There is a unique disparity in the wider Levant in terms of new car sales. While the automotive market in Jordan has been stronger than average, Syria has been negatively impacted by a real estate bubble.
Jordan
In Jordan figures provided by car dealers diverge and getting accurate sales data, like much of the region, is difficult. Zaid al-Abdallat, general manager of Abu Khader, exclusive dealer of Cadillac, GMC, Hummer, Opel and Chevrolet, said last year about 15,000 new cars were introduced to the market. While Muhammad Omar, Kia marketing officer, put this figure at 27,000, out of a total of 75,000 cars sold. Al-Abdalat underlined that while growth of the automotive sector was negative in 2007, this year it is up by an average of 11%, in spite of oil price increases during the first six months and Omar believes that this year the number of cars sold will reach 80,000. As al-Abdallat pointed out, “The growth witnessed this year can be attributed to the increase in the number of small cars sold around the Hashemite kingdom. This is mainly due to the expansion or acquisition of car fleets by companies that are newly established in Jordan. The country is perceived as a safe haven and has been attracting foreign companies, seeing its economy grow rapidly.”
In Jordan, Omar said, the vehicle park is comprised of 839,745 cars, of which Mercedes- Benz has a 17% market share (120,567 vehicles) while Kia enjoys a 14% slice (100,694 vehicles). Omar, who keeps a close tab on the evolution of the market, explained that in the A car segment (small cars) the Kia Picanto comes in first place. The Mitsubishi Lancer dominates the B segment, the Toyota Corolla the C segment, the Toyota Camry the D segment, and Kia Opirus the E segment. “In the category of luxury vehicles, our studies have shown that the Mercedes C-Class tends to fare the best. It will be the Hyundai Matrix in the MPV category, Kia Carnival in the PPV, the Hyundai in the small SUV, and the Mitsubishi Pajero in the SUV four-by-four. Up to 50% of SUVs registered every year in Jordan are brand-new while the level plummets to 28% for small cars,” Omar added. Al-Abdallat underlined, however, that his group comes in first place in terms of SUVs and second across the board. “The segments that have reflected much of the growth are the small car category, small SUVs such as GMC Terrain and the Chevrolet Captiva, while small sedans such as the Chevrolet Aero and the Opel Optra have also fared very well,” he added.
The range of cars available now in Jordan means that almost everyone is able to purchase a car. “One has to keep in mind that brand names are increasingly launching cheaper models produced in emerging markets that target lower income strata,” said al-Abdallat.
The lower income stratum is expected to become increasingly important, as car dealers in Jordan await the impact the global financial crisis. However, at the moment car dealers are not too pessimistic as to the impact the crisis will have. Omar explained that about 50% of Kia’s customers purchase cars on credit when it comes to small cars, while large sedans priced above $28,000 are usually bought in cash, or using a credit card or a check. “We expect to be affected by the credit crunch in the longer term,” admitted the marketing officer. Al-Abdallat, on the other hand, remains optimistic, predicting that the solid Jordanian banking sector leaves the country at lesser risk from a credit crunch than the West. Because of the price of oil, Omar is surprised by the continued growth in the high-end SUV segment, attributing this state of affair to a lack of sensitivity of this particular clientele to price increases.
A major barrier to Jordanian car dealers selling more cars is the high tariffs. Al-Abdallat stated that for most Jordanians cars are an investment, pointing out that “vehicles sold in Jordan may be twice as expensive as in the Gulf, with tariffs going up to 80% or 90% depending on the number of options and the size of the engine.”
Another issue in Jordan’s automotive industry it lacks a clear registration process. According to Omar, this lack of clear legislation means that grey market practices occur frequently in Jordan, with traders buying cars from dealers to re-export them to Jordan. “Cars sold locally by traders are often originally produced for the US market. This causes problems for dealers when owners bring their vehicles for a revision or to be fixed, as they require parts that do not exist in this market,” he said.
Al-Abdallat explained, however, that the grey market is less of a hindrance than it used to be for dealers, due to the progressive decrease in marginal differences between official dealers and traders. “Dealers also offer customers the advantage of after sale service with which traders can’t compete,” he said.
