ONE ON ONE: GM Egypt goes for a bigger piece of the pie

Amira Salah-Ahmed
11 Min Read

Even though car sales are down, General Motors Egypt (GME) is going forward with plans to launch five new vehicles this year, has just signed a sponsorship deal with Al-Ahly and is apparently recruiting employees.

While that may seem overly aggressive given the current economic environment, GME’s Chairman and Managing Director Rajeev Chaba said it’s all part of a strategy to combat the slowdown.

“Some pillars of our strategy to counter this recession have been to not compromise our launch of new products, he said.

Consumers can expect to see a locally produced SUV called the Chevrolet Captiva come September. GME is also launching the Chevrolet Cruise in May, an imported unit set to become the company’s “image maker in the car segment.

This model will come to Egypt before some of General Motor’s “bigger markets like Saudi Arabia and Dubai, a first for local consumers, he said. The Opel Corsa will be launched by the end of the year as well as another vehicle that will supplement their pick up truck in Egypt by the third quarter of 2009.

This, he said, is giving GME “new niche areas, which may explain why the company’s market share is up while sales are going the opposite direction.

GME already has the largest chunk of the market, and it’s confidently eyeing an even bigger piece of the pie.

The carmaker ended 2008 on top with a 23 percent share of the market, up from 18 percent the year before. That figure has jumped to more than 26 percent in the first two months of this year, according to company figures.

Like many businesses in Egypt, large or small, GME churned out some positive numbers in 2008 on the back of higher consumer spending and robust sales figures. It was only during the last two months of the year that businesses started feeling the bite of the global economic crisis, and even more so in January and February.

“Last year was remarkable, said Chaba. GME sold more than 60,000 vehicles in 2008, up from 39,000 the year before, with a 52 percent growth in sales of Opel and Chevrolet branded cars.

The growth was spurred by an expanded network of sales points, several new products and higher production capacity thanks to a new paint shop. GME locally produced 42,000 units last year, up from 27,000 in 2007.

Sales figures include cars and trucks produced in their Sixth of October factory as well as fully built up imported units.

Turbulent times

“Until September/October of last year things were ok, Chaba said, “we were still seeing positive growth . but from November onwards, we started seeing decline.

In November and December, car sales in Egypt declined around 25 percent. By February, they were down 50 percent.

For GME, this represented a 20-25 percent drop, he said, but “our market share has improved and that’s because of the strategies we have implemented in this market.

That strategy, he explained, entails focusing on the “five P’s of the market: product, pricing, place, promotion and people.

With their pricing mechanism, for example, they aim to “force consumers to come to our showrooms and take some action, said Chaba.

Place, or distribution, is also key. “We are intensifying our efforts to go into every nook and corner of this country, with both sales and service points, he said.

GME added 14 service workshops last year and plans to open more in 2009, for a total of 30 by the year’s end.

The same strategy applies to promotional campaigns and advertising. “At this point, everybody is talking about cut, cut, cut. Savings on all kinds of investment, delays on capex [capital expenditure], but we believe that we should be prudent in this cut.

Chaba cited their recent Ahly sponsorship deal, “which is a costly proposition, but will prove to be a “positive step.

“We are going forward with brand investment, he said, “but obviously, not as carefree as we used to be.

As tourism, exports and Suez Canal revenues decline and Egypt’s economic growth slows to around 4 percent, there’s a lot of talk about salary cuts and layoffs in various sectors. However, Chaba said GME is going ahead with “recruiting the right talent and conducting internal evaluations to focus on “high potential people.

“We haven’t laid off a single person and we do not have any plans to do so. With the kind of growth we had in 2008.we are still not adequately staffed. Even at the reduced level this year, we are planning on selling more than 45,000 units, which is more than the 2007 level, he said.

“We haven’t put blanket cuts on salaries for people, in fact, we have made some salary increases because we want to make sure they remain motivated and challenged, he added.

Across the seas

The Big Three automakers in the US were hit hard by the financial meltdown, but GME says it is “insulated from American operations.

“This is a joint venture with Mansour Group and it is operated under Egyptian laws so we are not dependant on American operations or our GM Corporation for any cash requirement, he said.

GME is a join stock company, with Egyptian investors owning 33 percent stake (16 percent held by Mansour Group), 31 percent by General Motors Corporation and the rest divided between Isuzu Motors and Saudi investors, with 20 and 16 percent, respectively.

“In fact, in the last 25 years we have not taken a single dollar from the [GM] Corporation. This company [GME] is profitable and generates its own cash, he added.

“Second, our products do not come from America, nor are we getting any parts or spare parts from America. Our kits come from Thailand, Japan and Korea, Chaba said.

At the same time, he was quick to point out, “Yes, we definitely get a lot of help from international American operations in terms of synergy and global functions. We have some good benchmarks..the advantage of good lessons and best practices. And all these products from Korea or Thailand are based on the GM global platform.

“We get the benefit of the international operations of GM but we are not related to GM operations of America from the cash, investment or product perspective.

Action plan

To avoid a severe slowdown, Chaba said, the Egyptian government has to provide some kind of stimulus for the auto industry. “The automotive [industry] is a very important strategic sector of any economy. Worldwide wherever there is reasonable manufacturing of auto in a country, governments are giving support to the auto industry.

“The auto industry represents a barometer of the health of the economy, and even in Egypt, though we are only around a handful of big manufacturers . the auto industry contributes approximately 2 percent of GDP. In big countries like the US or Germany, it represents around 5 percent of GDP.

Egypt’s auto industry has grown at healthy rates since 2004, from 65,000 units then to 262,000 units sold in 2008. “Still, per capita consumption is one of the lowest in the world. So the scope of improvement of more car penetration in this market is high, he said.

However, he added, it’s not just about adding more cars on the road. The infrastructure has to improve, emissions regulations have to be looked into and old cars must be replaced.

Commenting on the controversial new traffic law which stipulates taxis more than 20 years old be replaced, he said, “The program will not fly if it’s not a win-win for all stakeholders.but it’s a good initiative so let’s not discourage the government.

He also called for tax rebates for manufacturers, which can mean more affordable vehicles for consumers, as well as better financing options from banks.

As for consumers who are in wait-and-watch mode, holding out for cars to get cheaper, Chaba said, “it is a myth that prices will go down.

It’s partly due to less consumer confidence and partly due to speculation, but “there is no rationale behind that.

While on one hand commodity prices and raw material costs are coming down, revenues are also decreasing. “Are you able to reduce your staff at the same pace that sales are coming down? Are you able to close down your plant at the same rate that deman
d is going down? The answer is no.

Fluctuating currencies are another factor. “The Japanese yen has appreciated in the last six months, so if you are importing anything from Japan the cost has gone up by 15-20 percent.

There’s no reason for producers to drop prices “because structural cost remains very high.

He added, “Cost is a relative issue.

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