Lebanon and cars have a long and illustrious history together. Many car dealers in Lebanon go back to the 1950s as official importers for some of the world’s best known vehicles. Saad & Trad, for instance, hold the record for being the oldest car importers in the world for Jaguar, when Robert Trad was the first person to import the Jaguar XK120. Michel Trad, director of Saad & Trad and son of Robert Trad, announced in 2008 that, “we have broken the record for all the years that we have imported Jaguars.” Monumental sales have occurred on the Lebanese automotive market: year-to-date most companies are up by over 50%, and for many, sales have seen a 100% increase.

The reason for this dramatic rise in car sales is political (in)stability in Lebanon. Since the assassination of former Prime Minister Rafiq Hariri, pent-up demand occurred, as people delayed buying cars in the tense socio-political environment. This built-up demand was then released when the Doha agreement was signed.

Since Doha, car dealers have not been able to stock vehicles fast enough. Farid Homsy of IMPEX, car dealers for Hummer, Chevrolet, Cadillac and Isuzu, said before the Doha agreement they had diverted many of their cars to the Gulf. “But when the Doha agreement occurred we rushed to stop the diversion of cars and tried to order even more because we saw a super summer coming as the mood in the country was very positive. In Chevrolets, August ‘07 to August ‘08, we have had an improvement of 154%, for Cadillac 134%, for Hummer 117%,” he said.

The gloom of the past three years has now moved on to different shores. Car dealers in Lebanon are no longer green with envy as they watched the GCC’s car sales grow exponentially, year after year. However, the excitement is not overwhelming, as Assaad Raphaël, chairman and general manager for the Porsche Center Lebanon, said while in the region Porsche has grown easily by 10-15%, in Lebanon the company is still struggling to reach the figures of 2005. This is a pattern that is replicated at almost all the dealerships in Lebanon: even with the spectacular growth of 2008, car dealers are still only recovering the lost ground since 2005.

Price responsive?

Lebanon may not have grown as fast as the GCC in terms of car sales but buying trends at the top end of the automotive market are very much the same. Lebanese want to have the newest and most technologically advanced cars possible. Negib Debs, the brand manger for Gargour & Fils car dealers for Mercedes-Benz, explained that this can be a problem for them because “people will stop buying a car if a new model is coming out in a year.” For car dealers in Lebanon, like most of the region, a lot rides on how successful a car is in the period immediately after it has been released. An important difference between Lebanese and inhabitants of the GCC, in the luxury automotive market, are sports cars. As a proportion of sales, sports cars are far more popular in Lebanon than in the Gulf. The Porsche dealership in Lebanon, for instance, despite the Cayenne being an almost iconic ‘must have’ for the Beiruti elite, has one of the best splits in the region. Sports cars and Cayennes are split at 45:55 in Lebanon, compared to a region where the sports cars to Cayenne ratio is 20:80. This is despite road conditions in Lebanon hardly being ideal for sports cars. Raphaël argued that, “Yes, if road conditions were better we would sell more sports cars, but Lebanese roads are great for Porsches because of the winding roads and the way the Porsche handles these roads.” Ultimately, it does not appear to matter what the road conditions are, as Michel Trad explained. “In Lebanon people are not buying many Lamborghini’s at the moment because it is not the right time, not because of the price or the road conditions. If the person can afford a Lamborghini and he wants it, he will buy it, regardless of the road conditions.”    

However, road conditions do play a part in driving the trend of the popularity of big SUVs. Unlike in Europe and the US, where the trend for big cars is being moved away from rapidly, in Lebanon, like the Gulf, SUVs are as popular as ever. Small cars like the SMART car, which is doing very well in Europe and America, simply have not got a hope in this market. Debs said that they fought very hard to get the SMART car to Lebanon and are the only country in the Middle East to sell the car. “But we are not selling this car in high volumes. Firstly, because it is expensive due to the safety features of the car and secondly, because people are asking me: ‘You want me to put my son or daughter into that small car? No way!’” he said. Thus it should come as no surprise that huge vehicles such as the Hummer have been a big success on the Lebanese market and are IMPEX’ biggest seller. When Hummer was launched into the Lebanese market IMPEX was unable to get enough units from the manufacturer, even during a time when the Lebanese economy was experiencing a downturn. Now the quota issues have been solved with the manufacturer and IMPEX has just received 40 new vehicles that it expects to shift rapidly. Unsurprisingly, in Lebanon the rise in petrol prices has not affected those at the top end of the market, with regards to the type of cars they buy. It has only been those in the mid-lower quartile buying small to medium-sized cars that have shown a desire to dealers to have a more fuel efficient engine. At VW, for instance, Gergi el-Murr, the Kettaneh VW brand manager, said, “We are experiencing a move to smaller and more efficient engines … habits are changing.” However, Negib Debs also said, that at Mercedes they are also beginning to see a shift from six to four-cylinder cars, which suggests in the future Lebanon will see a general shift to smaller more fuel efficient engines in all segments.

