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Automotive companies expect further decline in sales because of increase in interest rate - Daily News Egypt

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Automotive companies expect further decline in sales because of increase in interest rate

70% of customers tend to buy through banks, 30% pays in cash

Automotive companies expected a further decline in the sector’s sales, following the Central Bank of Egypt’s (CBE) decision to increase the basic interest rate.

Khalid Saad, a board member in Bavarian Auto Group, said that the CBE’s decision to increase the interest rate on deposits and loans by 2% came in favour of the citizen who does not have direct investments in the local market, noting that it does not support the investment movement, especially in the automotive sector.

He added that the 70% of the sector’s sales rely on the loans provided to customers, while only 30% of purchases rely on cash.

Saad predicted that the CBE’s decision will lead to a further decline in car sales, explaining that the customer who depends on loans does not have sufficient liquidity to pay in cash, so the number of customers will decrease.

Osama Abu Al Majd, head of the Car Dealers Association, expressed his deep concern about the impact of the CBE’s decision on the auto sector, in line with the subsequent declines in sales that followed the flotation of the pound.

He added that the sector has not yet recovered from the consecutive car price increases as a result of the high customs and fuel prices, both of which are expected to increase in July.

Abu Al Majd called for providing soft loans for car buyers without the new increase in interest rate, explaining that citizens can no longer buy new cars, and they tended to buy used cars, which does not revive the trade movement.

Ahmed Al-Gogh, director of the Ezz Motors showrooms, affirmed that raising the interest on loans would limit car sales that rely on bank loans. However, he expected an increase in car sales in the next year supported by the purchases of vehicles in cash, as the increase in interest rate will increase profits of bank account holders.

Al-Gogh pointed out that the CBE’s decision will force the majority of customers to buy used cars instead of new expensive ones in the coming year.

Car sales fell by 28.8% last year, recording 198,300 sold cars compared to 278,400 cars in 2015.

According to the AMIC report, the demand on private cars fell by 27%, recording 141,900 vehicles last year, compared to 195,500 cars by the end of December 2015. Bus sales also fell by 35% to record 21,200 units in 2016, compared to 32,500 buses in 2015.

Truck sales declined by 30%, reaching 35,000 trucks, compared to 50,000 trucks in 2015.

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