad result considering the current depressed economic environment and ongoing political instability. The figure is significantly above the 19,100 vehicles sold in 2004, although behind the benchmark figure set in 2008, of 35,400 units, which largely continued until the recent economic slowdown as the conflict in Syria started to spill over into Lebanon. 

“Back in 2009 and 2010, the economy was growing and there was optimism. Unfortunately due to the war in Syria those golden years have ended, slowly but surely. It is now a very difficult market and we need to find ways to sell cars that we didn’t have four years ago,” says Heneine.

What has kept sales buoyant are compact cars with price tags of around $11,000, making the market a volume game, as well as heavy marketing. “Everyone is making big concessions. Margins are very tight, and that is why there’s sales,” says Homsi. “Margins are low or break-even for more expensive cars, as even consumers in that segment are more demanding. Otherwise people postpone buying, whereas small cars are more of a necessity for daily use.”

got the mettle

Sales of compact cars aside, dealers are somewhat surprised that sales are holding up given the lack of consumer confidence. But this can be attributed to the state of crisis seemingly becoming the norm. 

“I feel the Lebanese are getting blasé. Five to 10 years ago when there was a bombing, the country would stop for a month. Two years ago, it would grind to a halt for a week. Now it is a few days and back to normal. People have become accustomed to the situation, and that’s why they are still buying,” says Negib Debs, in charge of Infiniti at Rymco, which also has the dealership for Nissan and GMC.  

Debs’ position is backed up by sales of Infiniti, which were up 80 percent on last year’s figures. Other higher-end Japanese cars have also had strong sales, with Lexus, Subaru, Honda, and Mazda reporting double digit growth, and Mitsubishi roaring back into the market to seventh in the rankings through aggressive marketing and a compact model, up 157.58 percent.

Yet while the bottom has clearly not fallen out of the market, it is the mid- to high-priced brands selling A and B segment cars — compact and small size — that have suffered the most in the Japanese, European and American segments. Overall sales of the European brands, which take just under 20 percent of the market, were down 1.73 percent, with Opel, Renault, Seat, Citroen and Alfa Romeo all down in the double digits. American brands, which have 5.49 percent of the market, are down 13.4 percent. Although Chrysler and Ford have had a good year, up 128.57 percent and 92 percent respectively, sales of Jeep, GMC and Dodge            are down. 

Such an imbalance between brands can be put down to new models coming on the market. “Some brands have been more active due to new models, and the yen depreciating has helped Japanese brands catch up, to have a kind of come back. But there’s definitely more competition and that’s why new models help a lot, as customers like new products,”           says Homsi.

BMW, a long time favorite brand among the Lebanese, saw sales drop 38 percent this year, but is banking on a new stable of models to bolster sales next year. “For us, 2013 was a transition year for BMW in terms of models, but 2014 will be a year of BMW, as [we are] launching new models,” says Heneine.

Among the Japanese brands, which account for 27 percent of the market, it is Nissan and Suzuki that have had the weakest sales, down 14 percent and 0.35 percent respectively. For Nissan, this is due to the brand having no A segment car, a new version of its small model, the Micra, and a less competitive exchange rate on the yen for much of the year. The Japanese giant had long been a top seller alongside competitor Toyota until five years ago, when they were both knocked off the top two spots by the Korean brands with their cost competitive cars, which now have 45 percent of the market. Kia has 26 percent and Hyundai 19.7 percent, while Nissan trails with 15.71 percent. 

The struggle to keep customers

As a result of the Koreans’ rise and Nissan still keeping a relative edge, these three brands have 61.41 percent of the market, reflective of the downward shift in car size due to lower purchasing power and high fuel costs. Indeed, for Chevrolet, 60 percent of its sales come from its compact car, the Spark, and the remainder in the B and C categories. As a result, Mazda is having to go the extra mile to emphasize quality over price.

“What we see is that people have a monthly budget of between $200 to $300 to pay for a car. With such a budget, cars produced in Korea and China have an 80 percent market share. What did we do in response? As Mazda are produced in Japan, we don’t have that monthly budget — it is $400 instead — so we increased sales by emphasizing the better quality of the cars,” says Anthony Boukhater, CEO manager of ANB Holding. The dealership, like others, has also invested in a new showroom and after-sales facility, added a further eight showrooms to its dealer network, and is using innovative marketing techniques. “We are putting adverts live on TV four times a day on four channels. Not 30 seconds, but 7 to 8 minutes [in total],” says Boukhater.

With so much choice on the market, and dealerships chasing after a limited number of buyers, after-sales and customer care have become important parts of a dealership offering.“The big challenge is to ‘loyalize the customer’ as Lebanese customers are very volatile,” says Heneine.

