Home Special ReportAutomotive 2017 Drive … At your own risk

Build & Reform pillar, #BuildPublicCapacity, #ReformStateInstitutions, #BuildJudicialIndependence, #BuildCorporatePurpose, #ReformPoliticalEconomy, Strategize Pillar, #StrategizeTransport, Combat pillar, #Combatinequality, #CombatCorruption, #CombatPollution

Drive … At your own risk

A close look at the driving environment and the car market

by Hani Bathish

Our roads are unsafe. A large number of the cars on our roads are inefficient, polluting, and even dangerous to drive. Many go uninspected, as people thumb their noses at the law, and many more are cheap cars that were damaged and repaired badly, bought secondhand on the gray market. On top of everything else, our commercial-vehicle fleet is in desperate need of renewal.

The crisis we face is dire. It was instigated by a shortsighted government tax policy that financially incentivizes people to keep driving their old cars, and effectively discourages them from buying newer, safer, more fuel-efficient models through the imposition of a high tax on even the most compact and affordable vehicles.

What makes matters worse is the fact that the full implementation of the new traffic law continues to be hobbled by political cover for violators, expensive fines that the authorities balk at issuing, a failure to implement parts of the law concerned with training driving instructors, and a failure to impose measures that are designed to change driving behavior rather than impoverish drivers, like the points system and the suspension of driving privileges.

All these elements together contribute to a chaotic and dangerous driving environment in the midst of economically strained times.

A tax threatening our health and safety 

Selim Saad, advisor to the Automobile Importers Association in Lebanon (AIA), says that consumers can expect to pay as much as 43.5 percent of the price of a $9,000 car in taxes, between customs duty, VAT, mechanical tax, and registration fees. “And that’s before we add the dealership’s profit margin,” he says.

According to AIA figures, for a $25,000 car, a customer can expect to pay up to 59 percent of the price in tax, and for a $70,000 car, he or she can expect to pay 70 percent of its value in tax. “As of the end of 2016, we had 1.58 million registered cars on the roads in Lebanon—41.1 percent of them, or 739,000 cars, are over 15 years old; 681,000 are over 20 years old. Out of the total number of cars on the roads, 613,000 didn’t pay mechanical tax or go through periodic inspection to see if they were still roadworthy,” Saad says.

The tax burden on consumers looking to buy a new car is immense, and serves no apparent nor rational purpose—unless its aim is to keep polluting, unsafe vehicles on our roads. Emile Mabro, chief executive officer of the Kettaneh Group, the exclusive dealer in Lebanon for Audi, VW, and Skoda, says that paying $120,000 in tax on a $200,000 car is excessive. “Maybe the high tax policy was initially intended to limit the number of cars on the roads, [or] maybe it was intended to finance the government, but it has opened the floodgates to the gray market,” he says. The gray market, full of imported used cars of unknown provenance and concealed mechanical and electrical faults, has flooded the country with vehicles that have, as Mabro puts it, “issues.”

“This has created a supply of unsafe second-hand cars that is the direct consequence of the high tax and customs duty policy,” he argues. The main issue with the gray market, Mabro says, is that the origin of a vehicle cannot be traced, nor its driving history examined. Most are bought cheaply at auctions abroad and shipped in, some are flood-damaged or have been crudely repaired after being in an accident—problems not immediately apparent to the buyer, but which slowly emerge after intensive usage over time.

Polluting our lives

The government tax policy is flooding the urban ecosystem with deadly gaseous emissions. That is in effect what happens when aging, uninspected, inefficient, fuel-guzzling cars are allowed to drive on our roads, just so that the government can collect as much tax as possible in an attempt to balance its books.

Najat Saliba, a professor of analytical chemistry at the American University of Beirut, found in a 2011 study that vehicle emissions in Lebanon are six times worse than in California. “We measured emissions on the five-lane Jal El Dib highway, and we found 600 milligrams of particulate matter [mpm] per kilogram of fuel burned. When we compared that to the seven-lane I-110 highway in California, we found emissions to be 100 mpm per kilogram of fuel burned,” Saliba says.

“Our road vehicle fleet is emitting far more particulate matter. This is the fine particulate-matter emissions, which are directly correlated to deaths from cardiovascular disease, lung disease, and asthma,” Saliba says.

And it is not just the car market that the government manipulates through its policies—the quality of the fuel our cars burn is also subject to governmental oversight. As the AIA’s Saad notes: “Cars today are produced to meet Euro 6 emissions standards; unfortunately, the fuel used in Lebanon, whether petrol or diesel, is Euro 3 standard, which emits 500 parts per million [ppm] of sulfur.” He adds that LIBNOR, the Lebanese standards institution, has already issued Euro 6 fuel specifications, which require sulfur emissions to be reduced to a mere 10 ppm for both gas and diesel engines. “The law has been issued, but it needs an implementation decree,” Saad says. “It’s an important measure for health.” In the meantime, as we await implementation, we continue to breathe—at our own risk.

