Industry Trend Analysis - Large Pound Devaluation To Keep Car Prices Elevated - MAR 2017

BMI View : A large devaluation of the Egyptian pound in 2017 will see the price of both imported and locally produced vehicles remain elevated throughout the year leading to a decline of 25% and 26.5% in passenger car sales and production respectively.

In January 2017, the Egyptian automotive industry saw a wave of car price increases across 131 models from a variety of automakers including Chevrolet, Ford, Geely, Toyota, Mazda and Mercedes-Benz. These price hikes affected all passenger car segments ranging from hatchbacks, sedans and SUVs (see table below). According to local reports, these vehicle price increases are a result of new estimates set by car companies on the cost of imported cars and their components in US dollars after the Central Bank of Egypt (CBE)'s decision to liberalise the exchange rate in 2016.

January 2017 Vehicle Price Hikes
Automaker Model Price Increase (USD)
Source: Daily News Egypt, BMI
Audi A3 3,175
Audi A4 4,021
Chery Envy 290
Chevrolet Aveo 668
Ford Focus 1,323
Ford Fusion 2,911
Geely Emgrand 7 265
Jeep Renegade 2,116
Mazda 2 1,852
Mazda 3 2,116
Mercedes-Benz C180 3,228
Toyota Fortuner 6,878

These price hikes bear out our view that a weakening Egyptian pound will continue to place upward pressure on the price of both imported and locally produced vehicles in 2017, which will lead to a decline of 25% and 26.5% in passenger car sales and production respectively ( see ' Free-Floating Currency To Drag On Sales And Production In 2017 ' , November 7 2016). Our Country Risk team forecasts the Egyptian pound to average EGP18.75/USD in 2017, down from an average of EGP9.5/USD in 2016.

The pound's weakness will translate into higher prices for components used to produce vehicles domestically, which will be passed down to consumers in the form of higher vehicle prices. Furthermore, the devaluation of the pound will also see prices of imported vehicles rise, as these are paid for in foreign currency, thereby translating into a fall in both imported and domestically produced vehicle purchases.

Pound Free Float Further Weakens Sales And Production Outlook For 2017
Egypt - Passenger Car Sales And Production, Units
e/f = BMI estimate/forecast. Source: National sources, BMI

Interest Rate Rise To Drag Down Auto Loan Demand

We expect the rise in inflationary pressures resulting from the devaluation to lead to a further hike in interest rates in 2017, translating into a fall in vehicle financing applications as borrowing costs rise further. Our Country Risk team forecasts interest rates to end 2017 at 16.75%, up from an estimated 15.75% in 2016. These high interest rates will drag on consumer appetite for credit, leading to a fall in auto loan demand and, in turn, financing of new vehicle purchases.