There’s a 1958, silver-blue Mercedes 190SL convertible in town, and it’s turning heads. In a country where new, shiny and expensive can be a brash entrée into the smart set, what better way to offer an riposte with a dash of elegance and a bit of old money charm with a glorious vintage sports car, rippling with Connolly leather and spoked hubcaps..

There is a small and determined band ofLebanese who see a vintage car as a superior, more refined expression of motoring pleasure. There are currently around 300 vintage cars purring around Lebanon’s roads with an air of distressed gentility. But be warned; beauty and elegance come at a high price in a country where the market is still underdeveloped, services histories are opaque and the majority of mechanics simply are not up to the job of maintaining these beauties of a bygone age.

To many it is all about a time when cars where art. “Back in the old days, some guy graduated from design school, sat down at night with his pack of cigarettes and a coffee, imagined a car and drew it. It had soul and life. reminisced classic car aficionado Elias Amiouni. “Sure, today’s cars are beautiful. They handle great, but they have no soul.”

And soul is what drives Lebanon’s determined band of car lovers. In Europe and the US there are no shortage of magazines devoted to classic cars, bringing together devotees, offering maintenance hints, market movements and transparent prices. In Lebanon however, while interest in classic cars is picking up, it will always be limited.

And for those who seek a quick buck and want to setting up a classic car business in Lebanon, forget say the connoisseurs. “To import cars and then sit on them for years, without knowing if you’re going to have a buyer is just not worth it,” said Amiouni. “The number of enthusiasts is simply not big enough. Here in Lebanon you do this as a hobby. A friend of mine wants to sell a 1959 Corvette in reasonable condition but he can’t get a decent offer. This is a car that would sell in Europe or the States for around $65,000, but no one is interested”

Elsewhere, vendors are asking funny money for what are essentially pieces of junk “There’s a total misconception,” says Mercedes collector Malek Mroueh. “You go to see a car and the guy tells you it’s worth $100,000. True, refurbished it would be worth that much. But you’ve got to spend $75,000 refurbishing it. I recently bought a 280SL in the States for around $5,000,” he went on. “I knew it was a shambles, but I can restore it. Someone selling the same car here would have demanded $45,000.”

Most Arab collectors (Mercedes SL’s and Jaguars E-types are particularly coveted) source from dealers in Europe and the US, where the provenance of the vehicle is trusted and they are less likely to be conned by unscrupulous restorers.

“Why would you want to buy a classic car here when elsewhere you have a much bigger basket to choose from?” asked Amiouni. “Elsewhere, the car has probably been maintained to a much higher standard. And there is always a service history. So you know pretty much what the car has been through. If you buy it here, a lot of mechanical and bodywork surprises are going to pop up. Local restorers are out to make a quick buck. They cut corners.”

Like many of the newer cars that arrive on Lebanon’s shores and reassembled after being written off for scrap, the buyer can often never know exactly how his piece or motoring memorabilia has been restored. Mroueh, who owns four Mercedes, is so distrustful of Lebanese workmanship that his cars are now maintained in the same warehouse as he runs his printing business. That way, he can keep an eye on the restorers and avoid the frustrations associated leaving in hands of a stranger. “I once restored a 1971 Mercedes 280 SL,” he recalled. “I had to be there an hour a day just to make sure things got done. And it cost me a bundle. So I figured that if I bought the tools, set up some space in my printing plant and got them to work on it there, it would be cheaper and I would have more control.”

Another Mercedes collector Marwan Tarraf has a similar tale. “I took a couple of cars to a restorer and he lost most of the parts. The guy was so messy. He was throwing things around. A year later, I went to take the car and had to buy the parts he had lost. It came to more than $12,000.”

There is essentially a dilemma. Anyone seeking to enter the car restoration market in Europe or the States, though, must be prepared to pay through the nose. In Lebanon, a restorer might take $300 a week. In the United States he costs $75 an hour. Amiouni said restoring his Lamborghini Mura in England cost around $60,000. Had it needed spare parts the price would have spiraled further. Another classic car restorer said it cost him $60,000 to restore an Aston Martin DB6 in England. He had already spent $60,000 purchasing the vehicle. He said the restoration process would have cost only $20,000 in Lebanon, but at what price? As the saying goes there is nothing more expensive that something cheap.