Thus, in the Lebanese market and the Levant in general, and much more so than in the GCC, car importers are expecting more emphasis to be placed on fuel efficiency. For all those people that are buying more fuel efficient cars the benefits can only be seen if the cars are driven in “a stable manner,” stressed Gergi el-Murr, the VW brand manager. “Driving in a stable manner” is unfortunately not what the Lebanese are known for when it comes to their driving abilities. Road safety is one of the major reasons full-size SUVs are so popular in Lebanon. As Farid Homsy of IMPEX explained, “with SUVs of course people want to avoid big engines but the trend in this segment has not been directly affected by the fuel hike because this type of consumer is researching safety and comfort for their families, rather than fuel consumption.” The demand for safety has also led to an increase in the number of new cars bought. The Lebanese have often been adept at importing used cars and selling them to each other. Now, Jamil Selim Ramadan, a certified clearing agent for the customs authority, said that, “the Lebanese Importer Association has done very well in convincing the Lebanese of the advantages in buying new cars in terms of their safety and the guarantees that come with the car.” In the past the Lebanese car buyer has been reluctant to ‘mortgage’ his car but now bank facilities are becoming easier to access with many different packages and this has helped people purchase new cars. With interest rates currently low it also means that there is a good climate at the moment to buy new cars and this has been articulated in the current market atmosphere. Further to this, buying used cars with no guarantee and little known history is a major safety and reliability concern of which the Lebanese are becoming more aware, through the work of the Lebanese Importers Association.  

“Crisis managers”

Identifying the type of cars the Lebanese will buy and encouraging the consumer to purchase a vehicle is one thing. Identifying when people will buy the cars and trying to cope with the domestic political and economic situation in Lebanon is quite another. Subsequently, the biggest challenge for Lebanese car dealers is projecting into the future. Nabil Bazerji, the managing director of Bazerji & Sons representing Maserati, Suzuki and Lancia, explained that to cope with change they never commit over a year. “Managers in Lebanon are crisis managers and the best in the world. This is because there is no similarity in changes that occur; we always have to adapt,” Bazerji said. Manufacturers on the whole have encouraged car dealers in Lebanon to be bullish about their projections and helped local car importers in Lebanon follow the philosophy of adaptation. In the May crisis T.Gargour & Fils cancelled a shipment of 100 Mercedes that were to be delivered. “Luckily, Mercedes is very supportive and have forced cars onto other countries when times have been bad and also have forced cars from other countries here when times are good,” Debbs explained. Currently, Lebanese car dealers are looking nervously at the horizon despite the extremely positive sales environment at the moment. Next year’s general elections, and the potential unstable political environment these elections could bring, are coming all too soon and there is fear in the market as to how the global economic crisis will affect Lebanon.

Bazerji is concerned, saying that, “Lebanese all over the world were hit and we need their money in the economy, but thank God the country was not too heavily involved.” So far though, Lebanon has gotten off lightly and even had some positive affects as Lebanese expatriates and Arab nationals transfer parts of their massive assets to Lebanese banks. Despite this, the affect will still be felt. “There is not a person that I know that has not lost money in trading but we just don’t know how much this is going to affect us and so it will be very complicated next year,” said Negib Debs. Regardless of the uncertainty on the market there is unanimous sentiment that Lebanon can sell more cars and subsequently most of the importers are seeing significant expansion to their infrastructure. In October of this year Bazerji & Sons opened an after-sales facility for its three brands spread over 400 square meters, one of the biggest in Lebanon. Kettaneh, the dealership representing VW, has just opened a new showroom earlier this year, Porsche has recently opened a new pre-owned center and Saad & Trad are making significant expansions to their showrooms for Bentley and Lamborghini. As well, T.Gargour & Fils had planned to build a new showroom but this has been delayed since the 2006 War.

Looking ahead

Despite Lebanon’s constantly fragile political situation and widely fluctuating market, currently there is confidence in the automotive sector. If the domestic political scene remains stable and the affects of the global financial crisis are mitigated, Lebanese car dealers can expect to continue their bullish expansion in both infrastructure and sales. The trend to buy large SUVs and other gas guzzling automotives will continue to be popular until serious rises in petrol occur and better road safety is implemented. The government has shown signs it is getting serious about road safety with a recent aggressive campaign on illegal parking and passenger seatbelts. But more will be needed to significantly improve safety on the streets. However, there will be an increase in sales of mid-sized SUVs that will increasingly come onto the market and there will continue to be a trend of a gradual shift to smaller, more efficient, engines. Local car importers in Lebanon will be hoping that they are moving to a greener future, but most of all to a calmer one.

Nadim Mehanna, an automotive engineer, was the first to introduce motoring on TV in the Middle East in 1992. In 1999 he founded N.M.PRO, a multi-media production company producing five different motoring shows for five different TV channels, the most popular ones being ‘Motorshow’, ‘Speed’ and ‘RPM’. N.M.PRO launched www.motoringplanet.com in 2002, the world’s largest motoring website by content volume — for car fans of the Middle East and the world over — where visitors can watch more than 1,500 hours of video-on-demand (VOD) and free live motoring web TV, broadcast worldwide 24 hours a day.

E What is the current state of the luxury automotive industry in the region?

The luxury automotive market in the region is the healthiest in the world. What I mean by this is that we have all the new models from most of the manufacturers. In the region people like cars, the car is a member of the family, they are proud of it.

I was at the last Paris Motor Show where I saw one guy from the Middle East who wanted to buy one of the concept cars. Concept cars are very confidential, each hand made, cost millions to produce and give you ideas for the future. The executives at the stand were astonished and tried to explain to the man that they cannot sell the concept car, that it is not for sale. This shows you how much people in the Middle East love to have the newest cars. Look at the Dubai syndrome — they want to have the biggest, the longest but it is nice sometimes it makes things happen.

Dubai, is especially healthy, because it is running the whole Middle East automotive business as most of the car manufactures have head offices and regional offices there. This is a very important development in the way that manufacturer run their Middle East operations in the region. Now the manufacturers know the market a lot better than before, when Nissan, for example, would run their Saudi operations from Tokyo.

