Monday,17 June, 2019
Current issue | Issue 1334, (2 - 8 March 2017)
Monday,17 June, 2019
Issue 1334, (2 - 8 March 2017)

Ahram Weekly

Sinking car sales

Al-Ahram weekly investigates the increases in the dollars price have caused a recession in Egypt’s new car market

The prices of cars in Egypt have shot up since the floatation of the Egyptian pound last November. According to official prices, the cheapest new car in the country today is a locally assembled Chinese car at LE184,000, with some exceeding a LE1 million price tag.

The price of cars, especially imported ones, has been impacted by the increase in the value of the dollar against the Egyptian pound, either proportionally or at a greater rate than the dollar’s rise. Cars that are assembled or manufactured in Egypt have also increased in price, but at lower rates, according to Effat Abdel-Ati, director of the Automotive Division at the Cairo Chamber of Commerce (CCC).

Tariffs also vary depending on the type of exemption and the car’s model. Complete tariff exemptions apply to cars with a capacity of less than 1200 cc and cars imported from Agadir Agreement countries. Some 40 per cent in tariff fees is added to the price of cars with a capacity of up to 1600 cc.

“Importers pay around 65 per cent in tariff fees and VAT at 14 per cent — 13 per cent plus one per cent since cars are considered to be luxury items,” said Alaa Al-Sabea, a member of the Automotive Division at the CCC and an import agent for Nissan.

The dollar rate for importers was LE8.88 to the dollar, the official bank rate, before the devaluation. Abdel-Ati said that if an importer imported a car valued at $7,000 or LE60,000, there would have been added tariffs at 40 per cent (if less than 1600 cc), or LE24,000. Another 14 per cent (13+1) would have been added as VAT, and therefore the price of the car after adding profit margins would have reached LE100,000 when the dollar rate was LE8.88.

Today, when the dollar is at around LE16, the price of the same car would be LE200,000.

Al-Sabea said that after the floating of the pound importers had stopped importing cars and sales were almost at a standstill. “The sellers have nothing to do with the increases,” he said. “The price hikes have all but halted sales and the state is pocketing the lion’s share of the increases.”

According to a report on the car market, 2016 saw a drop in car sales by 28.8 per cent compared to 2015. Some 198,300 units were sold, including cars, buses and lorries, compared to 278,400 the previous year. Sales in November when the pound was floated dropped sharply by 44 per cent, with car sales amounting to 12,169, compared to 21,809 the previous year.

Abdel-Ati said his car dealership had sold only one new car in three months. He added that due to a drop in sales over the past year as the dollar had soared one third of car-dealers in Egypt had declared bankruptcy.

Car-dealers and showrooms sign contracts with agents or importers under which they do not receive the paperwork for a sold car until it is completely paid off. Last year, car importers had trouble finding enough hard currency to import new cars.

Finance Minister Amr Al-Garhi announced on 15 February that the exchange rate of the dollar for the purposes of car imports had dropped to LE16 as the bank rate of the dollar had fallen to LE15.75 last week. “The drop in the dollar to LE16 will lead to a decrease in car prices by two to five per cent,” Al-Sabea commented.

He said that as a result cars imported from the EU would likely drop in price by about 3.5 per cent and those from other countries by five per cent.

Worth noting is that the rate of the imports dollar has been further reduced to LE15.75 on Tuesday.

Al-Sabea explained that dealers and distributors needed to offload the cars they had and it was not in their interest to stockpile cars because they needed to sell them to see capital turn-over.

Abel-Ati said that dealers and importers wanted to recover their costs in dollars and what they had paid in Egyptian pounds. It was now difficult to maintain sales rates similar to those before the liberalisation of the exchange rate in 2016, he said.

The writer is a freelance journalist.

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