With a hiking inflation hardly hitting Egyptian’s purchasing power, the automotive sector is yet to struggle amid a plethora of national and international obstacles. While the economic repercussions of the pandemic and the Russian-Ukrainian conflict hamper the world economy, the government’s measures to address these challenges have resulted in a protracted crisis in the automotive market. According to the Automotive Information Council (AMIC), vehicles’ sales plunged by approximately 60 percent in October 2022.
Letters of credit are only one of the obstacles.
In response to the accelerating inflation, the government had opted to enforce new measures concerning imports, namely the adoption of letters of credits (LC). Unlike documentary collection whose costs are minimal, LCs double the value of imported products such as spare parts on which the automotive sector relies heavily due to the lack of local producers who can fabricate electronic ships. On several occasions, Amir Hilaly, head of automotives of the importers division at the Cairo Chamber of Commerce, declared that “Egypt imports’ rate of spare parts ranges between 500 to 650 USD annually.”
Exacerbating the challenges, maritime shipping tariffs have exponentially increased, making many exporters reluctant to venture on delivering their products, especially those from European countries, many of whom have imposed embargos as a result of the Russian war against Ukraine. This is how getting newly manufactured cars with their factory settings has become currently impossible. Many automotives stores had to clarify their inability to import new models. For example, Ghabbour Auto Egypt issued a statement last October, refunding customers who paid deposits for upcoming models which had not yet landed in Egypt owing to such restrictions.
Moving towards developing sustainable assembling of cars in Egypt, the parliament adopted Law no. 162, 2022 by the virtue of which a Supreme Council for Automotive Industry would be established to produce locally assembled vehicles with international standards, in addition to environmentally friendly cars. The Secretary-General of the Egyptian Association of Automobile Manufacturers, Khaled Saad, praised the government’s take on local auto assembling as this would foster self-sufficiency within the market.
So far, many brands have started assembling in Egypt; however, not all customers would trust these cars. Rana El Hady, who has been driving for more than a decade, has been used to buy original cars. “For me, it would be risky to get a car that has been assembled here as I am not sure whether the local assemblers follow the standards of the brand or not,” she noted.
Nevertheless, Amr Elnaggar, owner of an auto store retailer, believed that people are now keener on buying locally assembled cars than ever. “We have had huge demand for Nissan passenger’s cars, since they have proven to be practical for many of our customers. 10 percent of our sales were from newly imported cars,” he indicated. Additionally, the Egyptian Compulsory Insurance Pool’s (ECIP) report showed that only 18,683 licenses were issued in January 2023, in contrast to 23,754 in December 2022.
Fewer cars sold mean less ads
Meanwhile, cars’ ads have witnessed a drastic decline in 2022 due to the shrinking demand on luxurious brands. According to the annual report of Admazad—a leading agency for out-of-home (OOH) ads, automotives’ ads accounted for 53 percent of unique brands and 41 for unique advertisers. The report also highlighted that the automotive sector has been the least in terms of expenditures in 2022, with -63 percent.
How could this drop be construed? As the demand on new cars shrank, and owing to the absence of new models, most local branches of international brands limited their ads to TV spots and social media. In spite of the fact that brands would normally seek increasing their visibility through OOH ads, many have preferred to wait, hoping that the restrictions on imports would be eased.
Can green cars solve the issue?
The government has constructed three factories for the fabrication of eco-friendly vehicles in Port Said, intending to produce 240 million vehicles annually. But would that suffice to convince customers to turn to green cars?
Hossam Nabil, a trained ecologist, is enthusiastic about green cars, even though he prefers to wait until there would be more gas stations. “The key indicator is whether there would be maintenance services for these cars or not,” he asserted.
While Osama Aboulmagd, chairman of the automotive dealers association, welcomed such an initiative towards having more green cars, he wondered whether this might be a solution for the urging problem of vehicles’ shortage. “It will take at least 3 years for workers to master the know-how, such that they would be able to emulate high-quality models,” he implied.
Stakeholders of this industry believe that the stabilization and/or decrease of the currency can be the only way out of this deadlock; otherwise, the demand-supply imbalance in the automotive sector would persist.