With their regional headquarters in Dubai they have hands on contact with all clients, dealers, after sales, media and so on. They also have all the insight of what it is going on in the region and they monitor what the competition is doing. The dealers are also very active, firstly because they themselves are very passionate about cars, they also love the competition to have the biggest showroom, highest sales and biggest after sales facilities and so on.

But now they are also ‘afraid’, so to speak, because they are monitored a lot more closely by the head office, by the manufacturers, which are now based next door. For instance, ten years ago none of the showrooms respected corporate identity; every showroom was done based on the mood of the dealer or his family. You would have cars being sold next to fridges — if the dealer sold other products, they would all be combined in one place.

Now if the dealer has three different brands then they all have to be displayed separately, with all the appropriate corporate identities that go with each brand. There is a lot more professionalism now and having the head office here is making the Middle East look very corporate.

It has been important as well for the media that the manufacturers moving to the region because we now have access to products much faster. The media now in the Middle East is seeing concept cars sometimes before Europe because of the good market here. In general, there is a large amount of growth in all the GCC, where they are making good money.

E Have facilities been improved in the region?

A lot, especially the after-sales workshops are also something that has been greatly improved and this is very important. Before, you would buy a very advanced car and a warning light would go on in the dashboard and you would have a problem, the mechanics would look at you and would not know what to do. Now, due to the presence of manufacturers in the region, after-sales teams are trained and monitored much more effectively and car dealers are putting a lot bigger emphasis on this sector. In Kuwait, for example, the biggest and most advanced after-sales facility workshop in the world was just opened for GM. This means it is not about just selling cars; you have to sell the car and you have to be able to repair it properly and bring back the customer with your next model. This is something that has not been happening in the region until now. So currently the whole cycle is rotating properly in the region.             

E Is there going to be a shift to mid-size SUVs in the region, as people want more fuel-efficient cars?

To a certain extent, in the Middle East people love big cars. Families are bigger in the Middle East than in the US or Europe and also petrol is a lot cheaper. Firstly, it must be made clear that there is a misusage of SUVs. Before, these types of cars were used for industrial and military purposes. It has only been the last 10 years where there has been a huge demand for

SUVs on the road, for many reasons. People like the high cars for psychological reasons, for the perception of safety and the space, although it does not have as much space as they think.

In the GCC there is a huge chunk of SUV buyers that do go off road to the desert and in the desert you need to have a big car, big tires, high ground clearance. So for those that just use their SUV on the road, yes, some will move to medium-sized

SUVs but I would say this will only be 20% of the big market. The mid-size SUV will get most of its clients from those that are upgrading from sedans. But for those that have many kids and go to the mountains on the weekend or the desert then you have to have the big SUV; it is a real need.

E Lebanon this year had amazing growth but this is obviously not sustainable. What is the country’s market capacity?

The market here will not exceed 30,000 units. The growth in Lebanon this year is an exception. You had companies like IMPEX having a growth of 111% but this will not continue.

The market in Lebanon is not based on expatriates like in the Gulf where you have 50-60,000 people coming in every year. In Lebanon you also have people leaving and feeling very upset with the situation.

What happened this year is not a real indication of the market as there were just many people waiting after the 2006 War and the 2007 tensions. In the last week of May, when the plane landed from Doha, everyone came out and bought cars. Buying cars was like compensation for the buyers as a reward for getting through the troubles.

The market here is very emotional, even if there is a small incident people stop buying cars. Next year, I think, car sales will go up but in a much more calm and sustainable way.   

E Will there be a move to green cars in Lebanon?

There is only one dealer in Lebanon that has tackled hybrid cars and this was BUMC, who was the first to import the hybrid Toyota Prius, which is a medium sedan and can do 400 plus km per 20 liters of petrol, which is amazing for this size of car. But you have to pay around $35,000 which is double what you would pay for this sort of car normally. They will import the new model of the Prius in 2009.

When looking at reducing the engine size I have not seen this trend. In Lebanon people like options, like having a DVD in the back of the car and when you want these luxuries you have to have a big car. Also, the tremendous rise in petrol has not been constant and now it has dropped again. Some companies did reduce the size of their car fleet but it did not happen in a significant way. 

E What are the most successful cars in the Lebanese market at the moment?

Asian cars have been in the top spot for the last few years. Japanese and Korean cars are the most popular in Lebanon; it is a continuous fight between Nissan and Toyota for the pole position. These cars are popular because they are very reliable and don’t consume a lot of petrol, added to a very good resale value.

E In Lebanon more sports cars are sold than the rest of the region. Why is this?

The Lebanese love to show off and, of course, if you come with a convertible sports car it will be much more effective when you park in front of Sky Bar. The nature of the country is that there is no real restriction on speed and the mountain terrain is also good for these types of cars. The dealers as well are much more aware of the importance of having sports cars in their showroom. Plus, we have the rich GCC tourists that come every vacation and they also love to show off with their cars, and have bought them here and keep them here. 

Used cars in the GCC and Levant could not be more contrasting. While in the Levant the used car market has been the mainstay of car sales for decades and is seen by those in the industry as saturated and even dangerous, in the GCC the used car market is weak, very poorly developed and seen as a primary target for growth. Until now, the used car business has not been taken very seriously by official importers in the GCC and is seen as a risky business and one to stay away from.

