GB Auto will continue to use deploy a ‘pricing power’ strategy to raise the prices of its products in order to maintain profit margins and hedge against any unexpected developments, said the company’s chief executive, Raouf Ghabbour.
In an investment report, Ghabbour said the market has the ability to absorb the price increases of all the company’s products, especially passenger cars, adding that the profit margin rose in the last quarter of 2015 by 4.2%, despite the decline in sales by 41% compared to the same period in the previous years.
GB Auto raised the average price of its cars during the last quarter of 2015, which led to an increase in the gross profit margin by 15% during this quarter, compared to 11.8% during the same period in 2014.
He added that GB Auto will continue to work to tighten control over general, administrative, and marketing expenses and maintain working capital. These are the rules of the game that we played before, whether during the currency crisis in 1981 or its devaluation in 2003, said Ghabbour.
Ghabbour explained that this strategy comes in light of the expectations that the market will continue to face a shortage in foreign exchange for several months, until the recent actions taken by the Central Bank of Egypt (CBE) bring back the foreign exchange liquidity to the banking system.
He pointed out that GB Auto accumulates a stock of its products, which supports its capacity to face any import challenges in the coming period.
Ghabbour pointed out that the commercial vehicles and the construction equipment sector have been allocated adequate portions of foreign exchange. However, there is a slowdown in sales as a result of the decrease in demand from the Gulf Cooperation Council. The company hopes that the development projects in the Suez Canal area and the New Administrative Capital will improve the situation.
He added that the company has a sufficent stock of motorcycles and tuk-tuks to meet current demand.
Regarding the establishment of a motorcycle and tuk-tuk factory, Ghabbour explained that GB Auto is working on finalising its agreement with the Indian company Bajaj for manufacturing components and for paint and welding facilities.
Ghabbour added that the company is also nearing the close of negotiations with potential partners to obtain tyre manufacturing technologies, as well as providing a competitive cost that is suitable for the project.
GB Auto expects to make an announcement regarding the technology partner in the second quarter of 2016.
In news outside of Egypt, Ghabbour pointed out that the company will continue to analyse the Iraqi market throughout 2016, where security unrest led to a 50% decline in sales during 2015. Regardless, Ghabbour said GB Auto will target expanding its marketing and selling of tuk-tuks in Iraq.
Ghabbour added that the company aims to expand exports in a number of sectors, such as GB Polo buses.
Shifting towards overseas markets will play a key role in improving foreign currency revenue and securing needed operational requirements in the local market, said Ghabbour.
Ghabbour stressed that the real challenge facing passenger cars in the market now is the lack of fair competition, as a larger number of cars are being imported from Turkey, Morocco, and the European Union due to the tariff advantages these markets have been granted in trade agreements.
Local car manufacturers are waiting for the Egyptian Parliament to discuss legislation presented by the minister of industry and trade that will govern the manufacturing and assembling of cars.