GB Auto Bets on Geely Cars and Expansion Beyond Egypt

Egypt’s biggest car assembler GB Auto (AUTO.CA) is betting on cheaper, locally assembled Chinese vehicles and expansion into northern and sub-Saharan Africa as it grapples with the effects of political instability in its main domestic market.

The company, which controls around 25 percent of Egypt’s car market, is manoeuvring to keep sales on track two and a half years after Egypt’s popular uprising, which caused a decline in purchases of higher-priced cars.

Its net income in the second quarter plummeted 72 percent year-on-year to 16.1 million Egyptian pounds ($2.3 million).

In Egypt, GB Auto expects to increase sales of inexpensive Chinese-designed Geely passenger cars and low-end vehicles from India’s Bajaj, including two-wheelers and three-wheeled tuk-tuks.

“A lot of people are delaying the buying decision because of concerns on security, maybe their car would get destroyed during demonstrations or stolen,” said Menatalla Sadek, GB Auto’s corporate finance and investments director.

“We don’t need ‘la vie en rose’ but just a little bit of stability, a clear political path, less violence in the street,” Sadek said. “This would definitely lead Egypt to grow very fast.”

Egyptian sales of GB Auto’s higher-end Hyundai passenger cars plunged in the first half of the year by over 40 percent year-on-year for fully-assembled, imported vehicles and by 13 percent for locally assembled models, GB Auto said.

GB Auto is having to adjust its relationship with Hyundai, which has told the Egyptian firm it will stop supplying kits at the end of the year because it wants to limit overseas assembly to plants where it has full control over production, Sadek said.

GB Auto, which is Hyundai’s sole assembler and distributor in Egypt, has bought enough Hyundai parts to continue assembly until around the end of 2014, when it will shift completely to assembling cars from kits provided by Geely, Sadek said.

The company began assembling Geely cars at its Prima factory in Cairo, where it also puts together its Hyundai cars, when a new expansion was brought on line in October 2012.

“From zero percent market share, Geely in June recorded a 10 percent market share,” Sadek said. “We built a brand from scratch.”

GB Auto is using its Geely connection to expand into north Africa. “We started in Algeria last month and Libya is starting any minute now … You’ll see recorded sales probably that will be significant by quarter four,” Sadek said.

“We have an opportunity to replicate our success in Egypt in other countries in north Africa and then, eventually, in sub-Saharan Africa.”

Source: Reuters