Changing perspectives

Manufacturers are trying hard to change the view of the used car market held by their official import partners in the Gulf, but it is a big task. Charles Strothard, chief operating officer for Al-Habtoor Motors, official importers for Mitsubishi, Bentley and Aston Martin, explained that the used car market is seen as tricky because it is very difficult to control the trade in terms of prices, and that there is a big potential for fraud. “The market has not really demanded used cars, this is driven by the fact that finance providers are reluctant to finance used vehicles and when they do it is at a premium interest rate,” Strothard said. Thus, currently the used car market has been left to the traders’ suqs, such as al-Aweer in Dubai that has up to 200 showrooms. However, manufacturers disagree with the idea that there is not a demand for used cars in the GCC and see this market as increasingly significant and an important area for growth. The establishment of a controlled used car market is seen as critical by manufacturers because it is an essential element for maintaining the re-sale value of their cars, broadening the customer base and can be a great source of income. What is needed most in the GCC, the manufacturers argue, is a change of mindset amongst the official importers.

“Generally, the focus has been to change the mindset and showing the dealers that there is an opportunity here. In the past, other people have tried it and have not been successful,” explained Terry Johnsson, president and managing director of General Motors Middle East. GM, for instance, sells less than one used vehicle for every 10 new and, Johnsson said, he wanted the achieve the ratio of at least four or five to 10. This is compared to a more mature market where the ratio is 12-15 used cars sold to every 10 new ones. Jeff Mannering, managing director for Audi Middle East, asserted that Audi identified the “critical need” for a used car program in 2005. “Now we are starting the Audi Approved Plus car program. We are spending a lot of time and effort on Audi Approved Plus in Dubai, Abu Dhabi and Saudi Arabia and this program will be rolled out elsewhere,” Mannering said. Johnsson noted that things are changing rapidly in the used car market. Specifically, two important changes have occurred. “For the first time we are seeing organized auctions and web locator work put in place. Also Red Book, which is an Australian based company that publishes used vehicle prices, are just publishing their first edition for the UAE market. This is extremely important for getting a standardized view on used vehicle prices and re-sale values, and builds the foundations for a strong used car business,” he said. Mercedes has also been growing its used car sales business but Frank Bernthaler, director of sales and marketing for Mercedes-Benz, noted that, “we don’t get many quality used cars because people don’t trade their cars; they keep them and pass them down the family.”

Wrecks on the road

In Lebanon, the problem is quality, not quantity. Nabil Bazerji, managing director of G.A. Bazerji & Sons, car dealers for Suzuki, Lancia and Maserati, estimated Lebanese used car sales at 50,000 per year but has major reservations regarding the market. “What the government does not understand is that import of used cars in Lebanon is too big for the local need. This has negative effects on the country. One is fuel consumption, because people will upgrade if they buy a used car for the price of a new one, and they buy bigger cars with bigger engines. Secondly, the older the car gets the more it will pollute. Thirdly, there is a safety issue, as the imported used cars, in order to be competitive for the traders, have high mileage or are out of circulation in the countries they come from.” Safety issues have been a major concern when it comes to used cars in Lebanon and can be seen as one of the biggest motivations for the growing trend of Lebanese to buy more new cars. Nadim Mehanna, presenter and producer of the first and leading Middle East car show ‘Motorshow,’ voiced concerns over the lack of monitoring of used cars in Lebanon and the significant danger that this represents. ‘Cut and shut’ cars are of particular danger; this is when two halves of different cars are welded together. Mehanna warns that, “Even if the welding is done extremely well, if you brake heavily the slightest difference — I am talking millimeters — will make the car swing all over the place, and if it seriously hits another obstacle separation can easily occur.”

Bazerji is particularly scathing about the government’s sluggish response to this situation. “Unfortunately, I believe that the government’s mind is elsewhere, or sometimes there are some personal interests even if they are not involved financially. But politically, it helps to support these operations even if they are not beneficial to the country,” he said. A better regulated system has slowly started to appear with the Lebanese government gradually attempting to clamp down. By and large, one no longer finds shop owners putting two used cars for sale outside their stores. More importantly, however, is the fact that, encouraged by the manufacturers, official importers in the GCC have started to see used cars as a more important business opportunity. Porsche, for example, has just opened a brand new center for pre-owned vehicles. For Lebanon this is especially important because of the Lebanese habit to punch above one’s weight. “You have the Lebanese syndrome of ‘what car are you driving?’,” Mehanna explained, “If you make a survey of those in Lebanon that want to spend $20,000, 60% will go and buy a Mercedes or a BMW 2003 model, and only 40% will buy a new Renault or Kia instead. It is very important for the Lebanese to have these types of cars and this is what is keeping the used car market alive.”

The region’s used car market is alive and well, and should continue to be so. As official car importers take this market more seriously, at the behest of the manufacturers, this can only be a positive thing for those buying used cars. An end to unofficial and semi-official dealers and a move to a more institutionalized and professional used car market will be a happy development for those concerned about road and car safety. Soon it will become the norm in the region to buy used cars at all levels in the market, as in mature markets, but also expect with the used car a warranty and guarantee. And a lot of old cars are about to get cleaned up.

