Sunday, April 11, 2010

Lebanon's automotive sector - The end of the road?

Executive magazine
After two exceptional years, Lebanon's car market may finally begin to slow

Traffic  crawls through Beirut. Car sales almost doubled from 2007 to 2008 and  saw similar figures in 2009

In 2008 and 2009 sales of new cars in Lebanon hit record highs, setting the benchmark for annual sales at well over 30,000 units. But over the past five months the sector has slipped a gear, down 12 percent in the first two months of 2010 (compared to last year). This has prompted dealerships to question whether that annual benchmark will be reached for the third year running.

“The best year we’ve ever had was August 2008 to August 2009. From September 2009 onwards the whole market has gone down dramatically,” said Nagy Heineine, general manager of Bassoul Heineine, dealer for BMW, Mini, Alfa Romeo, Dacia and Renault. “In October, the total market dropped by 31.52 percent on 2008; in November, it was down 24.65 percent; in December, it was down 8 percent and down 13 percent in February. It’s a real slowdown in the market altogether, a 17.68 percent drop.”

“The financial crisis hit Lebanon later than other [markets],” he added.

While dealers point to the delayed effect of the global financial crisis for lackluster sales, the other culprit is instability and the potential for regional conflict, which has psychologically dented consumer confidence.

“We are always operating under the specter of war, which is not conducive to business,” said Walid Rasamny, chairman and chief executive officer of Century Motor Company, the dealership for Hyundai. Used car sales are the third factor that is biting into dealership sales, with roughly two used cars sold for every new car. Nearly 67,000 were sold in 2009, up from some 46,600 in 2008. Last year just less than 34,800 new units were sold.

But while overall sales of new vehicles has gone down, this is not the case across the board. For instance, while Honda sales dipped 75 percent and troubled Toyota was down 55 percent in the first two months of the year on 2009 figures, Hyundai spiked 80 percent in the same period and Mercedes-Benz sales were up 13 percent on January 2009.

Hyundai attributes its sales increase to an expanded dealership and the growing rise of the brand, number two in the Middle East and fourth globally in terms of sales. Mercedes’ dealership T. Gargour & Fils however could not explain the uptick in sales, a fairly common answer given the complexities of the Lebanese market.

After  two exceptional years, Lebanon's car market may finally begin to slow

“Our advertising has been consistent, so I’m not sure why sales are up,” said Negib Debs, brand manager. “I asked myself this question in early 2009, ‘Will the market stay like that of 2008?’ and it did. This year, I’ve no idea. It all depends on what happens in the country; if there’s a war, we’re screwed, but if it is like June 2009 onwards — we’re selling 80 cars a month — we’ll have our best year ever.”

Farid Homsi, general manager of IMPEX, distributor for GM, Chevrolet, Cadillac, Hummer and Isuzu, said he thought 2010 would be a good year for the sector. “Although every year I’m afraid of giving an opinion,” he added.

Back to “normal?”

Homsi said that the sales spikes of the past two years were not normal, jumping from the previous benchmark figure of just more than 19,100 in 2004 — the intervening years were hit by political instability — to some 35,400 units in 2008.

Lebanese car sector (2009)

“It was not a normal year; 2008 was a year when frustration went away after the Doha Accord. Logically speaking a wonderful year is 20,000 units but 2008 raised the bar,” he said. “This year, until now, the sector has sold an average of 1,750 cars a month. Multiplied by 12, that is 21,000 units, so I think no more than 25,000 units this year.”

Whether the market will revert to a more sustainable growth rate over the year is unclear, but it appears unlikely to top 2008 or 2009 figures. “It will be very tough to reach this benchmark, judging by the first two months. I think we may reach 30,000 or 31,000 units,” said Heineine.

Such variable swings in the market — from dips to double-digit growth — is making it hard for dealers to plan ahead.

“Every month we forecast for five months. [If we request] too low an inventory then maybe manufacturers will not supply it. After the crisis, they want maximum efficiency and to not have high overheads,” said Homsi. “It’s tough when living in a volatile country and the market changes a lot. We adopt a system of nus wa’ayi, nus majnoun: half sane, half mad.”

While reading the Lebanese market is complex, there is a degree of certainty to be found in the first half of the year. Homsi pointed to the upcoming car show in early April, the first to be held since 2004, after the last two biennial events were canceled because of political instability. With new models on display and automotive events, the 10-day show is expected to bolster sales.

Number  of new cars registered in Lebanon

“It will drive traffic and help sales in the second quarter. Shows have an effect for months afterwards,” he said.

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