What's driving high prices of autos in Egypt?

Moreover, escalating shipping costs and new customs regulations have directly impacted vehicle prices, The resultant shortage of cars has spiked demand for the limited available inventory, leading to the phenomenon of "overprice," where consumers are compelled to pay premium amounts to secure desired vehicles.

Despite the government's efforts to bolster local industry and increase the proportion of locally sourced components, the sector continues to face substantial challenges.

Key Factors Influencing Car Prices

Rafat Massrouga, Honorary President of the Automotive Market Information Council (AMIC), highlighted three critical factors influencing car prices: the dollar exchange rate, the volume of demand for new cars, and the availability of new vehicles.

Impact of the Dollar Exchange Rate

Massrouga noted that fluctuations in the dollar exchange rate have a direct and significant impact on car prices. "A 10 percent increase in the dollar exchange rate typically results in a 10 percent rise in car prices," he explained. This direct correlation between the dollar rate and local car costs underscores the critical role the dollar plays in vehicle pricing.

Khaled Saad, Secretary-General of the Automotive Manufacturers Association, affirmed the fundamental connection between the dollar and import costs.

"We rely heavily on the dollar for importing both fully assembled cars and production components. When the dollar value rises, so do car prices, and vice versa," Saad added.

He also pointed out that recent challenges include the fluctuating dollar rate and difficulties in obtaining dollars from banks for car imports.

Sales Trends and Market Dynamics

In June, car sales surged by 26.6 percent, reaching 8,017 vehicles compared to 6,331 in the same month the previous year, according to AMIC's latest report. Passenger car sales alone saw a 29.5 percent increase, totalling 6,466 vehicles.

Massrouga explains that if demand for cars rises by 10 percent, prices typically increase by the same percentage. The halt in importing fully assembled cars and specific vehicle categories has led to renewed overpricing, with supply shortages pushing prices higher.

“When the supply of available cars diminishes, prices naturally rise,” he noted. This trend has intensified as customers facing shortages are willing to pay extra to obtain vehicles, resulting in multiple buyers competing for the same car.

Additionally, a disruption in the pre-shipment system since mid-May has further contributed to the supply shortage, affecting prices as limited quantities of cars were released during this period.

Year-to-Date Sales Performance

The first half of 2024 has seen a 2.67 percent increase in new car sales, totalling 37,828 vehicles compared to 36,845 in the same period last year. Passenger car sales grew by 9 percent year-on-year, reaching 29,236 vehicles.

Supply Shortages & Price Implications

Massrouga underscores that a 10 percent decrease in the supply of cars leads to a five percent increase in prices. This scarcity results in higher prices due to diminished availability, often leading to the emergence of overpricing practices where consumers pay more than the official price.

Saad further elaborated on how disruptions in both local production and imports have led to a significant rise in costs. "Current production or imports do not cover operational costs, leading to price increases as traders attempt to compensate for their losses," he said.

Future Outlook

Alaa Al-Sabbah, a member of the Automotive Division at the Egyptian Chamber of Commerce, reported a current downturn in sales and highlighted a lack of genuine progress in the sector.

He asserted the need for the government to recognize the economic impact of current policies and disruptions on the automotive sector.

Despite these challenges, Massrouga expresses cautious optimism regarding government efforts to stabilize the market. The establishment of new industrial and logistical zones, such as the Tarbol area in southern Helwan, aimed at producing affordable Russian cars, represents a positive step towards increasing local manufacturing and reducing reliance on imports.

Saad also expressed optimism, anticipating an increased focus on local production and component sourcing will eventually stabilize the market. "The upcoming period is expected to see market stabilization, leading to more stable prices and improved availability of vehicles," he concluded