With the US dollar’s exchange rate close to exceeding the EGP 13 barrier, a large number of car companies have halted sales in Egypt and are waiting for the currency to stabilise in order to review its pricing policy and adjust it based on the new rate.
Experts predict that car prices will increase dramatically in the upcoming days, and the state would be the ones to blame rather than the car companies.
Car sectors are suffering through the ever-worsening currency crisis which is compounded by several factors, such as the Central Bank of Egypt’s (CBE) policies, and the government categorising cars as luxury commodities, according to executive director of the Egyptian Automobile Manufacturers Association (EAMA) Hussein Moustafa.
As a result, car companies or agents have found foreign currency resources to be unavailable, whereas the door for importing cars from countries other than the countries of origin is open.
Moustafa told Daily News Egypt that the government has continued to neglect the car sector which has been awaiting a state strategy for the local manufacture of cars for years.
As a result of the increasing US dollar price and the increasing cost of importing cars and parts, car companies must, in turn, increase car prices, however, these companies will not be the ones to blame. Car companies are unable to meet the demand on car purchase reservations—which could result in enough sales for the entire year—so the pricing process will be subject to supply and demand theory.
Moustafa suggested that the government set a special price for the US dollar when importing certain goods, including cars. This special US dollar price can be higher than the official price so as to prevent companies from resorting to the parallel market, as well as to change the government’s view of cars as luxury commodities.
Several car companies halted their sales several days ago to avoid having to sell cars with the massive increase in the US dollar rate against the Egyptian pound, El-Saba Automotive chairperson and member of the Cairo Chamber of Commerce Alaa El-Saba said.
Car companies that chose not to halt sales do so under discretionary prices, El-Saba told Daily News Egypt. Despite the increase in prices, these are still low compared to the increase in the price of the US dollar, which has increased by 18% over the past few days.
El-Saba added that the price of the US dollar on the informal market is a delusion as all it really shows is the rarity of the currency in the market. “We do not blame the CBE governor because he is trying to solve the issue with the few available options,” he said.
He explained that companies are currently re-pricing their cars, and several companies have increased their prices by 2% to 3%. However, the increase in the currency price has exceeded 15% within the past few days, thus, a fair increase in car prices would actually exceed 10%.
Car companies cannot be blamed for the price increase, El-Saba said, as the cost of importing cars is high.
“How can investors come to Egypt with such great changes in the currency price? Investors will enter the US dollar into Egypt at the official price of EGP 9 and exit with the US dollar price being EGP 13—losing about 40% in their profits from Egypt. So the state must take serious steps towards creating a better investment environment,” he said.
Each increase in the US dollar exchange rate against the Egyptian pound is followed by certain target segments of customers exiting the car sector, secretary general of the Engineering Export Council Amr Nassar said.
He explained that cars with lower than 1,600cc engines have become available for anybody who previously wanted to buy cars with higher than 1,600cc engines.
Nassar demanded that the government decide quickly about the direction the car sector should take, as well as determining the necessary incentives for investment in the car industry, and what the government requires from the sector.
Automotive companies have stopped pricing their cars in order to reconsider their pricing policy until more information becomes available regarding the price of the national currency. “Automotive companies are worried that they may price their cars based on an exchange rate of EGP 12.5 to the US dollar when suddenly the price could be hiked up to EGP 13,” Nassar explained.
There is a great deal of speculation surrounding the informal market. He urged the state to counter that activity and to follow up on the exchange rates.
Director of Suzuki at Modern Motors Mohamed Younes said that the automotive sector is going through the worst era in its history, attributing it to the currency shortage which paralysed the market.
Car companies are unable to maintain their prices due to the fast-paced movement of currency rates. This, he said, goes back to the increasing cost of importing cars alongside the rising exchange rate.
The car market is hostile to any increase in rates, as any increase in the price of the currency affects the import bills and, thus, the inflation rate rises.
According to Younes, the government should ban the import of cars from non-origin countries, such as the Gulf, as Gulf car dealers keep importing and leaking precious US dollar reserves abroad at a time when exclusive dealerships are unable to secure hard cash for their operations.
Khaled Khalil is chairperson for Fimco, a company in the automotive feeding industry. He said that the US dollar shortage is adversely affecting the imported car market. Sales have declined by as much as 45-55% over the first half of 2016 year-over-year.
Meanwhile, the locally-manufactured car market is also seeing a fall in sales during the same period, by 35-45%, which has affected the automotive market in general, pushing it to decline by up to 40%.
Khalil explained that 55% of locally-manufactured car components are imported from abroad, which has also been affected by the ongoing US dollar shortage. Worse still, the local component industry itself has seen a decline of 35-40%, driven by the slump in sales of locally-manufactured cars.
Feeding industry companies cannot engage in any new production processes as they are currently unable to price their produced components amid the difficulty of importing raw materials.
Khalil told Daily News Egypt that there were just two feeding industry companies in the market at the end of 2015. He expects three or four more to leave the market by the end of this year, pushed to the limit by the fall in car sales.