The novel coronavirus (COVID-19) pandemic has caused damage to most economic activities and sectors worldwide. The most notable of these to have suffered is the automotive sector, which witnessed a significant decline in sales. This has had a significant knock-on effect, with sales of 2020 models stagnating, and the introduction of 2021 models in turn delayed.
The unofficial price increases, also termed “over-pricing”, have also been applied to many car models, despite the recent market recession since the onset of the global pandemic.
The 2020 stock of models is about to run out, with the currently available cars only for one or two models from all brands, according to Karim Naggar, Chairperson of Kayan Egypt for Trading and Investment, and CEO of the Egyptian Commercial and Automotive Company.
Naggar said that the 2021 models for most brands of Skoda, Seat, Cobra, Volkswagen, and Audi, have been introduced and are witnessing noticeable consumer demand.
He explained that the increase or decrease in car prices is linked to foreign currencies, and that the recent rise in the Euro has led to an increase in vehicle prices. He also said that the over-pricing phenomenon will not end unless there is a sufficient stock of models that are seeing demand.
Naggar pointed out that a parallel market actually created by the agents in Egypt, through which more cars from certain brands are imported.
Moreover, Montaser Zeitoun, member of the Automobile Dealers Association, said that most stocks of 2020 models have been sold, and demand is now rising for 2021 models. This applies to several brands such as MG, Opel Astra, and Toyota Corolla.
Zeitoun indicated that the 2021 models are witnessing a severe shortage due to the dealers’ reduction of their quotas that were agreed upon during the pandemic. Agents tended to import lower amount of vehicles, for fear of reduced sales due to the coronavirus’ spread. This, in turn, has led to a decrease in supply in front of higher consumer demand and the re-emergence of over-pricing.
He added that the agents’ decision to reduce quotas was put into effective without any in-depth studies of the market situation. Despite the market slow-down, sales were still taking place, especially after the end of the government-imposed curfew and the country’s reopening to co-exist with the coronavirus.
Zeitoun pointed out that even if consumers stop buying for only 15 days, over-pricing on cars will still be in place.
He stressed that the customer is one of the most important reasons for the increase in car prices at showrooms, due to strong demand on certain vehicle models over others. If the customer’s choice was to change, this would contribute to making the cars available without additional costs.
He suggested that the car pricing crisis could be solved by allowing the parallel market. Zeitoun noted that this was the best solution to the car crisis in 2006 when agents raised car prices unreasonably.
At the time, agents had refused to amend their prices, which caused the government to open the door to car imports. Whilst this may have had a negative impact on the local vehicle market, it in fact pushed many traders to import more cars, which saw the quality of models available in the market at the time improve. With the competition from better quality vehicles now on the market, agents were forced to lower their pricing to compete.
Zeitoun said that the volume of imports from the parallel, gray market decreased by 95%, due to the restrictions put in place on imports. This was put in place to protect the interests of agents working in the Egyptian market, and has had the negative repercussion of greatly contributing to price increases.
On the other hand, Automobile Dealers Association Chairperson, Osama Abou El Magd, said that a large stock of 2020 models still available and have not been sold. Despite this, consumers are eyeing 2021 models, as at this time of the year, many consumers are looking to buy the latest models.
He noted that many international vehicle factories halted production either partially or completely earlier this year, due to the coronavirus pandemic. With this in mind, there are now a smaller number of 2021 models available compared to normal production levels.
El Magd pointed out that the increase in the prices of some models compared to the price announced by the agent resulted from the decrease in the supply of cars against demand.
He pointed out that the demand for cars has fallen by over 50%, since car import quotas have fallen by about 80%. This has created a large gap between the supply and the turnout rates, which revealed the phenomenon of over-price.