The local luxury car market is all but paralyzed in Lebanon, thanks to the sky-high customs duties implemented 10 years ago have. Taxes on upper high-end cars like Maybach, SLR, Ferrari, Maserati, Aston Martin, Lamborghini, Bentley or Rolls Royce run at close to 50% of the car’s base value, and that’s not including the 10% VAT and 8% registration costs. The result? Luxury vehicle buyers in Lebanon pay between 60% and 80% of the car’s base value in tax – so, a Maybach or SLR will set you back around $700,000, and a limited edition Ferrari costs more than $1 million. Even for wealthy Lebanese, prices like that are prohibitive, especially during a recession, and even free-spending Gulf Arabs recoil at the prospect of paying so much tax for a summer hotrod. With no reduction of customs on the horizon, some distributors are considering closing up shop altogether while many are selling cheaper models to make up for the loss. Others plan to continue offering exorbitantly-priced vehicles because they bolster overall brand image.
“There is practically no market for high-end luxury vehicles in Lebanon because of the taxes imposed on these kinds of cars,” declared Samir Homsi, president of the auto importers’ association. “The only way to solve the problem is to get rid of the registration fees and bring the duties down to at least 30%.”
Overall sales of high-end luxury vehicles in Lebanon do not exceed 30 a year. Aston Martin distributors, Mana Automotive, expect to sell five cars this year; last year they sold two. As for the Bentleys, they have been selling, on average, one a year since the high customs duties were implemented. The Maybach, distributed by Mercedes dealers Gargour & Fils, went on sale last year and only two have been sold so far, with no more sales expected by the dealers for the rest of 2004. The MacLaren SLR, also distributed by Gargour, debuted this year and two have been sold, with one more sale expected before the end of the year. Faring slightly better are Ferrari and Maserati, distributed by Bazerji & Sons, which expect to sell eight and 11 vehicles, respectively, by the year’s end.
For Roll Royce, the news is even grimmer: distributors Saad & Trad haven’t sold one of the prized automobiles since 2002. Prior to that, they were selling about one or two a year. The drop in Lebanon Rolls Royce sales is of such a concern to the Rolls Royce mother company that they are sending over a representative to discuss the possibility of suspending Rolls Royce sales in Lebanon altogether. Also the agents for Bentley, Saad & Trad added the Lamborghini franchise to their roster this year, but have not sold any of the cars to date.
To perk up slumping sales, Saad & Trad, along with other distributors, are beginning to offer somewhat less-expensive, but nonetheless still pricey, models. The Bentley Continental GT, for example, costs around $90,000 less than the average classic model and the distributors expect to sell between five and seven cars a year. “The customer says to himself: it’s cheaper and it’s still a Bentley. But it’s not as though we’re going to sell 10 or 12,” noted Michel Trad, Saad & Trad director.
For their part, Mana Automotive expects to begin selling a cheaper version of the Aston Martin some time in 2005. Excluding VAT and registration fees, it will cost roughly $150,000, which is about $100,000 less than the current cheapest model. “More and more car manufacturers are targeting what we call the Porsche niche,” explained Alex Samaha, Mana Automotive general manager. “They are developing cars that will sell at about the price of a Porsche Carrera. If we had an Aston Martin like that, then instead of selling four to six Aston Martins a year we might sell 15 to 20.”
Other brands, however, will not be offering lower-priced models. Mercedes will continue selling the steeply priced Maybach and offer the equally expensive MacLaren SLR because although almost no sales are expected, the two luxury models will bolster the Mercedes brand as a whole, buttressing sales of other Mercedes models. “It’s not the money we make out of it,” said Negib Debs, the Mercedes-Benz sales manager. “It’s done for prestige. Plus, Mercedes doesn’t want to leave the upscale segment in the hands of Bentley and Rolls Royce.”
Mana Automotive has an additional motivation for plodding away at its unprofitable luxury vehicle business. “Traditionally, strong distributors need a luxury brand,” said Samaha. “For the moment, the investment in the premises, tools, training, and parts that it takes to sell these kinds of cars, and the margins we make, make it a losing – at best a break-even – business.”
To further boost the company’s sales, Mana Automotive is set to add the Ford owned Jaguar and Volvo to its already existing portfolio – which includes Ford’s Aston Martin and the Land Rover – when the distribution of all four brands is consolidated in Lebanon. “We will be well positioned to be the company under which such a consolidation would take place, since we already have two of their brands, and are selling the Range Rover well,” Samaha said.
For the rest of high-end car distributors, though, their saving grace remains the reduction of the government customs duties, which would increase sales dramatically. The government would actually benefit more from a rise in sales than it does from the customs duties it imposes on the few high-end luxury cars that are currently sold in Lebanon.
