BMI retains a negative near-term view on the new vehicle sales outlook for Jordan, Lebanon and Syria. This reflects the deteriorating regional economic and political situation. We are now targeting falls in auto sales for all three countries over 2015.
Starting with Jordan, BMI retains a downbeat stance towards new vehicle sales this quarter, as we feel that the growing threat to the Kingdom's borders from ongoing attacks from Islamic State (IS) insurgents more than outweighs what is a reasonably propitious domestic macroeconomic backdrop.
According to an April 2015 report by the Associated Press (AP), ongoing border 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. With specific regard to the auto sector, the AP report quoted a trader who said that he had stopped selling cars to Iraq, following the imposition of IS 'tariffs', whereby IS fighters arbitrarily charge USD2,000 for each imported car passing through an IS-manned checkpoint.
In mid-July 2015, the AP reported that the Iraqi authorities had closed the country's only border crossing with Jordan, in Trebil, until further notice, citing Saad Maan, a spokesman for Iraq's Joint Operations Command. The closure of the Trebil crossing, which was later confirmed by a Jordanian government official, according to the report, is part of an effort to prevent Islamic State militants from imposing taxes on cargo trucks crossing areas under their control. Maan noted that the crossing would reopen once the security situation improves.
These fears over the regional security situation outweigh what is a fairly propitious domestic macroeconomic backdrop. We believe that Jordanian economic growth will outpace most of its regional peers in 2015 and 2016, boosted by private consumption and large-scale public infrastructure investments. Our expectations for global oil prices to remain low and subdued inflation will improve households' purchasing power. Concomitantly, fiscal improvements and financial support from the international community will allow the Jordanian government to maintain its large-scale investment policy. As a result, we forecast the economy to expand by 3.6% in 2015 and 4.1% in 2016, which will mark a net acceleration from the average growth rate of 2.7% between 2010 and 2014.
According to information from the BestSellingCarsBlog website, Korean manufacturer Hyundai Motors continues to dominate the Jordanian sales market, with around a 39% market share. The company's Accent and Elantra models are the present top sellers in Jordan. In second position is fellow Korean manufacturer Kia Motors, on 21.5%, with Japanese manufacturer Toyota in third position on 18.8%.
This quarter, BMI has made another downwards revision to its 2015 new vehicle sales forecast for Lebanon, reflecting a still-challenging backdrop for automakers operating in the country. We are now targeting a 0.8% fall in the overall market.
Looking at sales trends over H115, a total of 18,047 new passenger cars were sold in Lebanon, according to figures from the Association of Automobile Importers in Lebanon (AIA), as cited by Byblos Bank. This represented a 1.9% fall y-o-y. When added to a total of 1,124 new commercial vehicles (-3.7%) sold over the Jan-Jun 2015 period, this makes for a total new vehicle sales market of 19,171 units.
The main factor weighing on new vehicle sales over H115, both within the PC and CV segments, 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.
Looking at sales trends over H115, Kia remained the leading seller on the Lebanese new vehicle sales market, selling 3,471 units for a market share of 19.2%, according to AIA figures as cited by Byblos Bank.
Toyota rose from third place to second position on the local market, selling 3,113 units for a market share of 17.2%. This meant that Hyundai dropped to third (2,942; 16.3%). The Top 3 sellers on the Lebanese market accounted for over 50% of total PC sales over H115.
Toyota has been benefiting from the ongoing yen weakness that has boosted the sales of all Japanese manufacturers selling onto the Lebanese market (including Suzuki). Indeed, according to the AIA, Japanese manufacturers accounted for 38.6% of the new vehicle sales market over 2015, with Korean manufacturers dropping back to 35.6% of the market. European carmakers accounted for 20% of the market, with US manufacturers on 5.2% and Chinese vehicles on just 0.7%.
Lastly, the situation in Syria remains desperate, with large parts of the country now under the control of Islamic State (IS). Syria is entering its fifth year of civil war, with around 200,000 people having been killed and no end in sight. Hyundai and Kia are among the few carmakers to still maintain a local sales and distribution presence.
According to a July 2015 report by the BestSellingCarsBlog website, the two Korean carmakers accounted for almost 98% of all new vehicle sales over the first quarter of 2015. Hyundai held a 52.5% share, with Kia taking 45.4% of the local market. Hyundai's Elantra and i10 models are its top sellers in Syria, with Kia seeing most of its sales from its Sportage and Frontier models.