For the third week in a row, the Egyptian automotive market is witnessing a state of stagnation in sales following the implementation of the last tranche of the customs tariff reductions stipulated in the Egyptian-European Partnership Agreement in early January 2019. Some call it ‘zero customs agreements.’ This was accompanied by several discounts for 171 models by 3-6% and an average total of 18%, while the maximum was 38%, according to a number of European car dealerships in Egypt.
However, many car buyers saw these ratios as poor and unsatisfactory, compared to what they had expected once the decision was implemented, while many dealers clarified that car discounts would not be large, especially small cars. There was some hope still prevailing among consumers, especially after a number of statements by several officials and traders who reported that there are price cuts expected during the current days.
For his part, Said Khalil, director general of the General Directorate of Customs Valuation at the Egyptian Customs Authority, said that there is another decline in prices that will materialise over time, and that European cars are still in Egyptian ports since November and December 2018, which means that these cars will enter the market based on the new tariff of zero customs, therefore revealing its impact during the 10 to 15 days period, when the new cost will be determined.
Khalil denied any intention to raise the value of any other receipts on cars, such as a development fee or table tax, to compensate for the 12%, which cost the customs treasury losses of over EGP 1bn, explaining that the Egyptian Customs Authority compensated the losses through alternative means, such as the increased imports quantities of various other commodities, citing a 25% increase in custom revenues over the past two months.
He added that the Egyptian Customs Authority has also been able to compensate the customs reduction through the liberalisation of the customs exchange rate on non-essential goods, and although the proceeds will not offset the drop, there are long term goals, such as attracting investors to the Egyptian market. He stressed that the cars imported into the dealerships are of the same quantities and unaffected by the tariff cuts.
In another context, Alaa El Saba, chairperson of El Saba Automotive and member of the Cars Division at the Cairo Chamber of Commerce, said that the prices of European cars will not fall again but are more likely to increase, commenting on the remarks of the minister of finance’s advisor Magdy Abdel Aziz, in which he projected a further decline in the prices of cars. He explained that dealerships have priced cars according to their value after the customs reduction and before actually leaving the ports despite the high cost they were purchased for in October, November, and December 2018.
He noted that the cost of importing a car is not the only cost on which the final price is calculated. There are many other costs that are calculated, such as wages, electricity, social insurance, marketing, and more which means increasing the final price of the vehicle over the indicated price in the customs invoice.
Commenting on the request of some traders to have the state price the cars and consider them a basic good, he said that the determent of car prices is competition, adding that the state cannot intervene under the capitalist system in the pricing process, which will affect the number of economic reforms such as credit rating, while the pricing may not fit the real value of the commodity, which would cause a recession.
Plus, he pointed out that in order to reassure consumers that the profitability of the agent is not overpriced, it is possible to see the profitability of the shares of one of the companies listed on the stock exchange, which represents the net profit of the agent after taxes and expenditures. He said that the Egyptian Exchange is subject to financial controls, transparency, and reliable disclosure from which a supplier cannot hide the company’s financial entity.
The convergence of car prices in the Egyptian market is evidence of the integrity of suppliers, he added, calling on consumers who do not want to buy cars at such prices from agents to import them from the same source, stressing the impossibility of them being cheaper.
Furthermore, he pointed out that the government counterbalanced for the customs cut by floating the dollar customs exchange rate . “Even if the fees are fixed and if prices do not rise, they will not go down,” he said.
Moreover, he said there were attempts by Korean and Japanese car dealers to reduce part of their profits, as well as to address their parent companies to lower prices, so that they could compensate for the difference in the competitive advantage obtained by European cars.
Meanwhile, a large number of Facebook users launched the ‘Let it Rust’ campaign, which reached over 300,000 members. About 98% of them have agreed to boycott dealerships, while 2% rejected the idea, based on a poll. The campaign calls on the Car Division to apologise for what they called ‘professional violations’, agreeing on a set of consumer protection controls, and reaching acceptable averages for the profit margin to adjust the industry as a whole.
Mohamed Rady, who launched the campaign in 2015, said that they aim to protest in an organised manner any attempt to belittle the Egyptian consumer’s mind and protect it from commercial greed. He denounced the emergence of new campaigns with the same name but in their content are completely different, where they curse the companies and the officials, which Rady refuses. He stressed that, since 2015, the campaign has been working carefully to remove any insults against individuals.
He also emphasised the need to continue the campaign without spreading rumours.
The campaign received support from several parties on social networking sites, including EL TAREK Automotive, which announced on its official page bias towards the Egyptian consumer by all means. The Egyptian traveller, Ahmed Hagagy, known as Haggagovic, posted a comparison between the price of cars in and outside of Egypt and claimed that companies manipulate the prices to get excessive profits.