Homsi asserted that if customs duties were reduced the number of luxury high-end vehicles sold in Lebanon would jump from not more than thirty to well over 200.
Notably, he said, Gulf Arabs who for the moment ship their plush cars over for the summer, would begin buying cars here. Customs duties on luxury cars in Dubai, for example, run at about 5%. The Bentley dealer in Dubai sells over 20 cars a year.
Fadi Makki, director-general of the ministry of economy, said he agreed that a reduction in taxes would help the situation, but added that only the finance ministry could decide the matter. A spokesperson for the finance ministry, meanwhile, said only the finance minister was in a position to comment on whether or not the present customs policy was economically sound, but he was unavailable for comment as a result of the 21 October resignation of the cabinet. Market observers, however, say the situation is unlikely to change any time soon, as the people benefiting from customs duties are not the same as those who would benefit from increased sales taxes. The former have no desire to relinquish their source of income.
Some importers suggest that if customs are reduced, and Lebanon really establishes itself again as the playground of rich Gulf Arabs, the latter would account for the vast majority of increased luxury car sales. For the moment, they make up a negligible portion because although they can buy cars in Lebanon customs tax-free if they take the cars back to the Gulf, most want to keep the car in Lebanon as a summer toy. To do so, they would have to pay customs. It costs less to ship cars in from the Gulf.
Even if the government did reduce customs duties, other impediments to the sale of high-end luxury cars in Lebanon would remain, said some industry observers. First, since the war, and particularly since the beginning of the country’s economic downturn, a number of the Lebanese who can afford high-end vehicles don’t want to be seen in them. This is particularly apparent in the case of stately cars like the Maybach. Although drivers are less hesitant about showing off in a luxury sports care, Lebanon has no roads on which to race a Ferrari, Lamborghini or SLR.
Other industry insiders, though, counter that with the renaissance of downtown Beirut as a hub for the wealthy, well-off Lebanese are rediscovering their taste for top-end cars. And those – both Lebanese and Gulf Arabs – who buy the sports cars, are, they maintain, more interested in exhibiting them than in racing them. “The majority want to show off,” stated Trad of Saad &Trad.
Importers say the few buyers who can afford high-end luxury vehicles fall into two distinct categories: those with established wealth in the family – the bourgeoisie – and those whose wealth is newly-acquired – the ‘nouveaux riches.’ It is the latter, one importer said, who seek to aggressively flaunt their riches, to shove it in people’s faces, to provoke. They often buy several luxury cars. The former want simply to satisfy their egos. Their attitude is: “I can afford it, so I’ll buy it,” said one importer. “Of course the ‘see what I’m driving’ attitude is also present. But it’s in the background.”
This division is also apparent in the choice of brands. “I see a chairman of a bank in a Jaguar,” said Ferrari distributor Bazerji. “But a ‘golden boy’ from the stock exchange I see more in a Ferrari or Maserati. The Ferrari is a show-off car, for people who want to show they have achieved something.”
Distributors agreed that most luxury car buyers attach enormous value to after-sales service and personalized treatment. They want to be pampered by dealers, both during and after any purchase. And they want to be sure that the car will be looked after and properly maintained. Distributors have to establish a reputation. “We show them what we’ve got, the tools. We even let buyers meet the engineers. Marketing is by word of mouth,” said Samaha. “We don’t rely on advertising. People who are interested in this category of car know where to find them.”
Box
Aston Martin Vanquish S: $350,000 (incl. 20% customs duty on the first $13,300 of the car’s CIF value + 50% on the remaining value) + 10% VAT + 8% registration fees
MacLaren SLR: $706,100 (incl. 20% customs duty on the first $13,300 of the car’s CIF value + 50% on the remaining value) + 10% VAT + 8% registration fees
Maybach (short wheel base): $658,900 (incl. 20% customs duty on the first $13,300 of the car’s CIF value + 50% on the remaining value)
Lamborghini Gallardo: $254,900 (incl. 20% customs duty on the first $13,300 of the car’s CIF value + 50% on the remaining value) + 10% VAT + 8% registration fees
Rolls Royce: $602,000 (incl. 20% customs duty on the first $13,300 of the car’s CIF value + 50% on the remaining value) + 10% VAT + 8% registration fees
Bentley Arnage RL: $229,400 (incl. 20% customs duty on the first $13,300 of the car’s CIF value + 50% on the remaining value
Ferrari Enzo Limited Edition: $1,179,700 (incl. 20% customs duty on the first $13,300 of the car’s CIF value + 50% on the remaining value) + VAT + 8% registration fees
Maserati Quattro Porte: $150,000 (incl. 20% customs duty on the first $13,300 of the car’s CIF value + 50% on the remaining value) + 10% VAT + 8% registration fees
