Egypt Autos Report Q1 2009 - Companies and Markets New Analysis

grew 15.7% to 266,188 units, with passenger car sales up 15.5% and commercial vehicle sales up 16.5%. As the year progressed, sales growth diminished, leading to a more or less stagnant market by the end of the year. In 2009, the car market will be hit by the plummeting stock market, while at the same time inflation is raising the cost of living and high interest rates are keeping the cost of borrowing at high levels. Liquidity in the Egyptian banking system, which stimulated strong growth in car loans, has been supported by oil revenue from the Gulf, which is now set to fall. As a result, the availability car loans, which financed around 60% of car sales in 2008, will diminish, leading to a decline in sales growth. BMI expects automotive sales growth to decline to just 1.1% in 2009, with sales of just under 269,200 units.

We expect consumer confidence to return once the global crisis starts to wane and oil prices start to bounce back, although car sales growth will not be at the levels seen in the past two years. Liquidity from the Gulf will shore up automotive finance, benefiting Egypt�s car market. The sector has plenty of growth potential due to the population of 76mn and strong rates of foreign investment. A robust recovery is expected from H210, and by 2013 sales are predicted to exceed 500,000 units, nearly double the size of the market in 2008.

The automotive industry will be relatively insulated from the global downturn as it is not reliant on exports. Near-term growth will be constrained as investment in new capacity is postponed or cancelled.

The recent depreciation of the Egyptian pound should help support domestic manufacturing, although a sharp drop could be inflationary and kerb spending. Automotive output grew by an estimated 16.1% to 120,400 units in 2008 and is expected to rise by a further 11.3% to over 134,000 units in 2009. By 2013, output will have reached around 170,000 units, an increase of over 40% from 2008.

Malaysia�s Proton indicated in late 2008 that it was examining the possibility of complete knock down (CKD) assembly operations in Egypt. The company�s managing director, Datuk Syed Zainal Abidin Syed Mohamed Tahir, has stated that Egypt could become a gateway to the northern African region and has the potential to link with other African countries. Loss-making Proton is seeking to expand its markets and raise its margins. Meanwhile, GB Auto, Egypt�s largest carmaker which assembles and distributes Hyundai cars, announced in December 2008 that it was considering new acquisitions, having seen its net profit surge 88% year-on-year (y-o-y) to US$32.6mn in Q308, its second-highest quarterly profit. This comes on the back of a 28% increase in sales to EGP1.68bn (US$304mn). Total revenues comprised a 2.4% rise in passenger car sales and a 54.8% increase in commercial vehicle sales. The Egyptian carmaker is looking to take advantage of the economic slowdown, which could enable it to acquire enterprises at a discount. Meanwhile, the company was reducing inventory levels in anticipation of the slowdown in 2009; it stated that Q408 results were expected to show growth �in the low- to mid-single digits.� Egypt scores 46.9 points (out of a theoretical maximum of 100) in the BMI Automotive Business Environment Ratings this quarter, unchanged since the previous quarter despite the short-term downturn.

Egypt retains its seventh place, 4.0 points behind Bahrain and 5.6 points ahead of Iran.

Author:Mike Kinge-mail

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