And then there is the problem of outmoded technology. Tarraf, who has spent over a half a million dollars on fourteen Mercedes, 13 of which he bought in the US for prices varying from $15,000, to $85,000 for a 1971 280SE convertible, does not advise taking vintage cars to the local dealer. “I tried to have some work done on one of my cars at the Mercedes dealership,” he said. “It stood there for six months and then I had to bring it back on a truck. They didn’t know what to do with it.”

Even a simple service can be problematic. Most car buffs have found and treasure mechanics who know their stuff. “There are a few older mechanics around who have been working on these cars since they were new,” said Amiouni. “As for the rest, I wouldn’t allow them near my car.”

But what about bringing old cars into the country? Insiders complain that even modest market growth is being hampered by the same exorbitant duties stifling the new car sector. Importers have to pay 20% customs duty on the first $13,300 of the car’s CIF value and 50% on the remaining value, plus 10% VAT and 8% registration fees. And for classic car importers, there’s an added twist: While the base value of a brand new car is indisputable, the value of an vintage model has to be determined by a customs official before any duties are imposed. This evaluation process, classic car devotees complain, is carried out in a frustratingly unprofessional manner. Most significantly, a single assessor insists on valuing the vehicle at the high end of the range on his chart. He pays attention only to the brand, not to the condition, and is often under pressure from his superiors to extract as much duty as possible, collectors say.

“Imagine you’re importing a Lamborghini Mura in a state of total disrepair,” said Amiouni. “You might be planning on spending $50,000 on restoration here in Lebanon to bring it up to a market value of $100,000. But the evaluator says: ‘No, this is a Lamborghini Mura. They sold one in England for £150,000 (about $300,000), so you have to pay $100,000 duty here.’ It’s left to the judgment of a single person. We need a small bureau set up, with three or four people who are not in it for themselves, whom you don’t have to bribe to reduce the amount.”

A law prohibiting the import of models whose production line ended less than 30 years ago further burdens Lebanon’s vintage vehicle market. This, say classic car fans, is a misguided effort to protect Lebanon’s domestic second hand car market.

Classic car fans also mourn the loss of many examples of pre-war motoring glory – several Ferrari Daytonas and Dinos, a host of Lamborghini Muras, Maseratis and at least one navy-blue soft-top Aston Martin DB6 Volante – that were bought for peanuts during the conflict, exported to Europe and the US and sold for a fortune during the classic car boom of the late 80s. The upshot is that there is less awareness of classic cars, another factor that has stunted the growth of a vintage culture. “Cars that normally sold for $20,000 were changing hands at $100,000. Those at $200,000 went up to a million. The sky was the limit,” Amiouni said.

Sitting despondently on a folding chair to a row of gleaming vintage vehicles outside a rundown classic car showroom in Furn al-Chubbak established by his late father, Georges Constantin is quick to concede that classic car dealing is dead in Lebanon. “There’s no business,” he mused. “And it’s been getting worse and worse for seven years now. There used to be money. Now there is none. The few clients we do have are from the Gulf.

But maybe the real problem behind a thriving vintage market is the Lebanese themselves. Last year over a classic car show organized at the Faqra Country Club by independent cars owner clubs was the catalyst for a feud with the Lebanese of the Federation of Vintage Cars, which was accused of blocking the show. The Federation claimed it was merely following federation guidelines, which prohibit unofficial car shows.

Insiders claimed that if the two groups – the federation and the independent owners clubs – joined forces, they would be able to more effectively lobby the government to reduce duties and make it easier for collectors and restorers to enjoy their hobby.

“But this is Lebanon for you,” lamented Amiouni. “We never unite to make a good thing better.”

Lebanese car buyer – especially the one interested in purchasing a new car – is a bit more nuanced than some may think.

In fact, while it may seem as though many consumers will do anything to purchase a Mercedes or a BMW – perhaps even risking their luck on a rock bottom used import with a questionable past (see page XXX) – the reality is that many new car buyers do care about safety standards, fuel economy, durability and about practical mechanics such as how powerfully a car might accelerate up a 30 degree incline on Damascus road while passing an overloaded cement truck (during rush hour).

After all, in Lebanon, buying a new car is often considered as much more of a long term investment than in the US and the EU.

“It is not that they know everything about the car,” explained Nagi Abou Adal of Adal Volvo. “But they are well informed when they come in here and they do care about safety. As you know, our roads are not safe, not only because of the infrastructure but also because of the driving pattern. So I see a lot of concerned parents who want their children to drive a Volvo because it is known for being extremely safe.”

“The Lebanese consider buying a car like buying a house,” said Cesar Aoun, brand manager for Smart Car. “So they want to feel certain in their investment.

