In the first nine months of 2004, Lebanon’s dealers sold nearly 15,000 new vehicles, nearly 17% more than in all 2002, the year in which the recession and introduction of the Value-Added-Tax had severely depressed the market for the country’s automotive dealers. Expectations are that by year end 2004, well over 18,000 new vehicles – an improvement of around 50% over 2002 – will have been bought by individual owners and fleet buyers.
These results are, however, only from dealers of new cars. While buyers can find some late-model, good looking vehicles on the lots of used car importers, these traders are not part of the dealership organization. Their overwhelmingly primitive presentation facilities and operations contribute nothing towards improving the state of the automotive sector in Lebanon in terms of business sophistication or customer service. In this respect, used car dealers and the army of small vehicle workshops scattered around the country are equally unproductive, maintaining the problematic status quo of an automotive care industry without universal standards on quality or safety, not to mention a high margin of fraud.
In the private sector, registered dealerships are the only ones with the realistic potential to spearhead the creation of a domestic auto sector fit to meet the growing needs for vehicular safety and reliability, energy efficiency and environmental responsibility. A good handful of official dealers have in the past two to three years already invested six-figure amounts into new showrooms and/or, more importantly, after-sales facilities and car maintenance workshops that satisfy the requirements of the international manufacturers they partner with.
The sector is also more transparent than it was a few years ago. Albeit not conclusive in every detail, figures on sales provided by the importers’ association today allow analysts and interested public to gain insights into the business anatomy and market trends of Lebanon’s automotive sector. As industry and public planners still have nothing but vague estimates to rely on in assessing the size, age and composition of the national vehicle stock, the car importers’ data are highly relevant for better understanding the sector’s economic contribution and issues it has to face.
Looking at the stats
As the data for the current year reveal, European makes defended their position as the preferred choice of drivers in Lebanon. They accounted for 47% of units sold in the first eight months of 2004, even as the exchange rate between the euro and dollar (as well as pound sterling and dollar) continued to weigh against imports from Europe.
In a year-to-date comparison, European makes gained 31% in their sales over the same period last year, bringing their market share from 46% in 2003 to 47% in 2004. In 2002, Europeans had accounted for roughly half the cars sold in Lebanon. Japanese makes are the second main choice of Lebanese car buyers, even though the increasing popularity of Korean brands has eaten into their market share. Car makers like Hyundai, Kia and Samsung enjoyed a market share increase from 7% to 8% in 2002 and 2003 to 11% in 2004, corresponding to the lessening of the Japanese automotive grip, which has experienced a decrease in market share from 43% in 2003 to about 38% in the first eight months of 2004.
In fact, Korean cars, along with American makes, comprise the two strongest regions in terms of sales increases this year. US brands achieved the strongest percentage gains, their 575 units sold in the first eight months being more than double of what the US brand importers did from January until August 2003. However, in perspective to 2002, the market share of US brands edged up by 1.5 % to just below 5% of the total Lebanese car market.
The US increase over 2003 is partly a result of a temporary absence of the Ford brand from the statistics, whose reported jump from one to 58 sold units in a year-to-date comparison stuck out in the statistics as a stellar ratio. However, improvements for all brands of main GM dealers Impex (one of the dealers who invested substantial amounts into new showrooms and upgraded service facilities) certainly indicated a strong performance of American vehicles in the sector’s short-term evolution.
Pepper and shellfish
Looking at vehicle types, the markets for trucks and commercial vehicles remained slow. By contrast to the passenger car segment, sales in this segment continued to be dominated by the Far Eastern brands, with nearly 70% of the market, because of the cost advantage in comparison to European and American vehicles. Among subcategories of the passenger segment, Sports Utility Vehicles captured a 17% share of vehicles purchased from January to August.
When analyzing positions for this profitable segment, the Japanese beat their competition by claiming almost two thirds of the market between January and August, followed by the Europeans (19%) and the US (9%). Porsche’s venture into the SUV segment seems to have paid off for their local dealers, as sales for the Cayenne were almost double of those for their regular models. The Hummer found enough takers to confirm that the Lebanese macho toy niche is alive and kicking.
