Egypt’s automotive industry hopes a newly elected president and government will bring political stability and policy reforms in the second half of 2012, helping car sales recover from last year’s lows.

Vehicle sales plunged amid the revolution that ousted former president Hosni Mubarak, and remained subdued throughout the year as potential buyers stood on the sidelines. But industry watchers say Egypt’s large population, bulging youth demographic and low rate of car ownership make long-term growth virtually guaranteed.

“For many reasons, right now is not the right time to get a new car, and in the first half I doubt there will be much improvement,” says Zeinab el-Beheiry, an analyst at Cairo’s Naeem Brokerage. “But if things go to plan, we expect sales to pick up in the second half.”

Total sales of passenger cars fell 31 per cent in 2011, according to the country’s Automotive Marketing Information Council. Little more than 133,000 passenger cars were sold in Egypt last year, down from almost 193,000 in 2010.

A faltering economy and botched political transition by the ruling military council mean many Egyptians are deferring significant investments. And deteriorating security, including a spate of robberies and carjackings, has exacerbated the caution of car buyers. Last month Abdel Moneim Aboul Fotouh, the prominent Islamist presidential candidate, was hospitalised as a result of a violent carjacking on a highway that circles Cairo.

Talk of an increase to the level at which income tax is levied on salaries – effectively a tax cut for low earners – and new minimum wage laws could help stimulate demand alongside broader rising consumer confidence prompted by a new government, Ms Beheiry says. “This would definitely boost car sales, because the biggest market segment is those without enough cash to get a new car.”

Car ownership in Egypt is low even by the standards of developing countries. The country is home to just 30 cars per 1,000 people, a number that rises to 109 in nearby Algeria and 128 in China, according to GB Auto, Egypt’s largest vehicle assembler and distributor.

“We believe there is pent-up demand from last year that should materialise this year,” says Menatalla Sadek, GB’s corporate finance and investments director. The Cairo-listed company, which is responsible for almost one in three cars sold in Egypt, is the exclusive importer and local assembler of vehicles from South Korea’s Hyundai, the country’s best-selling car brand.

Regardless of new government policies or renewed consumer confidence, the coming year will be a tough one. As foreign reserves deplete, onlookers worry that the central bank may be forced to allow the Egyptian pound to devalue, cutting the purchasing power of local consumers. The International Monetary Fund expects Egyptian gross domestic product to rise just 1.8 per cent this year, amid inflation of more than 11 per cent.

GB said in its recent 2011 results announcement that its passenger car sales in Egypt dropped 20.2 per cent for the year. Company-wide revenue, which includes car sales in Iraq as well as commercial vehicle and motorcycle sales, rose 7.9 per cent for the year, reaching E£7.42bn ($1.2bn), while net income fell 26.1 per cent to E£190.6m.

In passenger car unit sales in Egypt, the company outperformed the wider industry and boosted its market share to 32.5 per cent, saying it expects to hold its share at above 30 per cent as the sector recovers this year.

Ms Sadek says GB expects industry-wide car sales to rise 10 per cent this year. With most new car buyers earning salaries of E£3,000-E£5,000 and relying on instalment schemes to pay for their vehicles, small changes in take-home salaries as a result of tax reforms would “definitely impact” sales, she says.

Another factor that could help sales is the introduction of new, affordably priced cars to the market. In late February, GB announced it would become the exclusive Egyptian and north African assembler and distributor for China’s Geely, which is expanding its sales in emerging markets.

High government tariffs on completed imported cars has led to many foreign manufacturers assembling their vehicles in Egypt. Almost 40 per cent of all passenger cars sold in Egypt last year were assembled locally, the Automotive Marketing Information Council says in its end-of-year report.

The Geely deal is “one of several partnerships we will announce this year”, Raouf Ghabbour, GB Auto’s chairman, said in a statement announcing the agreement.

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