“But,” he added, “rather than go to a consumer magazine, like some may in the US, the Lebanese buyer generally trusts in who the dealer is, the family name and the relationship that has developed over time.”

Still, it is clear that the Lebanese desire to be perceived as fashionable nevertheless acts as a powerful market mover – influencing dealers to balance an emphasis on safety and economy with a need to stand out, especially among younger consumers.

“Our strategy for Lebanon is to show that Smart Car is definitely functional and it is economic, but because of its special design and the quality of the inside – which is Mercedes standard – it is a premium brand with a fashion look,” Aoun said.

“For educated consumers, things like electronic brake distributors and a one nutshell chassy matter… But Lebanese people live in a cosmopolitan country and wealthy people, in particular, are very concerned about brands and lifestyle.”

“In the past,” explained Abou Adal, “We were known for not emphasizing design. Volvo realized that this was a drawback, so, [globally], they are trying to change from a serious safety oriented company to a trendy one that is still safe … and you can see that in our new models. As a result, the average age of a Volvo owner used to be 40, but we are now considered as a first car for 20 plus drivers… here in Lebanon as well.”

Noting the emergence of the trendy, but more expensive ($25,000 plus) Beetle, Mini Cooper and Citroen C1 – the latter of which is set to enter the market later this year in direct competition with the Smart For Two – Aoun added that Lebanese new car buyers are generally less price consciousness.

“Even though they may not have the money, they would overdo their budget and get a bigger loan to get a fashionable car.”

While dealers differ as to the relative discernment of the Lebanese new car buyer, one thing is certain: price does ultimately matter even if some buyers overdo it.

Indeed, in the first 7 months of 2005, the top five leading dealers in Lebanon were primarily selling sensibly priced brands like KIA, Peugeot and Toyota – cars that generally sell in the $10,000-$14,000 range. Although estimates very, this economy car segment most likely constituted at least half the overall market.

According to data from the Association of Car Importers in Lebanon, of the 9,626 new vehicles sold in the first seven months of 2005, the Peugeot brand (Sidia SAL) led the pack with 1,085 passenger vehicles sold – Sidia held 11.6 percent of the overall market in passenger and commercial vehicles sold. Rasamny Younis Motor Company, who was the market leader with 13.3 percent of overall sales, managed to sell 1,018 Nissan cars January to July – albeit with many higher priced brands mixed in like Nissan’s SUV line.

Next, in terms of market share, was Bassoul Heneine SAL which captured 12 percent of new vehicle consumers (1,169) – sensibly divided between Renault (592) and BMW (408). BUMC (10.7 percent of the overall market) sold 848 Toyotas, while Natco SAL held 8 percent through sales of KIA (788).

According to Fayez C. Rasamny, Sales General Manager at Rasamny-Younis Motor Company, many thrifty Lebanese help reduce the purchasing cost of a new car by trading in their old car at the dealership – at least 40 percent each year at his alone.

What’s more, although overall statistics are unavailable, the majority of buyers choose to finance their cars – up to 75 percent according to one dealer, although economy buyers generally finance less as a segment.

With plentiful bank options – nearly all banks now offer financing arrangements – and favorable terms that average five years at rates between 4.5 and 4.9 percent, it’s little wonder that so many buyers choose to take on monthly payments that for economy cars can come in under $200.

“We used to finance directly,” explained Negib I. Debs, sales manager at T. Gargour & Fils Mercedes-Benz, where buyers also often choose to finance. “But now Mercedes-Benz uses banks. The down payment is around 20 percent, it is compulsory to take insurance and the rate varies between 4.5 and 4.9 percent depending on the bank.”

From the perspective of the banks, the sector has clearly become an important part of doing business in the country – although because of the competition, profit margins are slim.

“We target mostly individuals,” said Georges W. Aouad, the head of retail banking at Bank of Beirut. “But the margins are very, very low in the car loan sector… some participate even if they are losing money.”

One area than both banks and dealers have generally steered clear of is the relatively new lease to own option.

For now, banks generally refuse to offer lease financing because of the lack of a down payment and risk (two reasons why consumers in the US and EU choose the option). At the same time, although a few dealers like Rasamny Younis do offer lease to own arrangements in house to preferred clients, dealers themselves generally steer clear of the arrangements for three reasons: First, the Lebanese mindset generally eschews leasing because as one dealer put it, “they don’t like the green license plate that is for rentals; they want to be seen driving a car they own.” Second, under the current law, there is a double taxation on registration since the leased car is first registered by the dealer and then, after the buy option is chosen, registered to the individual. And third, most dealers are generally unequipped to offer replacement cars.