Currency fluctuations that had the potential to hit new car sales of European and Japanese cars have not occurred. “Because our Opel brand is well established in Jordan and has a good resale value, it has been partially immune to the fluctuation in euro prices,” al-Abdallat emphasized. The general manager added that the impact on dollar-denominated brands such as Cadillac and Chevrolet has been mitigated by the inflationary trend witnessed around the world. Omar believes, however, that Korean and American cars have been positively impacted by the weak dollar, which has allowed them to be more affordable within every market segment.
Syria
Syria is the first country in the Levant and GCC to manufacturer its own car. Last year saw the inauguration of a new automobile factory, the Syrian Iranian Automobile Manufacturing Company (SIAMCO), in Adra, 35km north of Damascus. The company is a $60 million joint venture between Syria and Iran, whereby the Islamic Republic’s automotive giant, Iran Khodro, owns a 40% stake and the Syrian government a 35% share, while the remaining 25% are controlled by Al Sultan, a private Syrian company. SIAMCO is delivering cheap and sanction free automotives for the Syrian market. As for the rest of the market, according to Omar Shallah, managing director of Rakhaa, Nissan dealers in Syria, there are about 90-92,000 cars sold yearly. “In the absence of real data this is only an estimate,” added the manager. Bassam Saadi, general manager of Bahi Motors, exclusive dealers of BMW and Mini Cooper in Syria, put this figure at 40,000, with prices of vehicles varying from $6500 to $300,000. Shallah explained that growth has been negative last year due to the real estate bubble that has restructured the average basket of goods, decreasing the share of retail products, thus impacting the automotive sector.
In such a market, which brands fare the best? According to Saadi, BMW are extremely popular in Syria, especially the larger sedan models such as the 5 or 7 series. The second best selling model after the 5 and 7 series are the four-wheel-drive models while the 3 series comes in last. BMW’s clients in Syria are mostly VIPs, government officials as well as business executives, with women representing 25% of the clientele, explained Saadi.
Korean brands such as Kia and Hyundai to be widely popular because they are of relatively good quality and affordable. “Chinese car makers have still to work on the quality of their vehicles,” Saadi explained. Shallah said that while Korean brands currently have a 40% market share, their popularity being based on the demand for entry level cars of 1.6 liters and below, Japanese cars account for about 10-12,000 vehicles sold yearly. Because entry level cars are widely in demand, Shallah said, most Japanese companies tend to focus on the trend business as well as renewing or establishing car fleets for companies.
One problem hindering sales of car dealers in both countries is the existence of a grey market. “It is a major problem in Syria. Traders are tuned to the market needs and will import models that are popular as soon as they are released in Dubai, Oman, or Kuwait and resell them locally at lower prices than ones offered by exclusive dealers. They have the advantage of lower overheads, but they also do not guarantee vehicles, bother with parts or after sale service,” said Saadi, adding that legislation is vague when it comes to exclusive dealership contracts. Another issue faced by car buyers in Syria, like Jordan, is that of high tariffs. In Syria, taxes imposed on cars are extremely high, generally varying from 60% to 165% or 175%, depending on the type of vehicle. “Taxes depend mostly on the car type and the size of the engine; for example, a Hyundai Sonata will naturally not be taxed like a 2-liter engine BMW,” Saadi said.
The soaring oil prices are also having an effect on the car market, although in Syria, where gas is subsidized, the effect is less pronounced. Shallah acknowledged, however, that prices have steadily increased over the last few years. Saadi admitted that the recent drop in the euro exchange rate has certainly improved the positioning of BMW in Syria and allowed it to become more competitive. He explained, however, that the effect of the high euro was not as significant as expected, but entailed constant reviews of prices depending on exchange rate fluctuations. But what about the current credit crunch? Saadi said that about 70% of buyers in Syria resort to credit facilities obtained at local banks and thus “the current crisis will force banks to scrutinize loan applications and will extend the time for applications to be processed.” For Shallah, the effect will be minimal as the managing director believes that the banking sector in Syria is not directly linked to Western economies.
