Ghabbour Auto (AUTO.CA), Egypt’s leading car distributor, is counting on a strategy of expansion in the Middle East to help alleviate the financial pain it is experiencing from ongoing political unrest in two of its most important markets.
Last month, the Cairo-based company, which distributes cars for Hyundai, Geely, Mitsubishi Motors, and Volvo, posted a 72% drop in second-quarter profit as economic turmoil in Egypt and Iraq, its top performing markets, weighed on earnings.
To offset this sharp drop in profitability, the company is planning to add more products and services in order to reach a wider range of consumers across the Middle East, said Raouf Ghabbour, GB Auto’s chief executive officer.
“Diversification is key here, because had this (political unrest) happened five years ago, we wouldn’t have been in the same position,” he said. “We don’t want to be exposed to a single country, product or segment risk.”
In Egypt, GB Auto says it will continue focusing on the distribution of three-wheelers, otherwise known as tuk-tuks, which are more affordable and practical for people living in small villages and towns. The company also plans to continue providing vehicle servicing options for its current customers.
As more people continue to move away from Cairo’s crowded city center, consumers will increasingly need more affordable passenger cars. With this in mind, GB Auto plans to start assembling next year a second Chinese model, Geely SC5, for Geely Automobile Holdings Ltd. to offset the loss this year of a contract with Hyundai Motor Co. to build Hyundai’s Verna model.
After the Hyundai contract ends, there is enough inventory to keep production of the Verna, one of Egypt’s top-selling cars, going for at least another year, according to the company’s investment director. In the second-quarter, passenger car sales, which account for 65 percent of the company’s total earnings, dropped 6.4 percent on the year to 1.6 billion Egyptian pounds ($230 million).
Over the past few years, the company has been able to counter the global trend for declining auto sales by expanding in the Middle East to Algeria, Libya, Iraq and Jordan.
The company says it’s more concerned with regulatory changes within the local automobile market than political unrest because people in Egypt “will always need cars.” Egypt, the company’s largest market, has witnessed more than three government changes in the past two years.
About 60 to 70 percent of the company’s total income stems from Egypt, while one-third of revenues come from its distribution operations in Iraq.
“Egypt has a lot of potential and we are committed to this market in particular,” he said.
Source: Wall Street Journal