“What is called leasing in Lebanon is not real leasing,” said Volvo’s Abou Adal. “There are a lot of legal issues that are not solved yet so it is ‘more like disguised rentals.”

The complications have left leasing to rental car companies like Avis who is limited by law to offering a maximum lease term of four years – which itself pushes monthly payments higher.

“If you compare buying a new car to leasing it and then buying it, the end result is similar,” said Diala Ghostine, director of sales at Avis.

Even so, according to Avis’ own calculations, buying a new Audi A3 at $28,500 with VAT ends up costing almost $38,000 after three years (factoring in registration fees, insurance, maintenance and additional VAT) while under the leasing arrangement the end cost to own is more than $40,000, with stiff monthly payments of $769.

Although the benefits of no down payment and free maintenance etc. are clearly attractive, with three year warranty deals from some dealers the advantages clearly diminish.

Which is perhaps why Ghostine’s clients are mainly corporations and not individuals for the time being – corporations who generally choose not to buy at the end.

“Lebanese people want to invest in a car they think they will drive for seven years – I don’t think so, but they think that …..so for these people, leasing is not an option.”

Whether leasing overcomes its various hurdles or not, for many Lebanese buyers, whether price conscious or not, fashion addict or safety first, an emphasis on options and the latest models is critically important.

According to Volvos Abou Adal, “Almost all of our cars are sold with leather” a choice echoed by many other dealers. “In Europe it is a much lower proportion. Automatic transmission is also considered a must so you can see that there are some specifics that we have in the Lebanese car market.”

A Bluetooth wireless car kit and I-pod installation is also proving popular for Smart Car buyers. In fact,” half of our customers want the I-pod function and they also want a special sound system and sun roof,” said Aoun, the latter of which generally applies to the market.

Also desirable: access to the newest model for popular standbys and, of course, the big SUVs that are generally either despised or loved on the roads.

“We launched the new 4X4 M class two months ago and it now looks like we are going to have big numbers,” said Mercedes’ Debs. “On the other hand, the coupes and convertibles, the nicest to look at, are extremely popular but not in volume – the enthusiasm among consumers is unbounded.”

Unbounded also appears to be the watchword for the new Nissan Pathfinder that Rasamny-Younis is set to unveil later this Fall.

“We had a hit with the old Nissan Pathfinder,” Rasamny said enthusiastically, noting that his dealership sold more than 2,000 Pathfinders between1998 and 2004. “The new one that is coming will be competitively priced with the Toyota Prado in the $50,000 range with full options, but you know for one year we did not have the Pathfinder and now a lot of enthusiasts are asking about it, so I think it will be a hit.

“You know,” he added smiling, “After all, the Lebanese love these big cars.”

Slightly over two years after effectively beginning to implement mandatory motor insurance, the number of motor vehicles with Third-Party-Liability (TPL) coverage against bodily injury claims has risen to levels drastically above those reached before 2003. According to best available assessments, vehicles with some form of insurance now number 800,000 to 900,000, or a good cut above 80% of the country’s estimated 1.05 million cars and trucks in circulation.

As the number of insured motorists has more than doubled over the period, some of the worst fears of insurance industry leaders over inadequate premiums for the compulsory coverage seem to have mellowed.

One particular worry in the industry had been that the government-stipulated premium range of $40 to $60 for a year of TPL insurance against bodily injury, although in the lower bandwidth of actuarial calculations, was still being undercut by some insurers willing to sell this insurance for as little as $20.

Companies offering such dumping prices could easily be thrown into insolvency through a series of larger claims cases that they would find themselves unable to pay out and such bankruptcies would derail the insurance sector’s still feeble reputation, went the fears. Other frequently voiced concerns were over the need to have a pool covering accidents involving uninsured/unregistered cars and its negative financial impact on the insurance industry and the internationally proven tendency of claims awards going up after introduction of mandatory insurance, and the related costs to the providers.

Up to now most fears expressed by providers during the introduction of compulsory motor insurance have been unwarranted, said Walid Genadry, head of the Insurance Control Commission at the Ministry of Economy and Trade, which is in charge of monitoring the compliance of insurance companies with regulations and solvency requirements. “There are no serious concerns from supervisory perspective,” Genadry told Executive, acknowledging however that a handful of insurance companies achieved increases in premium production based on TPL sales that were disproportional to their market position.

