Over the past quarter, BMI has become significantly more negative on the new vehicle sales outlook for Jordan, Lebanon and Syria. This reflects the deteriorating regional economic and political situation. Of the three countries covered in this report, we believe that it is Lebanon which holds the strongest near-term growth potential, where we forecast 2% growth in new vehicle sales over 2015, despite the introduction of tougher rules on car loans introduced by the Banque du Liban.
Conversely, we are targeting a 4% fall in sales within Syria, to 4,800 units and a massive 15% slump in new car sales in Jordan, to 14,450 units. The main reason behind our more pessimistic near-term stance lies in the growing threat to Jordan's cross-border trade with Syria and Iraq caused by ongoing border attacks from Islamic State (IS) insurgents. According to an April 2015 report by the Associated Press, the violence has led to the closure of the sole Syria-Jordan trade crossing, effectively paralysing its overland trade routes. The report also stated that Jordanian exports were already down by 17% y-o-y over the first two months of 2015, before the security situation worsened.
For now, we forecast real GDP growth for Jordan of 3.6% in 2015 (up slightly from our earlier projection of 3.4%) accelerating to 4.1% in 2016. However, risks will remain to the downside over the coming quarters, with any escalation in already-elevated regional instability liable to threaten Jordanian trade and investor confidence.
The Jordanian authorities are considering whether to cut tax rates on imported hybrid cars, in order to boost customer take-up, according to an April 2015 report by the Jordan Times. The report cites an unnamed government official, who said that a special committee had been set up to consider the issue.
At present, hybrid cars with an engine size smaller than 2,500cc are subject to a 25% special tax, while those with large engines are subject to a 55% levy. In addition, any customer trading in a car that is 10 years old or more can take advantage of a lower 12.5% special tax if they buy a new hybrid.
According to Nabil Rumman, President of the Jordan Free Zone Investors Association (JFZIA) the government should consult with local auto dealerships before making any changes to the taxes on hybrid cars. Rumman's view is that the two bands of special tax should be reduced to 12.5% (for 2,500cc or smaller) and 25% (for larger-engined hybrids) with the lower tax rate for older trade-ins abolished.
Overall, demand for hybrids from the Jordanian public continues to increase. Rumman said that 5,000 hybrids had been imported to Jordan over Q115, with over 16,000 hybrids imported during 2014. According to the Jordan Times, there are now over 36,000 hybrid cars on Jordanian roads, with the Toyota Prius the most popular hybrid.
BMI has slightly revised down its 2015 new vehicle sales forecast for Lebanon, from 4% to 2% growth. The main factor weighing on new car sales in early 2015 was the October 2014 decision by the Banque du Liban to introduce new regulations governing retail loans. Among these new rules is a requirement for all purchasers of new cars to make a minimum 25% down payment, limiting their credit to 75% of the vehicle's cost. Furthermore, the Banque du Liban has stipulated that monthly repayment fees on car loans should not exceed 45% of a household's income.
The initial impact of this new 25% down payment rule was highly negative, with the Daily Star reporting in February 2015 that there had been a 6% annual decline in the total number of registered new and used vehicles in Lebanon during the month of January. The month-on-month fall from December 2014 stood at 26%.
According to the Daily Star report, the new car loan rules have had the greatest impact on smaller cars priced at USD20,000 or lower. Dealerships have reportedly lowered their prices to offset the impact of these new loan rules, but as of end-April 2015, new car sales were down by 0.45% y-o-y.
In total, some 10,741 new vehicles had been sold in Lebanon over the first four months of the year, according to figures from the Association of Car Importers in Lebanon (AIA) as cited by Le Commerce du Levant in May 2015. The AIA made specific reference to the 25% down payment rule as being one of the main factors behind the market's effective stagnation over early 2015. According to the AIA, Japanese manufacturers (38.6%) held the greatest market share in Lebanon at the time of writing, followed by Korean (34.8%), European (20.6%), US (5.1%) and lastly Chinese (0.6%) carmakers.
Turning to Syria, the situation remains desperate, with large parts of the country now under the control of IS. Syria is entering its fifth year of civil war, with around 200,000 people having been killed and no end in sight. Hyundai, Kia and Renault are among the few carmakers to still maintain a local sales and distribution presence.
BMI believes that the breakdown of the Syrian economy will continue over 2015 and 2016. The country's protracted civil war has destroyed key infrastructure and led to a steady collapse in the living standards of the remaining population. Latest data from the United Nations Statistics Division estimate that the Syrian economy contracted by 20.6% in real terms in 2013, returning it to the size it was in 1999. We believe that the economic decline is far from over: with no end in sight to the conflict, we forecast the economy to shrink by another third from its 2013 level by 2016. .