Road safety council

The National Road Safety Council (NRSC), which is headed by the prime minister, is the body entrusted with implementing all facets of the new traffic law. Ramzi Salameh, the director of the masters program in management of road safety at Saint-Joseph University, was appointed secretary-general of the NRSC by former Prime Minister Tammam Salam. Salameh says that the traffic law needs decrees of application to be fully enforced and effective, which means a lot of text and drafting. Most of that is under the purview of the NRSC.

To date, however, the council has met only twice: once in December 2015 and again in June 2016. The council is behind on implementing nearly every dimension of the new regulations. “The traffic law calls for the reform of training procedures for new drivers, and to make sure all drivers possess the knowledge, abilities, and attitudes needed for safe driving,” Salameh says. “To date, only the computer-based driving theory test has been approved.”

The part of the law concerning enforcement of fines and penalties does not need new texts or instructions to be enforceable. “However, the level of the fines needs further thorough study, as the legislature placed greater emphasis on the amount of the fine than on the means and procedures to deter drivers from breaking the law,” Salameh says. “[Internal Security Force] policemen have complained about the high value of the fines, which citizens may see as unjust, while at the same time political patronage plays a role in the failure to enforce the law.”

The points system, when implemented, would penalize consistently bad drivers who commit many traffic violations, eventually revoking their driver’s license after repeated offenses. “This system has not yet been put into force. The system is awaiting the implementation of the intelligent [biometric] license,” Salameh says.

A change of driving culture is needed

Salameh says there is a need for deep reform of the driving culture in Lebanon. “The culture here does not respect principles of good, safe driving. “We need a cultural change, a change in mentality on how to use the roads, how to share the roads with others, to be patient, to think of others and not just ourselves.” But even if fully implemented, the law in Lebanon remains deficient. It does not, for example, prescribe airbags as compulsory, only seat belts, whereas in Europe, airbags and various other driver-safety aids like sensors are compulsory on all vehicles.

Salameh says that there is no age limit placed on passenger vehicles that are permitted to use the roads. He feels that proper maintenance is more important than placing an age limit on old cars, pointing to the number of vehicles that fail to submit to periodic mechanical inspection.

The primary duty of enforcing periodic car inspections rests with the ISF, who have the authority to stop any vehicle on the road to check it has passed inspection. “Ultimately, to enforce the law integrally we need a political will from the entire political class and a commitment to deter all violations, including enforcing compulsory annual mechanical inspections,” says Salameh. “But people know that all those who violate the law think they can because they are supported by one politician or another, this deters the policeman from enforcing the law.”

He adds that France, which in 1972 had roughly the same number of collisions per mile driven as Lebanon, managed to change driver behavior. It took time, but France ultimately succeeded in reducing fatalities from road crashes from 18,000 per year in 1972 to 4,000 per year today, a major drop considering the exponential increase in the number of cars on the roads over the past four decades. “Through the introduction of countermeasures, radars, the reform of the driving schools, and the introduction of a points system, the French changed driver behavior,” Salameh says.

Vehicle tax breakdown

The AIA’s Saad says that in most countries, car importers pay either VAT or customs duty on imported new cars—but not both. In Lebanon, however, a customs duty of 20 percent of the value of a car is levied on cars valued at LL20 million ($13,333) or less, while a customs duty of 50 percent of the value of a car is levied on cars valued at over LL20 million. “On top of that, you pay 10 percent VAT, and on top of the registered selling price, the customer pays 5.3 percent of the value of the car as a registration fee,” Saad says, adding that in other countries the registration fee is very low and of symbolic value.

For cars with engines between 11 and 20 horsepower, the mechanical tax ranges from LL53,000   ($35) to LL525,000 ($350). For cars between 41 and 50 horsepower, the mechanical tax is LL2.5 million ($1,666). “Whereas cars that are more than 13 years old pay only LL230,000 ($153) in annual mechanical tax, these older cars are also running on our roads, they pollute more, and cost more to run and repair,” Saad says, describing vehicle tax policy as insane. He adds, “In France, they scrapped the mechanical tax because they found it to be unfair.”

If Lebanon had a well-organized public transport system, Saad believes, people would gladly give up their aging cars. “These old cars, in addition to the health and safety and pollution problems they pose, burden their owners with high repair bills,” he says.

Every car and road tax the government collects goes into a common pot at the treasury, from where the money is distributed to wherever it is needed. Saad suggests it would make more sense if the money at least went directly to repairing and upgrading the country’s roads and bridges, which are in bad shape.

Car-buying behavior changing

Opting to turn their backs to the unreliable gray market, new car buyers in Lebanon are very price sensitive. As the middle class is being pushed into a lower income bracket, smaller, more fuel-efficient and affordable cars are gaining popularity, according to AIA figures. Korean cars continue to lead car sales in the country: Kia sold 4,671 cars in the first half of this year; coming in at a distant second, Hyundai sold just 2,803 cars. Japan’s Toyota holds third place, having sold 2,620 cars in the first half of this year, followed by Nissan, which sold 1,959 cars in the first six months of the year. Chevrolet and Renault hold on to fifth and sixth place, having sold 1,093 and 1,088 cars respectively in the first half of the year.