The first two years of compulsory motor insurance were apparently on all counts less eventful than the industry had expected during the long political discussions and arduous efforts that had preceded the implementation of the law. Although a few companies, presumably by selling compulsory motor insurance at or below the minimum mandatory annual premiums, could boost their premium turnover from amounts in the $500,000 range to $2 million or more, many larger insurance firms did not greatly increase their portfolio of motor premiums.

Not interested in taking on risks insuring cars of advanced age and /or questionable road safety, these providers often push sales of the mandatory TPL cover only in conjunction with a profitable no-fault insurance package or at least a full TPL package combining bodily injury and material damage covers. Typically selling for between $120 and $150, these latter packages may still be inexpensive for the covers they provide but their comparative to the cheapest mandatory providers’ higher costs act as a barrier against customers who are only willing or able to purchase the cheapest insurance in the market.

“We don’t readily give TPL to unknown clients and will not underwrite TPL for bodily injury alone unless it is for a very big client,” said Fadi Chammas, general manager of Arabia Insurance. The bodily injury cover alone is cheap and very volatile, assessed Max Zaccar, general manager of Commercial Insurance. “We sell motor insurance, but not bodily injury alone,” he said.

Insurance leaders are far from convinced that concerns over the viability of compulsory motor insurance are moot. Costs of motor insurance have been driven up already by the fact that VAT costs had not been included when the premium ceilings for compulsory insurance had been determined, said Chammas, in whose opinion the financial results of selling compulsory motor insurance “are bad, forcing providers into losses.”

Court rulings over personal injury or death claims already have been tending towards awarding higher damage amounts when the judges knew that insurance companies rather than the individuals involved in an accident would have to pay, said Lucien Letayf Jr, general manager of Libano-Suisse Insurance. He also admonished that changes in the rules on settling claims now would force insurers to pay out claims in the first instance when the motorist had caused the accident in question while driving under the influence of alcohol or even intentionally, through a proven vehicular homicide. “We are not very happy with the existing law,” Letayf said.

What is undisputed by insurance companies and the regulator is that material damage coverage has to be included as soon as possible into the compulsory motor insurance, in order to achieve a farther reaching protection of society against the impacts of traffic accidents. One important question in this context is however for some insurance executives if it is not necessary to be more stringent in weeding out unethically acting and unprofessionally managed companies from the sector before implementing this second phase of compulsory insurance. Other managers ask that the ministry of economy would continue to stipulate a minimum amount at which TPL policies can be sold and enforce this minimum but abstain from imposing upwards ceilings and instead leave price determination on the upper end of the equation to providers and market forces. 

Adding to the uncertainty over appropriateness of premiums is that currently there exist neither conclusive statistics on the sector’s cumulative premium volume from motor insurance in general or mandatory TPL, nor have insurance companies and the industry association ACAL hitherto compiled and published sector figures on claims paid out in motor insurance. A first survey on the loss ratios of TPL insurance is underway but as long as its results are outstanding, no clear picture on the real cost and effectiveness of the now existing mandatory insurance is possible.   

However, compulsory motor insurance in any case has not contributed a great deal to the sector’s bottom line, suggested Zaccar. If 500,000 new contracts for compulsory bodily injury covers had been added at a value of $30 per policy to the industry’s total annual premium volume, this represents merely $15 million in additional turnover divided among some 45 insurance companies, he said, or less than 3 % of the sector’s balance sheet.         

 Still, the reality of compulsory motor insurance is a factor in the spreading of insurance awareness and in slowly increasing insuredness on national level. Standardized motor insurance products are suited especially for being sold over the counter of banks through the bancassurance distribution channel as well as through other non-conventional distribution channels, said Letayf.

A significant part of the insufficiencies associated with implementing motor insurance in Lebanon stems from overall weakness of concepts on the long-term financial losses caused by an accident. People widely do not approach the issue of an accidental death or traffic casualty under the aspect of the damage from the loss of the individual’s earning power. Thus on the sides of the insured and insurers, the cultural propensity is leaning towards lower assessments of accident damages and eventual underestimation of the impact of traffic accidents on the national economy.  

This point was emphasized strongly in a 2004 study evaluating road safety in Lebanon and outlining the need for a master plan to improve road safety. Undertaken by SweRoad, a Swedish road safety consulting specialist, the study reinforced doubts on the number of traffic casualties in Lebanon and, based on reassessing these numbers upwards, attributed road accidents with having caused at the very least $500 million in damage to Lebanon’s GDP for the year 2003, and probably much more.