In recent years, Middle Eastern sales of Ferrari and Porsche grew faster than in the US and Europe. Aston Martin, now partly owned by Kuwaitis, is also focusing its attention on the region to help boost its sales. Even car manufacturers that are traditionally considered to fall into the ‘affordable vehicle’ bracket have been catching up with their luxury market segments, following the money trail. As an example, sales of luxury Hyundai cars rose by 12-15% last year, while in 2006 sales of smaller cars had dropped by 15%. A June 2008 Reuters report quoted Julian Millward-Hopkins, Middle East and Levant press manager for German luxury brand Mercedes-Benz, as saying, “If you look at sales worldwide it is a pyramid. At the bottom are smaller cars and at the top are luxury sports cars. In the Middle East it’s an inverted pyramid. Luxury cars do proportionately better here than elsewhere.”

While in Gulf economies sales of luxury cars are driven by high growth rates, high revenues, low gas prices and low tariffs on imported cars — even ones that fall into the higher end bracket — in Syria, Lebanon and Jordan the situation greatly differs. In Lebanon, Hadi, the owner of a brand-new Ferrari, explained that he imported his car from the Gulf and is using a UAE license plate in order to avoid the high taxes imposed by the Lebanese government. “My car was worth $180,000 and I would have paid $100,000 more if had opted to buy it locally,” he said. Hadi believes that many Lebanese prefer to purchase their luxury automobiles from the Gulf and re-export them to Lebanon to avoid a high mark-up on the car value. The same scenario can be found in Jordan and Syria, where car dealers said that taxes imposed on cars could vary from 80% to 175% of the car value, depending on the type of car, number of options and size of the engine.

Luxury sells

In Jordan, Zaid al-Abdallat, general manager of the Abu Khader group, exclusive dealers for Cadillac, GMC and Hummer, said that nevertheless he has been enthralled by the rising demand for luxury vehicles such as the CTS, in spite of unfavorable conditions such as soaring oil prices and high tariffs. He believes the luxury market is equally divided between four-by-four models such as the Cadillac Escalade and luxury sedans, with all cars imported fully loaded. “We have witnessed double-digit growth in the luxury segment in the last few years. Cadillac remains, however, a value driver, more than a volume driver for our company. Although gas prices have affected the automotive sector to a certain extent, new technologies applied to American cars, allowing for dramatically reduce fuel consumption as well as changes in consumer behavior — with most of our clients owning more than one car — have reduced the adverse effect,” added al-Abdallat. In Jordan, sales of luxury vehicles constitute 11% of total sales.

In Syria, Bassam Saadi, general manager for Bahi Motors, exclusive dealers for BMW and Mini Cooper, said that buyers of luxury cars have been relatively immune to the increase in the price of oil, which in any case is highly subsidized. Omar Shallah, managing director of Rakhaa, Nissan dealers in Syria, described the luxury segment to be essentially driven by fashion trends, contrary to what can be seen in the entry level car category. “Our luxury models, starting with the Murano, tend to witness high growth levels essentially in the first year after their launch. Luxury vehicles seem to have short life cycles here in Syria, and still lack customer’s brand loyalty.”

Soaring oil prices and fear of a possible ‘Carbon Judgment Day’ have pushed car makers and governments the world over to steer the automotive industry towards carbon efficient vehicles. The Middle East is, however, no California. Unlike their American counterparts who proudly boast their PZEVs (Partial Zero Emissions Vehicle) Arab movie stars tend to favor more traditional ways of transport.

PZEVs are vehicles equipped with engines that control carbon emission by increasing fuel mileage. Although PZEV, also known as Hybrid Electric Vehicles (HEV), run on gasoline, they also offer extremely clean emissions. Among the cars falling into the category is the Honda Civic Hybrid. In 2007, about 500,000 HEV were sold worldwide according to the website Marklines. In the US, sales of hybrids in January 2008 climbed 27.3% to 22,392 units, according to the website Green Car Congress, and this figure even excludes sales by GM.

Variety on the market

PZEV models are already offered by Toyota, Ford, Honda, GM, Subaru, Volvo and Volkswagen. Much of the time they feature similar models to ones we may be familiar with whether the Honda Civic or the four-by-four Lexus.

The green car fashion, although far from turning into a generalized frenzy in spite of high oil prices, has certainly been gaining momentum. Tesla Motors, the maker of the Tesla roadster electric sports car recently declared it had plans to raise $250 million in the next two years through debt financing and an IPO to bring its second model to the market. Hybrid car makers are also determined to structure a viable supply chain, reported The Times of London, noting that Think Global had signed a deal with Enova Systems to provide at least 1,000 power-control units for its small Think City electric car this year.

Traditional car manufacturers are also joining the fray by competing with new, state of the art models. As an example, Toyota plans to develop mass market cars powered by bio-fuels as well as plug-in electric batteries. To achieve its ambitious goal it has joined forces with Panasonic to expand production of lithium ion batteries to meet demand for a plug-in hybrid vehicle available in 2010, the car maker announced in June 2008.

Getting to the green

To catch up with the green fever, proper infrastructure will have to be put in place meeting certain standards including recharging electrical stations as well as hydrogen fuel stations.

Luxury cars are turning to green technology to respond to the trend and tap into the segment of high net worth individuals. Lexus was one of the first to hop on the bandwagon. Its four-by-four model is already available in the region, in Cyprus. Other luxury car makers have followed suit with BMW launching its BMW 7 Hybrid series last year.

Emerging markets are following suit. Three years ago Toyota started building its successful hybrid Prius in China in a partnership with FAW, China’s biggest car maker. FAW-Toyota announced that in 2008 it would be selling more than 1,000 cars in China, up from 400 in 2007.

Governments also seem to be upping up the ante. Europe’s carmakers are to ask the European Commission to lend the industry some 40 billion euros to support their efforts in producing more environmentally friendly vehicles, the Financial Times reported in October.

