CAIRO — On June 9, an official source at Egypt’s Consumer Protection Agency revealed to al-Mal news website that the agency has asked car dealerships across the country to either explain their failure to deliver cars to citizens or issue refunds.
This comes amidst a crisis in the automotive industry in Egypt. It started on March 21 when the central bank decided to float the Egyptian pound, which incurred a loss of more than 17% of its value against the dollar. As a result, car showrooms and dealerships complained that cars are not delivered at the same price at which they were booked.
Head of the Consumer Protection Agency Aiman Hossam Eddine told Al-Monitor that the agency had issued a decision on April 19 obliging all car dealerships and suppliers to deliver the sold cars to customers before April 12 at the booking price and without any increases. Alternatively, they can refund the amounts with an 18% interest for that period, as per the decision.
Hossam Eddine explained that this increase is in accordance with the highest interest rate on investment certificates, which was approved by the central bank after the depreciation of the pound against the dollar on March 21.
He added, “The agency examines cases of default by car dealerships through a special committee. The committee may refer the owners of car dealerships to the Public Prosecution in the event of lack of evidence of default or failure to deliver cars to citizens.”
He pointed out that in the event car dealerships and importers do not comply with this decision, they will be fined based on the relevant law with a maximum of 2 million Egyptian pounds (about $107,000). He stressed that most car importers agreed to deliver the cars to citizens based on the initial booking costs and without an increase in prices.
On May 28, Toyota Egypt confirmed in a press release delivery to all customers who paid the full value of their cars before April 12, 2022, in compliance with the decisions of the Consumer Protection Agency. Toyota added, “If the cars are not available to customers who have paid the full price, the company is committed to fixing the prices and delivering cars to customers as soon as they are available.”
However, the car market crisis in Egypt is not only limited to the increase in the price of the dollar against the Egyptian pound. In fact, car prices have jumped by a large percentage in Egypt over the past months after the rise in the exchange rate of the dollar in Egypt on the one hand and the increase in the price of the customs dollar on the other. This was coupled with a significant decline in supply, according to the Head of the General Automobile Division at the Federation of Egyptian Chambers of Commerce Omar Balbaa.
Balbaa explained to Al-Monitor the different dimensions of the automotive crisis: “Supply declined with respect to demand by more than 50%. There are several reasons for the crisis, namely the tendency of some foreign car companies to redirect Egypt's market share of cars to other countries due to the complexity of import procedures in Egypt recently. This has been coupled with the scarcity of the dollar.”
On May 24, eight foreign car companies decided to stop supplying products to their local agents in Egypt due to the failure of the latter to pay the financial dues related to those shipments. A number of international factories, therefore, decided to redirect the shares of Egyptian car dealerships to other countries that might contain larger quantities of different brands.
In this context, Balbaa indicated that the central bank issued new requirements regarding imports on Feb. 15. The bank required the “documentary credits” system to be used instead of “collection documents,” which resulted in further complicating import procedures and added to the scarcity of dollars in Egyptian banks.
The new documentary credits system approved by the central bank requires the importer to deposit the entire price of the imported goods in a bank before importing them. Previously, only 20% was required in a process called collection documents.
Balbaa confirmed that the car market in Egypt is currently suffering from unprecedented stagnation due to the aforementioned successive crises. He also pointed to the global decline in the volume of car production due to the ongoing Russian-Ukrainian war, as Russia and Ukraine manufacture cars and spare parts. Balbaa also mentioned a shortage of electronic chips.
Meanwhile, Egypt is seeking to develop the local automotive industry. The Egyptian Cabinet established on June 1 the Supreme Council for the Automotive Industry and a fund to finance the transition to sustainable transportation.
The Cabinet said in a statement that the Supreme Council for the Automotive Industry will be led by the prime minister, and its tasks will be to approve and follow up on the implementation of general policies and plans necessary for the development of the automotive industry in Egypt.
In turn, Alaa al-Saba, member of the board of directors of the General Automobile Division of the Federation of Egyptian Chambers of Commerce and head of El-Saba Group for car trade, expected the continued increase in car prices in the coming period due to the decrease in the volume of supply of cars in the Egyptian market.
Saba told Al-Monitor that the decline of foreign investors in light of the Egyptian government debt instruments and the impact on government treasury bills and bonds has cast a shadow over the dollar shortage crisis. As a result, the quantity of imports decreased along with a shrinking of the supply of various commodities, especially cars, he said.
Additionally, the depreciation of the Egyptian pound against the dollar has been linked to the consequent increase in car prices, Saba added, saying that prices of cars have increased between 20% to 25% since the beginning of 2022.
He expects the crisis to continue until the last quarter of this year with a breakthrough occurring at the beginning of the first quarter of 2023, as the Ukrainian-Russian crisis subsides and the production of electronic chips returns to what it was before the coronavirus pandemic.