While unfailingly polite and careful to carry a positive tone throughout, the report passed a judgment on road safety in Lebanon that was as unsurprising as it was damning on literally every aspect of road safety and national planning of sustainable traffic. If no measures are taken to improve road safety, the report estimated that fatality numbers from traffic accidents would go up by 20 to 35% over the next five years, with the resultant increased damage to the national economy.

In light of such figures it seems nonsensical to assume that insurance coverage worth about $50 million to $60 million for TPL coverage of 800,000 to 1.05 million motor vehicles could decisively aid the country in managing the costs of road accidents. Nor, and very importantly, does it seem likely that current, unrefined premiums for mandatory TPL could create a substantial impulse towards having motorists adopt more defensive driving habits and make greater safety efforts.

Thus, further improving insurance requirements for motorists and achieving greater sophistication of motor-related insurance products will only have a robustly positive impact if such developments are achieved in concert with overall road safety gains. [box]

Motorists may currently still have access to TPL insurance at bargain prices. But considering the possibility that traffic accident numbers and fatalities in Lebanon, contrary to trends in developed nations, could increase further, the outlook on future costs of road accidents to society and individuals may be devastating – unless a radical change in road safety policies and attitudes can be accomplished.

Take a drive along any of the main highways out of Beirut and it quickly becomes apparent that the Lebanese love, and have always loved, the muscle, sleek lines, reliability and prestige of Mercedes and BMWs.
Of course, along with that love affair is an fortunate dilemma, one that is perhaps emblematic of a wider social pathology: The Lebanese love their luxury brands but in many cases cannot afford them.
What this means is, according to informal estimates (statistics are not available for used car sales), the 461 new Mercedes and 609 new BMWs sold in Lebanon last year were more than outpaced by the number of used models sold to consumers eager to invest in and show off their “new” Mercedes and BMW.
The problem is that over the past four months alone, at least four people have died in accidents in which their luxury Mercedes rather unluxuriously split in half. While there have been past reports of similar incidents over the years, the true number of accidents related to used cars with welded chassis and bodies is also, unfortunately, unavailable; as is the overall number of so-called “half-cars” on the road today.
What is certain is that the death of Tyre MP Ali Khalil and his wife in early April, after the Mercedes they were driving split in half during a crash in wet weather on main road South, momentarily focused attention on the sometimes shadowy world of used cars – especially on the part of the market, an apparently large part of the market, that relies on the import of damaged vehicles and half-cars that are condemned as scrap in Europe and North America.

“The Scientific Research Foundation published a report recently that said these vehicles that are welded together are considered the most dangerous on our roads,” said Ziad Akl, President of YASA International.