In the Middle East, the world’s prime oil producer, countries are trying to curb oil consumption of vehicles and implement alternative fuel schemes. Green Car Congress reported that government and private organizations in Egypt, Iran, United Arab Emirates and other oil-rich nations are implementing programs designed to reduce consumption of gasoline and diesel with natural gas vehicles. According to the International Association for Natural Gas Vehicles, “as many as one million natural gas-powered cars, trucks and buses could be plying Middle Eastern roads by the end of this decade.”

While Egypt already had some 70,000 natural gas vehicles driving over its roads and highways in 2006, the country has aims to reach 145,000 by 2010, and Abu Dhabi plans to have 10,000 vehicles running on natural gas. Even Iran has joined the race for green cars. In 2007 the BBC reported that Iran had announced it “will stop producing purely petrol-driven cars and produce more dual-fuel vehicles, which also run on gas.” In 2006 some 1,150,000 vehicles were manufactured in Iran.

Arab governments are also investing in the green car business. An affiliate of the Qatar Investment Authority (QIA) led a $65 million financing round for Fisker Automotive Inc., a producer of plug-in electric hybrids, reported Cutting Edge news. “Al Yousuf, a Middle East investment house and trading group based in Dubai has, since last March, financed two alternative vehicles companies, the Ontario-based Phoenix Motorcars and Zap Inc., an electric car company, in Santa Barbara, CA.,” stated Cutting Edge. In anticipation of the key role Lithium batteries will play in the electric car industry, Al Yousuf also invested in the Nevada-based lithium ion battery maker Altair Nanotechnologies Inc.

Word on the street

Zeid al-Abdallat, general manager of the Abu Khader Group, the dealer for Cadillac, Hummer, GMC, Opel and Chevrolet in Jordan, is enthused by the green trend. “We have been negotiating the import of green cars to Jordan with GM, which offers a wide variety of hybrid cars and expect to have them on the market hopefully very soon,” he said and underscored that he had been surprised by the number of people inquiring about hybrid cars in Jordan.

On the other hand, Bassam Saadi, general manager of Bahi Motors, distributors for BMW in Syria, is doubtful as to the readiness of the local market to embrace green cars, saying, “I don’t see it happening before at least five years. It is matter of cultural awareness, one that still lacks in the region.”

The current economic recession might also be another obstacle that may hinder the propagation of hybrid cars in the Middle East. With the economy slowing down, car makers might also be more reluctant to invest in green technology, at least for the foreseeable future.

Higher living costs, greater use of public transport, congestion problems, the opening of the Dubai toll road, tightening of credit and a global financial meltdown — all these factors should be making car manufactures and their local car importers worried about future car sales in the Middle East, especially in the lucrative GCC market. For the most part they are not. Gulf News reported that for the first half of 2008 car sales surged 26% in the GCC and the UAE grew by 34%. While Saudi Arabia, the biggest automotive market in the region, is expected to achieve growth of 14.1% in 2008, selling 592,985 units, according to Business Monitor International (BMI). Mercedes had a record month in September for the Middle East and Levant with deliveries of 1,872 cars, up 24% over the same period in 2007, and for the first nine months of 2008 sales are up 21% on last year. Land Rover reported growth of 25% across the Middle East and North Africa and Jaguar had a 40% increase. General Motors announced a 13% increase to a total of 111,944 units sold. Audi reported growth of 34.6% in the GCC and Levant, record results for the month of September, and Porsche showed growth of 14%. The sentiment currently in the market is that strong oil prices have kept the market buoyant in the region and allowed the multitude of problems facing the region to be kept at bay. It would be misleading, however, to say that manufactures are not being cautious about expecting too much from the region and all are aware of how intertwined the global economic system is. Nevertheless, most manufacturers and dealers are bullish about the future ahead of them in the automotive sector in the Middle East and in lieu of this are investing on a large scale.

Car trends

The enthusiasm for cars in the region, and the GCC in particular, is as strong as ever. People read car magazines, are highly informed about the latest developments and want to buy the newest and the most highly desired cars on the market. For Mercedes this is exemplified by the fact that their regional operations are relatively small, selling 15,000 cars a year in the GCC and Levant, of the 900,000 cars Mercedes sells globally. However, sales of the premium S-Class are the fourth highest in the world and this car is continuing its growth in the market. Also, Mercedes has seen high sales in the GCC of the exclusive Maybach SLR, in which the region is number three in the world, after Europe and the US. Bentley also shows a similar pattern: although the Middle East only represents 6% of Bentley’s global sales for the newly released Bentley Brooklands, the Middle East contributes 12% to global sales. Chris Buxton, Bentley’s regional director for Middle East and Africa, explained that “this reflects the demand our customers have in this region for the ultimate in exclusivity and style.” Bentley is currently experiencing 15% annual growth in the Middle East and Buxton expects 2008 to be a record year for sales in the region.

