Tuesday,24 October, 2017
Current issue | Issue 1268, (29 October - 4 November 2015)
Tuesday,24 October, 2017
Issue 1268, (29 October - 4 November 2015)

Ahram Weekly

Soaring car prices

The cost of imported cars has jumped following the further devaluation of the pound against foreign currencies, reports Nesma Nowar

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Al-Ahram Weekly

The continued depreciation of the Egyptian pound against the dollar has led to an increase in the prices of imported goods, including cars. The head of the Transportation Industry Division at the Federation of Egyptian Industries, Adel Bedeir, said that the drop in the value of the pound has caused cars to increase in price by 7 to 10 per cent over the past two months.

Prices of some car brands, like the Hyundai Verna, previously seen as a moderately priced vehicle, have increased to LE113,000, compared to the earlier price of LE109,000. The Skoda Rapid is now selling for LE172,000, up from LE152,000, while the price of the luxury car Octavia A7 has risen to LE289,000 from LE255,000. The cost of Kia, Renault and Honda cars also rose.

The increases prompted the government to task a committee last week to monitor the increases in car prices over the current year and compare them to the previous year to discover the reasons behind the increases and to take action to address the problem.

While Bedeir said that the fall in the pound’s value is the main reason for the price increases, he said that the lack of foreign currency is also affecting imports.

Companies are facing difficulties in opening lines of credit at local banks, he said, echoing remarks made by Effat Abdel-Ati, head of the Cars Division at the Cairo Chamber of Commerce. Abdel-Ati said that importing has become difficult because of the Central Bank of Egypt’s (CBE) recent restrictions on cash deposits in US dollars.

The CBE does not allow companies to deposit more than $10,000 a day and $50,000 a month in Egypt’s banks. “What if a company needs to deposit one million dollars? How long will it take it to deposit such a sum?” Abdel-Ati asked.

The Central Bank introduced the restrictions earlier this year in a bid to eliminate the country’s foreign currency black market.

Abdel-Ati said that the fall in the pound’s value also makes logistics relating to the transport of cars from ports to companies costlier.

He added that customs and sales taxes on cars have also increased as a result of the hike in prices.

“This inevitably leads to an increase in car prices, which is unfortunately borne by the consumer,” Abdel-Ati told the Weekly. He said that this situation applies to all imported commodities, which have also seen price hikes because of the drop in the pound’s value against the dollar.

While some blame companies and distributors for using the higher dollar rate as an excuse to increase prices, even though they are selling from batches they ordered before the dollar’s value increased against the pound, Abdel-Ati said that when a company orders a certain number of cars it has to wait three months for them to arrive.

He added that companies do not pay for their whole order at once, but usually pay in instalments and in tandem with the tranches they receive of their order.

“Consequently, if the dollar’s value increases over the three-month period of the order, the car will become more expensive,” Abdel-Ati said.

Bedeir and Abdel-Ati expect a decrease in supply in the car market in the coming months as a result of the fall of the pound against the dollar, and in addition to the difficulty of obtaining foreign currency, leading to further price increases.

Both expect demand will drop because of the rising prices. Bedeir said that sales this year will fall compared to last year when the car market was strong. He said that last year some 280,000 cars were sold, but this year he expects the figure to be no more than 230,000.

Abdel-Ati said that the prices of cars have increased by 15 to 20 per cent this year, compared to the previous year, which was close to the percentage of the dollar increase over the same period.

Bedeir is hopeful that there will be an improvement in economic policy with the appointment of the new Central Bank governor, Tarek Amer, which will positively affect the car market.

The hike in car prices has prompted a social media campaign, launched on Facebook under the title “Let it Rust”, encouraging Egyptians to not buy new cars because of their soaring prices.

The campaign has garnered significant support, and now has some 20,000 followers. It calls for people to not buy cars as a means of pressuring car traders and distributors to lower prices.

Bedeir has doubts about the effectiveness of the campaign, however, saying that a boycott campaign would work in a country that had a reliable public transport system and people could dispense with cars.

But in Egypt, he said, if people can afford to buy a car they prefer to do so because of the country’s unreliable public transport system.

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