“We do know at least that there were at least 120 accidents last year alone due to such cars – and while not all crashes led to death it is still a serious problem. These used cars that are coming here need to be inspected fully before they enter the country because right now this is absent.”
According to several car agents, all of whom requested anonymity due to the sensitive nature of the subject, under the status quo, a BMW involved in a serious traffic accident in France, for example, will essentially have its chassis serial number and license blacklisted for resell or repair. At this point, a Lebanese used car dealer would buy the car from the insurance company as scrap, cut it in half and ship it to Lebanon along with numerous other half cars and spare parts.
At customs, where rules and regulations are notoriously fluid, the half-car can mostly escape the sizable tariffs levied on new cars (used cars, including damaged cars, face the same tariff rate as new cars but have their value determined by the Blue Book listing). They can also escape the albeit limited safety testing that all cars must submit to. After all, it’s not really a car. In fact, the half-car is officially listed as a spare part.
Once in-country, with no legitimate service history required of used or damaged cars, the car is then welded together with another anonymous half car – not necessarily its natural half either…for better or worse, in sickness and in health – and is promptly put on the block at used car lots across the country.
Meanwhile, the prospective buyer has only the word of the dealer to go as to the prior condition of the vehicle (Lebanon has no “Lemon Law” that would provide used car buyers with full refunds should the car fail within a certain amount of time).
According to one new, luxury car dealer, whose shop services his brand’s used cars and whose own sales are naturally affected by the presence of lower cost used cars, horror stories abound in the industry.
“We have seen cars that are unimaginable,” the dealer said. “We checked one car that was apparently perfect, but with a simple AC problem. We took the dashboard off and noticed that the car had had a huge accident where the airbags had gone off.
“The airbags had not replaced,” he exclaimed, after a momentary pause to emphasize the point. “It was in perfect condition… but there were no airbags. The owner had no idea.”
“Look,” explained another new car dealer, outlining the critical problem in the used car sector as a whole. “You can bring just about anything into Lebanon. If you buy a car here and ship it to France, however, you have to pass a whole series of quality control tests most of which we do not have here. Also you can’t bring a car into France that is not already legally sold as a brand there.”
“I can bring in five, whole used cars and sell them at my dealership if I wanted,” noted one dealer who sells both new and used cars. “I would pay customs at the border or at the port and that is it – there is no tax on my profits, the VAT may or may not be registered and I don’t have after sales issues since if I sell him a scrap car it is his problem.”
While most used car dealers refused to comment on the issue, the four months that have passed since MP Khalil’s death have apparently lessened the sense of an imminent crackdown to the extent that at least one repair and assembling company dealer felt comfortable enough to joke about the matter.
“It’s a death trap,” laughed one dealer as he motioned vigorously to the two BMW half-cars that lay in plain view outside his Furn el Chaabeck shop. “No, seriously though. We do a good job and it is safe. But then again you may find half of you on one side of the road and half on the other!”
When pressed that, in fact, this had happened to several people recently – or at least they had died whole in a luxury car that itself had split in half – the dealer only shrugged and said gravely: “We Lebanese love our Mercedes; we are doing the best we can to give them what they want.”
After a pause, he added, incorrectly, that, “I think that it may even be legal to sell welded cars in Germany, but I am not sure.”
Although such crass behavior is probably not representative of the majority of used car dealers and garages in Lebanon, contrary to the published claims of used car dealers about a clear separation between dealerships that import both damaged and half-cars and those that don’t, several new car dealers interviewed by Executive claimed that the practice of refitting damaged and half-cars was widespread.
Indeed one used car dealer claimed that behind almost every used car lot there is a repair and assembling shop that churns out previously damaged or half-cars.
In the end, while a relative paucity of regulation is clearly to blame for much of the current situation (inspectors don’t check the frame of used cars coming into the country for example) the high tariffs levied on new cars and good condition used cars also play a significant role in creating the market for less expensive, but potentially dangerous vehicles.
When customs, VAT and registration fees end up raising the sticker price by 75 percent or more on a new luxury car, it is little wonder that some dealers will even go to potentially dangerous lengths to satiate the unyielding Lebanese demand for brand name purchases that seems to have diminished little. As one motoring journalist commented, “everyone knows its going on but they either don’t see it as a problem or they believe it’s always the other guy who is being conned.”

Until the assassination of former Prime Minister Rafik Hariri in February, Lebanon’s 33 new car dealers had been enjoying something of a sweet ride, despite their persistent complaints of high taxes and fees that in some cases can more than double the cost of buying a new car.

Indeed, according to data from the Association of Car Importers in Lebanon, sales of commercial and passenger vehicles in January 2005 alone saw a 26 percent jump over the same period in 2004 (1,522 new passenger vehicles and 123 commercial vehicles were sold in January of this year while 1,225 passenger and 79 commercial vehicles were sold in January last year).

In fact, though the president of the association, Samir Homsi, noted that Lebanon had seen better years, new car sales for all of 2004 jumped almost 30 percent compared to 2003 (from 15,921 vehicles in 2003 to 20,455 vehicles in 2004).

Of course, as with so many aspects of Lebanon’s economy, the assassination badly hobbled the industry, nearly halving sales for almost all dealers in the months of February, March and April.
For at least one dealer though, the downturn provided a perfect moment for a new introduction.
“We decided to launch the new 3 series during this period even though it was a risk,” said Nagy Heneine, General Manager at Bassoul Heneine BMW. “From our marketing point of view, we thought that even if we did not sell, the visibility would be very high because no one was doing a launch. So the main focus was not to sell immediately but to tell people that there was a new 3 series in the market… [Ultimately] it was valuable.”
In contrast, most dealers choose to wait out the slump. By May though, the wait was over: The dealers partially resuscitated their sales figures be initiating an aggressive campign of special discounts and deals widely advertised in the local media (May sales increased almost 75 percent over April).
Although the “No VAT” or “registration included” offers clearly impacted the bottom line of participating dealers, a cost that none cared to specify but that almost surely reached the tens of millions of dollars, May, June and July overall saw 5,284 new vehicles sold compared to 5,993 during the same period in 2004 – a more manageable 11 percent drop-off in sales year on.