Robin Colgan, managing director of Land Rover and Jaguar Middle East, described how in the GCC perceived quality is very important, which means not the quality of the mechanics but the importance of how beautiful and well designed the interior is, the touch and feel of the car. “You need to sell premium leather, alloys, and have amazing sounds systems. This is why the Jaguar XF with the Bower & Wilkins in car stereo was so successful; every car we sell here of the XF has to have the exclusive music system, which is not the same in Europe and America.” Thus, all the manufacturers are putting a lot of effort in developing the kind of options that the customer can put in their various models of cars. Ashok Khanna, CEO of Al-Tayer, explained that in the Middle East market exclusivity and personalization is key, “Our high-end brands such as Maserati, Ferrari and Spyker all provide customers with a very high degree of personalization in their cars which is highly valued by our customers who like their cars to carry their signature.” The desire for exclusivity in the market has meant that manufacturers in the luxury end of the market have launched limited edition models, made specially for the region. Rolls-Royce, for instance, launched the Phantom Mirage — named after the great pure white Champion Stallion in the US in 1934 — exclusively for the Middle East this year. The Phantom Mirage was launched primarily because the region has shown strong demand for the ‘Rolls-Royce Bespoke Program’. 

While sales of exclusive luxury cars are extremely high, so also are SUV sales. For Porsche, the Cayenne makes up 68% of their sales, selling 4,114 units. Audi’s best-seller is the Q7 making up 35% of their sales, while Land Rover saw a 25% increase in car sales as they continue to dominate the luxury SUV market. For GM the best-selling models across the Middle East continue to be the full-sized SUVs, the Chevrolet Tahoe and Suburban, the GMC Yukon and Yukon XL and the Cadillac Escalade. Cheap fuel in the GCC and continued high liquidity has meant that the region is not following the global trend of moving to smaller, more fuel-efficient and environmentally friendly cars.

While all car manufacturers are keen to stress that they are making strenuous efforts at introducing more fuel efficient cars, with lower carbon emissions and lowering the effect on the environment impact of their production facilities, in the Middle East these issues are simply not a priority and this is articulated by the trend in the market for big gas guzzling automotives. For any effective change to occur it is the ruling families that will have to take the lead and implement legislation on emission controls. In Jordan moves have already been made to encourage ‘greener’ cars as complete tax exemption has been given to hybrid automotives. Nonetheless, while the trend in the major markets in the rest of the world to more fuel-efficient cars continues, as fuel prices remain a major concern, the newest models released by the big manufactures, so craved in the region, will necessarily be more environmentally friendly. The mid-sized SUV is expected to be the car of the future, as it has the safety and size of an SUV but the fuel consumption of a smaller car.

Lack of data

Regardless of the demands in the market in the Middle East, the next generation of automotives released will not be tailored to the region but re-packaged for it. In a country such as the UAE, and in particular in Dubai, this is particularly problematic because, “there are so many areas that you need to target. Everything is so mixed, you have any age buying an Audi; you have 18-year olds buying an A8 and a 55-year old. So it makes it very challenging putting the product together and advertising for it,” Jeff Mannering, the managing director for Audi Middle East, explained. This problem is exacerbated by the significant difficulties faced by car manufacturers, and their import partners, of getting accurate information on the kind of car culture in the region, beyond the general trends described above. In Europe car figures are freely available listing what car was bought where, the type of car and size of the engine.

In the MENA, however, from manufacturers to local dealers information is guarded heavily. Terry Johnsson, president and managing director of GM Middle East, explained that without accurate data, “we are less accurate in targeting growth segments and trends.” But Johnsson suggested that a way out of this situation could be governments in the region supporting manufacturers associations where traffic police data and registrations were made available. Manufacturers could even independently organize themselves, like in Australia, and invite a third party to publish the data. Frank Bernthaler, the director of sales and marketing for Mercedes-Benz, pointed out that “we have introduced the Middle East Automotive Council, which is an exchange of data on a very general level, but not all manufacturers are part of it.”

Creating an automotive climate in which data is 100% accurate, however, in such a rapidly growing region has not been a priority, as simply establishing oneself in the region has so far been good enough.

What financial crisis?

As the European and American automotive markets continue to show decline, manufacturers have little choice but to show more faith and target more aggressively the emerging markets of the Middle East. As Frank Bernthaler, the director of sales and marketing for Mercedes-Benz attested, “We are optimistic [about the region]; Abu Dhabi is at the start of development, Qatar is one of the strongest economies in the world, Kuwait has strong plans and Saudi Arabia’s city plans are promising and give us confidence in the region.” This does not mean manufacturers are complacent about the risks involved in the region and the growing cloud of the global financial crisis. Deesch Papke, managing director of Porsche Middle East, said that he is “concerned about the implications of the financial meltdown in Europe and the US on the region, and we are monitoring the developments very closely to see how it will affect our markets.” Dealers and manufactures are holding their collective breath that the buoyant automotive sector in the Middle East is not affected to a serious extent. Terry Johnsson, of GM, said that, “auto financing is well beyond the normal one or two day wait to one or two weeks, and if it is rejected you have to start all over again, which is frustrating. But we are watching what will happen and we are looking to seeing banks be more active again … Most dealers have the resources themselves to extend consumer financing or leasing.”

Regardless of the fallout from the financial crisis, according to the manufacturers and dealers the region will become an ever increasing central player in global car sales as more significant volumes of car sales occur and the potential to sell more cars expands. In 2003, for instance, there were 118,000 cars on UAE roads and last year this figure grew to 297,000. Business Monitor International estimates that this figure will reach 326,000 by 2011. Audi is one such manufacturer that has decided to target the Middle East in a much more focused and aggressive way. Unlike other car manufacturers such as Land Rover, which has had a presence in the UAE right from the start and whose brand is well established, Audi was not well known in the region. Jeff Mannering, the managing director for Audi Middle East, explained that “in 2004 Audi made the decision to identify the Middle East as a potential growth region and in 2005 we started a subsidiary here [in Dubai]. This office is the only regional sales company for Audi in the world. The regional office was started to promote and invest in the brand and get it where it needs to be.” Since the establishment of the regional office Audi has seen a rapid growth in sales and in 2008 sales so far are up 19% with total sales reaching 5,504 vehicles. The Middle East, and especially the GCC, is central to Audi’s strategy to reach the target of 1.5 million car sales by 2015. To achieve rising sales Audi and its dealer network have invested significant sums in building the requisite infrastructure. “For the set-up of the regional office we invested $10 million while the dealers have invested in the vicinity of $150 million,” Mannering said.