While car sales are looking up on the whole, the picture is far from uniform on the level of the various brands. The super luxury marques struggled in particular (see story on page xX) but on the budget end, products from south-east Asia couldn’t score with buyers and the Eastern European Lada shrunk to a very marginal market share.
In the “merely expensive” section, things looked decent. The Japanese luxury brands Infiniti and Lexus appeared able to secure increasing favor with the up-market audience but German oberklasse stalwarts Mercedes also improved by over 40% vis-à-vis the first eight months of 2003. BMW and Britain’s Jaguar held their grounds with certainty and US nobles Cadillac more than doubled their sales.
Outstanding results on the middle rungs of the price ladder came from Peugeot, which leapt to the top of sales this year, followed by Nissan, Renault, and Toyota. The latter two improved their position relative to last year while Nissan sales contracted slightly in a year-to-date comparison. Between them, these four makes ruled the scene in volume with over 46% of all new car sales between January and August of 2004.
Traditional mainstream manufacturers with a midfield position in terms of local market positions were Honda and Volkswagen, improving their sales by 41% and 64%, respectively. Ranked between them in terms of units, Korea’s Hyundai nearly doubled their sales. Kia, Chevrolet and Seat advanced solidly in percentage terms. Two newcomers, the re-vitalized Skoda and the urban-life specialist Smart found friends.
A total of 23 brands enjoyed a plus sign in the statistics, but a significant number of car makers were not as lucky. From Aston Martin to Tavria, the association’s official records for the first eight months of 2004 showed no single sale for about 20% of the brands on its list.
In addition to these makes, 17 manufacturers registered drops in sales ranging between 5% and 77%. Those in decline included some well-known and long established names, from Alfa Romeo and Volvo to Citroen and Opel, as well as the single-model manufacturer, Mini, which had initially ridden into town quite strongly on the back of its youthful image.
As major and smaller dealers of mainstream brands agree, price is the leading element in customer buying decisions, followed by model appeal and after-sales service quality. In the first two points, local dealers depend much on the manufacturers. But in service quality and, an additional factor of substantial importance, local reputation, dealer performance strongly influences the market perception of a brand.
German make Opel – which once enjoyed a strong Lebanese market position – is an example of a brand that has suffered as a result of years of bad agency representation. According to current dealers Techno Cars, Opel had been well represented before the conflict years, selling 4,000 cars per year. But during the war, the dealership was vacant for a long period and the dealer did not offer any services, driving down the brand’s local reputation and resale value, Techno Cars manager Nadim Hakim told Executive.
To create a viable dealership, Hakim’s company started out by first importing a large supply of spare parts and rebuilding the car’s image. After 10 years of selling the brand, Techno is now on a solid footing regarding the resale value of Opel models, Hakim said. Here, however, the importance of the manufacturer’s awareness comes in. However, Opel’s inflexible pricing policy – the manufacturer did not adjust its offers to cushion the impact of the euro rise – kept the sales potential of the make stunted. It was only after regional dealers managed to gain the attention of the general manager at Opel’s Dubai office that factory prices for Opel cars were decreased for dealers in the Middle East. At the Beirut Motor Show this month, Techno Cars will be presenting the new Opel Astra and other models, from which the importer expects an upwards push for their sales.
With cost being such a decisive consideration in the local market, aggressive pricing is a tool that many dealers here employ in their battle for market share. This was recently reflected by a whole bunch of makes being advertised in wholly price-driven billboard advertising campaigns, which included quotations for some European models that were offered at up to $1,000 below their net price in key EU markets.
The aggressive pricing may well be held responsible for the fluctuation in sales of certain makes, giving some dealers a market share advantage over more conservative competitors. However, although such pricing strategy may result in the increase in sales, the low costs do not necessarily lead to an increase in profitability, which is especially true in the significant fleet car deals, which show very subdued profit margins. It is worth noting that many members of the car sector admitted to EXECUTIVE that in light of this situation, they expect a radical contraction in dealer numbers over the next few years.
The reality remains that even with an increase to more than 18,000 new cars sold this year, the Lebanese market for cars is not only naturally restricted in size, it is also beset with unnecessary obstacles and fiscal burdens that suppress sales of new cars. In this regard, nothing has yet improved during the past 12 months.