“Everyone in the car industry was burdened with heavy inventory so there were quite good offers for customers,” explained Nagi Abou Adal of Adal Volvo. “In our case, for a limited period of time and on certain models, you could buy without paying VAT or you could choose to take a larger discount – our normal discount is four percent but we increased this to 7-8 percent off the sticker price.

“The result was that we sold out on those cars and lowered inventory.”

By August, most dealers had also roughly gotten back to the status quo, but the financial beating they had taken in the process clearly hit a sore spot for the industry as a whole, thus raising anew the issue of the onerous tax and duty policies applied by the Lebanese government.

Added to this the “Dollar effect” which pushed the prices of European brands like Mercedes-Benz, BMW and others ever higher, and the result was a number of fed-up business owners tired of competing and selling in an otherwise promising market with two hands tied behind their backs.

“The volume of sales would certainly increase and the government would make more money if they just reduced the customs duty, the VAT and the registration fee,” argued Homsi. “If they did this we would also improve environmental quality, because newer cars are, in some cases 80 percent cleaner. At the same time, our medical bill would be less because newer cars are safer, and, [consumers] would benefit because they would get a warranty on average of three years which means you do not have to pay for major repairs during this time.”

Michel Trad, managing director of Saad & Trad agents for Fiat, Jaguar, Bentley, Lamborghini and Ferrari, believes that the government should abolish the rather complicated layered taxation system altogether and simply impose a 20% tax on all cars. “This will make it cheaper for the customer and increase revenues for the government who will have encouraged bigger sales volumes.”

According to Negib I. Debs, sales manager at T. Gargour & Fils Mercedes-Benz, a Mercedes-Benz model that might sell for $100,000 in Dubai would be $150,000 here in Lebanon after customs since the rate is set at 20 percent of the car’s value for models below 20 million Lebanese Pounds and 50 percent of the value above that level.

“Then you have the 10 percent VAT and after that you have to pay registration – something that is nonexistent in most Gulf countries and in parts of Europe.

“In Germany,” he added, “registering an S-600 costs 150 Euros. In Lebanon, it can go up to $12,000 for the same model because the registration rate of six percent is tariffed onto the custom’s value of the car, which in this case is above $200,000.”

As a result, not only is local demand stifled; so to is the demand of Gulf tourists who summer in Lebanon but who find is cheaper to ship their own (mostly luxury) cars here rather than buying an expensive brand locally.

“We are missing out on this market … and our own local market at the same time,” said Debs who estimated that, by reducing taxes and fees, Mercedes-Benz could sell well in excess of one thousand new cars each year (or more than double their current activity) in Lebanon.

“And what would happen is that people who could not afford the C-180 for example would now be able to buy it. As a result, the quality of the cars being bought would go up, less used cars would be sold and overall activity would increase.”

According to Volvo’s Abou Adal, who like many Lebanese dealers has been operating for close to a half century, such moves by the government would also come at exactly the moment when dealers are being pressed by the depreciated value of the dollar.

“Dealers of European cars from Germany and Sweden have seen their costs rise 30-35 percent because we sell in dollars. We are trying to fight this in various ways but the sticker prices have had to rise.”

That said, despite the various struggles and the “ongoing negotiations” with the government – which usually means more delays rather than imminent reform – some dealers willingly signal their confidence that the worst has passed and, burdensome registration fees or not, the new car market is slowly but surely returning to the days when sales saw increases rather than slumps.

“January was excellent,’ explained Fayez C. Rasamny, Sales General Manager at Rasamny-Younis Motor Company (a new and used car dealer for GMC and Nissan). “Then we had the drop off… But now in August we can say that we have come back to normal.

“In fact,” he added, “the forecast is that we will move to the pre-assassination period when we saw steady growth.”

It is a sentiment echoed by Michel Trad.  “We are recovering slowly. We had a fantastic 2004 and January 2005 and then the market collapsed completely,” said Trad. “We rely a lot on the rental market and the high-end tourists did not show up this year. Simple as that.” Trad did however say that sales were picking up and that despite all the problems to have blighted the country he expected overall sales to be down by what he considered to be an acceptable 15%. Jaguar has been a good performer for Saad and Trad especially since 1999 and the launch of the S-Type, which was followed up by the equally marketable X-Type. “Before 1999 we were selling around 40 models a year. Last year we were doing more than 200,” he said.