A blessing in disguise? The Lebanese respond to economic crunch with small cars
Many Lebanese have started shifting to low budget cars over the past two years in view of the economic slowdown and rising fuel prices, the head of the Automobile Import Association Antoine Boukather said Tuesday.
“Demand for small cars in the past was not too significant but nowadays people prefer to focus on less expensive vehicles so they can spend on their basic needs such as food and electricity,” he told The Daily Star.
Boukather said that luxurious cars with a price tag of $100,000 are no longer in big demand these days, as more people prefer to buy smaller vehicles.
“Around 10 years ago, you could see so many Mercedes cars in the market and especially the Mercedes 500 model which is priced at around $200,000,” Boukather said. “The demand for this model has dropped today compared to three years ago because of its high prices.”
Boukather added that most taxi drivers used to own Mercedes cars in the past but many of them are now shifting to less expensive brands. “People cannot afford to pay as much as they were paying before,” he said.
Many factors have lately contributed to the low demand for luxury items, including the acceleration in the rise of the unemployment rate, which has exceeded 20 percent according to the latest reports.
This rise is accompanied by further decline in purchasing power resulting from deterioration in the Lebanese household income.
Boukather attributed the increase in the unemployment rate in the past couple of years in part to Lebanese businesses attempting to cut their costs by laying off Lebanese employees and hiring Syrians with lower wages. “This is affecting the income of Lebanese households, which in turn, is having a very bad impact on the demand for luxury cars and items in general,” he said.
He added that the low demand for expensive cars is prompting car companies to fire employees in order to cover their expenses and stay in business.
“Most car dealers nowadays are not able to cover their expenses because most of the cars sold are low budget ones and the profit generated from such models does not exceed $300 per car,” he said.
Apart from the drop in overall profits, most car dealers in Lebanon are also facing mounting pressure from vehicle manufacturers to drastically improve sales.
“Car factories request from car dealers an achievement of a certain volume of sales per year, otherwise they have the right to withdraw the dealership from these companies,” Boukather said, adding that Lebanese car dealers are funding their own businesses through loans from banks and are not even entitled to receive payment facilities from manufacturers.
Besides the shift to smaller cars, Boukather, who is also president of Mazda, said that 70 percent of Mazda clients were buying cars through loans from banks. “In the past, only 30 percent used to take bank loans to finance their Mazda car purchases, but the situation is different today,” he said.
He also noted a drop in demand for used cars because low-budget new cars have become very popular in the market. “For instance, you can find billboards in the street with cars priced at $8,999 today,” he said.
Boukather said that car companies nowadays have started with attractive promotions in order to increase their sales and overcome the hard economic situation.
“If one can get a new car at a reasonable price, one would certainly prefer to take advantage of the five-year guarantee offered by most of the dealers nowadays rather than buying used vehicles and paying much on the repair,” he said.