Automotive sales squeezed by covid-19 lockdown and car licensing suspension
- Passenger car (PC) prices have witnessed price discounts since the beginning of the year, largely owing to the appreciation of the EGP and the full elimination of customs on Turkish and EU-sourced vehicles. Subsequently, AMIC recorded that Egyptian PC sales saw a 10% YoY increase in volumes in January 2020. While February 2020 sales figures are yet to come out, local sources noted that the month saw a higher rate of demand, in line with January.
- This trend, however, was reversed in March as an increasing number of countries have implemented drastic measures to contain covid-19 spread, especially in China which is the world’s biggest auto manufacturing hub and where the epidemic originated. A number of automotive distributors noted that the local market will see monthly sales contract significantly following the Ministry of Interior’s suspension of vehicle licensing in traffic authorities for a month.
- Car dealers can provide temporary commercial plates for up to 15 days to consumers who wish to buy new vehicles. However, this solution may be ineffective due to the limited number of them available at dealerships and the short time they can be used for. Additionally, this will put more pressure on car dealerships’ cash flow cycle since cars purchased on installment are first fully paid for by dealers and then funds are recovered from banks once the car is licensed.
- Local demand will also be hampered by the precautionary measures taken by the government to reduce working hours in commercial outlets, including exhibitions and maintenance centers.
- Additionally, the House Industry Committee has decided to postpone its talks into introducing new automotive incentives for local car assemblers and feeder industries until the next legislative session in October, due to the Coronavirus outbreak.
- On a better note, the CBE’s decision to slash interest rates by 300bps and to suspend installment repayments for 6 months should slightly soften the blow to the auto market, given its favorable effect on car purchase installment plans.
- All these factors will likely delay upgrades or repurchases of vehicles over the coming period. In the case of prolonged lockdowns, It is likely for auto dealers to announce price cuts and/or promotional offers on their models to both stimulate sales and to liquidate old inventory.
Textile exporters under pressure on global economic slowdown; Local curfew and lockdowns are not helping either
- Across the world, the corona virus has brought shopping for anything but necessities to a halt and among the industries at risk is the textile and fashion industry. In the US, Europe and Asia retail giants like Ikea, Inditex and H&M have closed their operations due to the global drop in demand, while the stores that did not close doors saw sales plummet as shoppers gravitated away from non-essential goods.
- Accordingly, global importers of textiles are halting new orders and/or evaluating potential changes on recently placed orders from global textile hubs like China, Bangladesh, Turkey and Egypt.
- Companies who rely heavily on raw materials from China are likely the most to struggle in coping with newly-found supply chain issues. Therefore companies are moving towards securing at least 1 month of inventory, which is supported by the low current prices of oil-based raw materials.
- Also given that the textile industry is more labor-intensive, the recent health measures imposed by the state (including the imposition of a nightly curfew) could drive factories to reduce shifts, probably two instead of three, and in turn stress production flows.
- On a slightly positive note, the companies who have China as a major competitor (e.g: in the printed and non-woven carpets export market), may have an opportunity to create new export markets by replacing lost orders.
- The local demand for textiles is expected to be further dampened by the curfew imposed on all retail outlets on weekdays and all throughout the weekend. Demand is expected to remain low throughout the Ramadan season in 2Q20.
Consumer Behavior Altered; Demand Relatively Slower; Future Electronics Shipments at Risk
- The global coronavirus outbreak has affected consumer trends and behavior.
- Shuttered plants globally could reduce production of electronics parts such as memory chips and displays. The launch of new smartphone models could be delayed as well.
- Capital expenditures for expanding production will also be at risk.
- Curfew and social distancing efforts, aimed at slowing the spread of the virus, have altered consumers’ and potential buyers’ daily routine.
- In-store mobile phones and home appliances sales is witnessing a relative slowdown.
- Distributors usually have 1-1.5 months of inventory for imported products, which will cover market demand until the supply chain hurdles are solved.