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.