Until the assassination of former Prime Minister Rafik Hariri in February, Lebanon’s 33 new car dealers had been enjoying something of a sweet ride, despite their persistent complaints of high taxes and fees that in some cases can more than double the cost of buying a new car.
Indeed, according to data from the Association of Car Importers in Lebanon, sales of commercial and passenger vehicles in January 2005 alone saw a 26 percent jump over the same period in 2004 (1,522 new passenger vehicles and 123 commercial vehicles were sold in January of this year while 1,225 passenger and 79 commercial vehicles were sold in January last year).
In fact, though the president of the association, Samir Homsi, noted that Lebanon had seen better years, new car sales for all of 2004 jumped almost 30 percent compared to 2003 (from 15,921 vehicles in 2003 to 20,455 vehicles in 2004).
Of course, as with so many aspects of Lebanon’s economy, the assassination badly hobbled the industry, nearly halving sales for almost all dealers in the months of February, March and April.
For at least one dealer though, the downturn provided a perfect moment for a new introduction.
“We decided to launch the new 3 series during this period even though it was a risk,” said Nagy Heneine, General Manager at Bassoul Heneine BMW. “From our marketing point of view, we thought that even if we did not sell, the visibility would be very high because no one was doing a launch. So the main focus was not to sell immediately but to tell people that there was a new 3 series in the market… [Ultimately] it was valuable.”
In contrast, most dealers choose to wait out the slump. By May though, the wait was over: The dealers partially resuscitated their sales figures be initiating an aggressive campign of special discounts and deals widely advertised in the local media (May sales increased almost 75 percent over April).
Although the “No VAT” or “registration included” offers clearly impacted the bottom line of participating dealers, a cost that none cared to specify but that almost surely reached the tens of millions of dollars, May, June and July overall saw 5,284 new vehicles sold compared to 5,993 during the same period in 2004 – a more manageable 11 percent drop-off in sales year on.
“Everyone in the car industry was burdened with heavy inventory so there were quite good offers for customers,” explained Nagi Abou Adal of Adal Volvo. “In our case, for a limited period of time and on certain models, you could buy without paying VAT or you could choose to take a larger discount – our normal discount is four percent but we increased this to 7-8 percent off the sticker price.
“The result was that we sold out on those cars and lowered inventory.”
By August, most dealers had also roughly gotten back to the status quo, but the financial beating they had taken in the process clearly hit a sore spot for the industry as a whole, thus raising anew the issue of the onerous tax and duty policies applied by the Lebanese government.
Added to this the “Dollar effect” which pushed the prices of European brands like Mercedes-Benz, BMW and others ever higher, and the result was a number of fed-up business owners tired of competing and selling in an otherwise promising market with two hands tied behind their backs.
“The volume of sales would certainly increase and the government would make more money if they just reduced the customs duty, the VAT and the registration fee,” argued Homsi. “If they did this we would also improve environmental quality, because newer cars are, in some cases 80 percent cleaner. At the same time, our medical bill would be less because newer cars are safer, and, [consumers] would benefit because they would get a warranty on average of three years which means you do not have to pay for major repairs during this time.”
Michel Trad, managing director of Saad & Trad agents for Fiat, Jaguar, Bentley, Lamborghini and Ferrari, believes that the government should abolish the rather complicated layered taxation system altogether and simply impose a 20% tax on all cars. “This will make it cheaper for the customer and increase revenues for the government who will have encouraged bigger sales volumes.”
According to Negib I. Debs, sales manager at T. Gargour & Fils Mercedes-Benz, a Mercedes-Benz model that might sell for $100,000 in Dubai would be $150,000 here in Lebanon after customs since the rate is set at 20 percent of the car’s value for models below 20 million Lebanese Pounds and 50 percent of the value above that level.
“Then you have the 10 percent VAT and after that you have to pay registration – something that is nonexistent in most Gulf countries and in parts of Europe.
“In Germany,” he added, “registering an S-600 costs 150 Euros. In Lebanon, it can go up to $12,000 for the same model because the registration rate of six percent is tariffed onto the custom’s value of the car, which in this case is above $200,000.”
As a result, not only is local demand stifled; so to is the demand of Gulf tourists who summer in Lebanon but who find is cheaper to ship their own (mostly luxury) cars here rather than buying an expensive brand locally.
“We are missing out on this market … and our own local market at the same time,” said Debs who estimated that, by reducing taxes and fees, Mercedes-Benz could sell well in excess of one thousand new cars each year (or more than double their current activity) in Lebanon.
“And what would happen is that people who could not afford the C-180 for example would now be able to buy it. As a result, the quality of the cars being bought would go up, less used cars would be sold and overall activity would increase.”
According to Volvo’s Abou Adal, who like many Lebanese dealers has been operating for close to a half century, such moves by the government would also come at exactly the moment when dealers are being pressed by the depreciated value of the dollar.
“Dealers of European cars from Germany and Sweden have seen their costs rise 30-35 percent because we sell in dollars. We are trying to fight this in various ways but the sticker prices have had to rise.”
That said, despite the various struggles and the “ongoing negotiations” with the government – which usually means more delays rather than imminent reform – some dealers willingly signal their confidence that the worst has passed and, burdensome registration fees or not, the new car market is slowly but surely returning to the days when sales saw increases rather than slumps.
“January was excellent,’ explained Fayez C. Rasamny, Sales General Manager at Rasamny-Younis Motor Company (a new and used car dealer for GMC and Nissan). “Then we had the drop off… But now in August we can say that we have come back to normal.
“In fact,” he added, “the forecast is that we will move to the pre-assassination period when we saw steady growth.”
It is a sentiment echoed by Michel Trad. “We are recovering slowly. We had a fantastic 2004 and January 2005 and then the market collapsed completely,” said Trad. “We rely a lot on the rental market and the high-end tourists did not show up this year. Simple as that.” Trad did however say that sales were picking up and that despite all the problems to have blighted the country he expected overall sales to be down by what he considered to be an acceptable 15%. Jaguar has been a good performer for Saad and Trad especially since 1999 and the launch of the S-Type, which was followed up by the equally marketable X-Type. “Before 1999 we were selling around 40 models a year. Last year we were doing more than 200,” he said.