While the Korean brands made inroads and volumes in the compact segments, helped by a move away from used cars to new due to better fuel efficiency and bank loans, the market leaders are also making headway in the less cost-sensitive segments, adding to the competition. “Before, Hyundai sales were focused in the B segment, but now we are selling C. The Tucson is the number one 4×4, which is something we never achieved before, so each year a notch on the belt,” says Rachid Rasamny, sales and marketing manager at Century Motor Company, distributor of Hyundai. 

Aware of market dynamics, Hyundai has expanded its physical presence around the country to ensure it retains its position as the second best selling car in the country. “Since 2009, we’ve doubled the number of showrooms, to 24, to get in areas where there’s no other car company and there’s a market,” says Rasamny.

way of the Chinese

Reflective of the turn away from used cars to new is the fact that veteran car dealer Chidiac Motors entered the dealership business with Chinese brands JAC and DFSK. “Before launching we did our research and felt that an invasion of Chinese cars over the next decade will happen, as it did for the Japanese in the 1980s, and the Koreans now,” says Daniel Chidiac, CEO of Chidiac Motors. “It has not been easy to enter the market but we’re doing well, with sales up 58 percent on last year.” 

Chidiac is not alone in believing in the potential of Chinese brands, with other dealers also acquiring importation rights, with Rymco (which holds Nissan) gaining a 50 percent stake in Chery, NATCO (Kia) launching BYD in the market this year, and in June 2012, Rasamny Automotive Industries (Hyundai) launching Geely. 

Indeed, Chinese brands had the biggest gains among all brands in 2013, up 75 percent on 2012. But, at 616 units, Chinese brands only account for 2 percent of the market, although up from 1 percent last year. 

The Chinese brands are likely to gain ground in years to come, with Geely utilizing the technology of Sweden’s Volvo, which it acquired in 2010, and JAC touting its 5-star safety rating and international design. “The passenger cars are designed by the same company as Ferrari, electrical systems by Bosch, and the engines by Mitsubishi,” says Chidiac.

Limited Luxury

Luxury sales have not done so well this past year, although there are certain exceptions, such as Land Rover, Volvo, Cadillac and Mercedes, whose sales rose 3.7 percent, and is now the ninth top brand in the country. But luxury and C segment sales are limited due to sheer demographics. As Executive reported earlier in the year, based on Credit Suisse’s Global Wealth Databook 2013, median wealth per capita is just $6,076, while 48 percent of privately-held wealth is in the hands of some 8,900 Lebanese, just 0.3 percent of the population. Such statistics are mirrored in the fact that just two Lamborghinis, one Aston Martin, two Rolls Royces and 18 Maseratis sold this year.

“The very rich can afford anything, but the middle class is no longer a big segment,” says Heneine. “Nevertheless, we sold 25 BMW 6 Series Grand Coupe and some 7 Series. So, not a downsize overall, but smaller cars are the bestsellers. Look at the mix, the best selling is the 3 Series — always the volume seller — at 25 percent of sales.”

The loss of wealthy Gulf Arabs who vacationed or lived in the country, due to governmental travel warnings, has been a further hit for sales and, in particular, after-sales. “We’ve had zero cars from the Gulf [into the garage]. We would fix them here otherwise. When there’s no Gulf Arabs or visitors, it affects the whole business,” says Michel Trad, general manager of Saad & Trad, dealer of Jaguar, Bentley, Lamborghini, Fiat and Abarth. “I built a Lamborghini showroom, but in the end, I need customers. Should I build a Fiat showroom to satisfy the manufacturers? We are not         Monte Carlo.”

As Samir Homsi, president of the AIA, pointed out, dealers are dependent on manufacturers bringing out smaller engines and models that reflect market demand. “By mid-next year hopefully the Q50 Infiniti will have a V4 engine. It is a problem, the lack of a V4, and other brands are feeling that too, such as Audi and Mercedes,” says Debs.

Saad & Trad are awaiting the new “mini” Jaguar, while Infiniti has high hopes for its new small model.  “People are still worried about image, so they drive a small car with image, a [Fiat 500] Abarth not a [Kia] Picanto,” adds Debs.

Some dealers, however, appear resistant to the changing dynamics of the market, downplaying the rise of the Koreans and the Chinese, as well as the downward shift in spending and vehicle size. But in the years ahead, as congestion increases, fuel costs remain high and with economic forecasts far from bright, those that adapt to this turbulent market will be able to stay, maybe not in the fast lane, but certainly on the highway. 

“The market has shifted from large cars to small, and dealers should take that shift into consideration and change inventory orders and marketing strategies,” says Rasamny. “Look at Europe, demand is for the small segment, and they shifted. India has always been about small cars. We’re similar to those markets, and I don’t see   that changing.”

Paul Cochrane

Paul Cochrane is the Middle East Correspondent for International News Services. He has lived in Beirut since 2002, and has written for some 70 publications worldwide, covering business, media, politics and culture in the Middle East, East Africa and the Indian subcontinent.