Investing in the future

The dealers in the UAE are very excited about the future in Dubai and the UAE at large and are preparing by investing hundreds of millions on infrastructure. Al-Habtoor Motors, sole importers for Mitsubishi, Aston Martin and Bentley, illustrate the extent to which dealerships in the UAE are expanding their operations. “In Dubai Industrial City we have a 280,000 square meter plot of land and on it we are going to build an after-sales facility that is 102,000 square meters where there will be a workshop for Aston Martin and Bentley with 250 working bays, a parts warehouse and distribution centre at 23,000 square meters and a workshop for Mitsubishi that has 742 work bays. We believe it will be the biggest franchise vehicle workshop in the world. The investment in this operation is something like $120 million,” said Charles Strothard, chief operating officer for Al-Habtoor Motors. In addition to this, the company has a new $10 million facility reaching completion in Ras al-Khaimah, in Abu Dhabi a new $15 million facility is being built and many other projects are in the pipeline. Meanwhile, Terry Johnsson announced that GM’s local partners in the region are investing as much as $520 million into 26 projects across the region. “In Saudi Arabia alone, GM is doubling our points of service in the next five years … everything is just increasing so rapidly that we are having to accelerate our expansion plans,” Johnsson said.

One of the main problems facing the automotive industry is making sure that the infrastructure keeps up with not only rapidly growing car sales but also the ever expanding cities of the GCC. Frank Bernthaler, of Mercedes-Benz, explained that “the main challenge in the markets like those in the GCC is to make the right decisions regarding where to invest in future installations. The figure for Dubai is that only 25% of the greater plan for the city has been built so the challenge is where do you invest? This is also a problem in Qatar and Kuwait. You have to think forward in terms of where there is going to be growth and where your future customers are going to be living. Obviously, the more you sell the more pressure there is on the after-sales.” The after-sales market is an integral part of the automotive industry, which is why so much investment is put into this sector of the industry. Of course, after sales also contributes a healthy income stream for both local dealers and manufacturers.

Ashok Khanna, CEO of Al-Tayer, said, that the automotive after market industry in the GCC is estimated to be worth in the region of $12.5 billion. Every manufacturer stressed that if one does not have a high quality after-sales service, especially in the Middle East, then one could have the best product in the world but would not sell cars. After-sales is especially important in the Middle East because of the severe climactic conditions and also the importance of word of mouth. Robin Colgan, of Land Rover and Jaguar, explained, “this region is driven by word of mouth unlike any other region and is a fundamental aspect of growing your business. So, obviously when influential groups respond to the service that you are providing it means a lot.” For manufacturers and their local import partners maintaining good after-sales service means ensuring that the required stock is readily available so waiting time is minimal, but most importantly that there are well-trained technicians and support staff.

Training, training, and more training

Training is the current mantra that is repeated again and again by everyone in the automotive industry. All of the major manufacturers have training facilities in the region and emphasize how this is an essential, but immensely time and resource-consuming aspect of their business. Frank Bernthaler, of Mercedes-Benz, explained how getting enough trained people is a challenge, “with India growing less people want to come to Dubai but we are working with the whole Mercedes-Benz network and we are training people in the Philippines and other places; we support the general distributors.” Despite the enormous emphasis that manufacturers put on training, Charles Strothard, at Al-Habtoor Motors, criticized the efforts of the manufacturers in their training programs. “A lot of the manufacturers and our competitors train for training’s sake; it is not effective. The training that we give our staff is not like those given out by the manufacturers or other regional trainers — it is something that we had [created] bespoke for our company,” Strothard asserted. At Habtoor Motors, Strothard claims, the training was specially tailored to ensure that the nuances and culture of the region, the multicultural make-up of the staff and customer base and Western best practices were all intertwined and worked on. Strothard elaborated that it was important, for instance, to know the go and stop buttons of the various cultures. “Within two months we saw a 70% growth in sales. The effectiveness of training is what is key. It costs a lot of money — in the last three months we spent $500,000 on training — but this is peanuts compared to the result.”

Conclusion

The focus on training by local dealers and manufacturers illustrates how important and competitive the players in the automotive market expect the region to become. Local dealers and manufacturers will need the extra training capacity if all the gigantic expansion plans are followed through in the region. In the GCC some of the biggest car infrastructure in the world is being built, with hundreds of millions spent. Growth on a massive scale is being prepared for. However, it is also the monumental master plans such as the King Abdullah Economic City, the greater Abu Dhabi and Dubai, the new cities of Qatar and Kuwait that will ultimately bring success or failure. Those in the automotive market are predicting that these plans will be a success and that there will not be a significant effect from the global financial crisis and high oil prices will continue. Manufacturers are seeing the GCC as an increasingly important market to compensate their sluggish sales in the US and Europe; this is especially the case for luxury automotives and the SUV market. However, if any significant effects from the current financial crisis do hit the region, then manufacturers and their local partners will have a lot of cars parked on the lot with nowhere to go.