“The car-buying trend follows the socioeconomic evolution of the population. The middle class in Lebanon is shrinking, which is affecting the car market,” says Kettaneh’s Mabro. “Sales of very cheap cars priced below $20,000, or even below $10,000, are growing, as are sales of very expensive cars priced at $150,000, or even over $200,000. Sales of cars priced between $30,000 and $70,000 have been hit hard,” he  says, adding that overall the new car market only fell by just 1 percent from last year.

This assessment is in agreement with AIA figures. According to the AIA, total new-car sales last year reached 36,300, while new-car sales in the first six months of this year reached 23,559. Saad predicts just a 2 percent drop in sales this year from last year. Mabro says that demand from wealthy customers remains strong: “Even the Audi R8, which is a $300,000 car, is selling well.”

For most new car buyers, affordability and low running costs remain top priorities. Maria Rita Boustany, marketing and human resources manager at Toyota of Lebanon, says that due to the lack of proper public transportation in the country, compact vehicles are in high demand. “There is an ongoing trend as well for compact crossovers, which are rising in popularity. The launch of the Toyota C-HR [a compact crossover] was a tremendous success, as was the Lexus NX, a luxury compact crossover,” Boustany says. A crossover combines features of a sport utility vehicle with those of a passenger vehicle, especially a station wagon or hatchback. Examples of the body type include the BMW X1, Dacia Duster, Nissan X-Trail, and the Korean-made SsangYong Korando. Mid-sized crossovers include the Mercedes-Benz M-Class, Ford Edge, and the Volkswagen Touareg.

Pre-owned cars and competition

Many car dealerships in Lebanon sell pre-owned, refurbished models at their showrooms that sell for much less than brand-new cars. Unlike other used cars, these cars have a dealer’s warranty. Kettaneh sells pre-owned VW, Audi, and Skoda vehicles. “It’s important for us to show that our pre-owned cars are as good as new—for this, we give customers a warranty on pre-owned cars. We need to do this to show we are serious about combatting the gray market,” Mabro says.

Sales of new Toyotas, according to Boustany, exceed those of pre-owned cars. “People are very disinclined to trade in or sell their Toyotas,” she says. As for the competitive environment, Mabro says that the new kid on the block—the Chinese—do not yet pose any serious competitive threat, as the poor quality of Chinese cars overrides their cheapness. “The Koreans are managing to compete well—they are bringing in cars with a lot of extra features like auto-park and cameras—but they are overall of a lower quality compared to German cars,” adds Mabro. He says people are choosing to buy cheap, non-durable cars because of affordability, but said that this was not a good calculation. “Buying a cheap car only makes you happy for a few months,” he says.

Public transport

The World Bank and the Lebanese Council for Development and Reconstruction are preparing an urban transport project to organize public transport in Greater Beirut. The Project Information Document (PID) Concept Stage was updated in January 2015. Included in the project is a bus rapid transit line to connect Tabarja to the north and Jiyeh to the south of Beirut, Saad says, “It will be a closed, dedicated two-way road just for buses.”

However, when such a project will see the light of day is anybody’s guess. For now, the country is faced with a growing number of taxis and minivans as the mainstay transport option for those who cannot afford or choose not to drive in this country. But even as taxis and minivans offer cheap transport options, the fact remains many are unregistered, even dangerous to drive in or near, and offer few to no passenger safety features. “There are a total 33,000 red taxi number plates in Lebanon for approximately 60,000 taxis operating on the roads today; there are 4,000 minivan buses registered in the country for about 20,000 currently operating on the roads, not counting all the cars coming from Syria, which makes the situation quite dire,” Saad says. He adds that investments in public transport boosts the economy, and would create 25 percent more jobs than the same investment going to build roads and highways, as well as help the environment and alleviate congestion. What’s more, a highway for cars is 175 meters wide, a dedicated road for buses is just 35 meters wide, while a metro train line is just nine meters wide, which makes mass transit the better option in terms of land footprint too.

Renewal and a fresh start

Saad says the AIA will continue to lobby the government to institute policies that encourage people to replace their old cars, thereby protecting the environment and people’s health. Meanwhile, Salameh says that the Ministry of Public Works and Transport has a draft proposal for the renewal of the country’s commercial fleet, which suggests introducing tax and financial incentives for operators to replace their aging trucks, busses, trailer trucks, and concrete mixers, among other vehicles.

Renewal and perhaps a fresh approach is needed in Lebanon. The current situation gives people few choices: buy cheap or used cars, keep your old car that is falling apart, or ride in a suicide-machine minibus with a crazy driver at the wheel, or a shared taxi, or pay through the nose for a private taxi. The crisis is not a product of competing interests so much as it is a product of an inability to move forward on any of these issues—or perhaps an unwillingness to do so. People have waited long enough, and they deserve better.

Support our fight for economic liberty &
the freedom of the entrepreneurial mind

Hani Bathish

Hani Bathish is a Lebanon-based journalist with over 30 years experience in print journalism. He has written for some of the leading regional and local publications from Dubai to Amman and Beirut, covering a wide gamut of topics from regional politics to economy and finance

View all posts by

You may also like