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Wednesday, 25 May 2022

Don’t hold your breath if you expect to buy a new car anytime soon

Need a new car? Good luck. Some foreign car manufacturers have suspended sales to Egypt after a change to how imports are paid for has left local dealers unable to purchase vehicles, industry sources say, confirming reports first published by Al Borsa and Al Mal on Monday.

The new supply constraints will only add to existing shortages in the market caused by the scarcity of microchips and shipping snarls — and comes as dealers grapple with rising inflation. The shortage of inventory in the market became much worse after new rules were handed down in March requiring importers to use letters of credit (L/Cs) to purchase goods, instead of documentary collection, a quicker, more accessible, and less capital-intensive way of facilitating trade. The change in policy sparked criticism at the time from trade and industry associations.

International car manufacturers are now rerouting shipments away from Egypt because local importers and distributors haven’t been able to make transfers, Abed El Kader Talaat, a board member at the Automotive Information Council (AMIC), the industry group, told us. “No letters of credit were opened, no transfers were made, and therefore suppliers have made the decision to not produce for Egypt and instead divert to other markets,” he said.

Which brands have pulled out? We’ve so far counted 13 that no longer appear to be delivering to Egypt, including some of Europe’s biggest brands — Citroen, Volkswagen, Audi, Fiat and Peugeot among them — as well as Jeep and Asian companies including Geely.

The situation provides no certainty for overseas suppliers: “Foreign companies now don’t know the future of their exports to Egypt, and seeing as there is demand in other countries that can’t be met due to the global crisis, they started redirecting some of the cars bound for the Egyptian market to other countries,” Abou Ghaly Motors’ commercial director, Tamer Kotb, told Enterprise. Abou Ghaly’s portfolio of brands includes Mercedes, Jeep, Alfa Romeo and Subaru, among others, as well as a stable of mobility solutions.

Few new cars have entered the market since March, Kotb said. Talaat told us that there are around 29k vehicles waiting to be released from port, which could help to ease the supply squeeze should the import issues be resolved.

“We have lost credibility with foreign car manufacturers, because we have cars that Egyptian distributors ordered, that have been produced and we can’t take them,” said Karim Naggar, chairman of Egyptian Automotive and Trading and Kayan, which imports and distributes brands including Volkswagen, Audi and Seat. “We are unable to give them an outlook on how long this will go on because nobody is telling us when we can expect to see changes.”

There’s no quick fix: Foreign car manufacturers won’t look to export to Egypt until the current backlog is cleared, Talaat said. It takes around three months from when an importer puts in an order for the cars to arrive here, he said. If import difficulties are cleared up, there will be a significant lag as manufacturers return to the Egyptian market, he added.

Another year of standstill? In the best case scenario, the market will start to stabilize in mid-2023, Kotb told us.

Distributors also have to compensate consumers for recent price hikes + supply issues: Customers who made a down payment on a vehicle prior to 12 April, but who have not received their car, are entitled to receive a refund from the dealer plus 18% interest, the Consumer Protection Agency said this week. Those who had paid for the car in full before this date will be protected against any recent price hikes, it said. Distributors are waiting for clarity on how the refund system will work and are angling to minimize how much interest they’re required to pay on, for example, downpayments made before Banque Misr and NBE hiked rates to 18% earlier this spring.

We could hear more about consumer refunds today: Kotb told us that he expects the decision to be published in the Official Gazette today.

One thing is clear: Whenever supply returns, prices are going up — but it’s anyone’s guess by how much. Between the wide gap between supply and demand, local car prices are set to rise between 15-20%, and that’s on top of the 2-5% hike in the global market due to the rise in raw materials prices on the back of war in Ukraine, Kotb added. Talaat is less optimistic, forecasting a 35-45% price hike, taking into account the devaluation earlier this spring of the EGP and ongoing market turmoil. “Cars are going to continue to be much more expensive than they currently are — it’s all about supply and demand,” Naggar said.

In the meantime, the CPA is saying dealers can raise prices only 5%, a figure that won’t move the needle for distributors — and that’s largely academic, anyway. You can’t price up that which you do not have in hand to sell.

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