US dollar depreciation sparked 20% drop in car prices in Egypt
The USD rate shrank by over 60 percent against the EGP after the Central Bank of Egypt (CBE) raised key interest rates by six percent and let the USD rate be set by the local market’s supply and demand forces.
Because of this decline, experts anticipate sustained price decreases in the automotive industry in the short term.
Thus, the local automotive sector increasingly needs to strengthen its market presence through localization efforts and expanded production.
Direct impact of UDS depreciation
USD prices' decline against the EGP in official banks has directly influenced the current positive trend in car prices.
On 6 March, the EGP depreciated by approximately 53 percent against the USD in official banks, dropping from almost EGP 31/$1 to EGP 47.3/$1.
The USD value also decreased in the parallel market from over EGP 70/$1 to almost the same rate traded in the banks, leading to a 20 percent reduction in auto prices.
“Traders and agents had been overvaluing the dollar while pricing autos, which led to evident overpricing in the market. The recent adjustments in pricing have rectified this disparity, resulting in enhanced purchasing power for both new and second-hand autos. Prices of used autos, in particular, decreased by at least 25 percent,” Raafat Masrouga, honorary head of the Automotive Market Information Council (AMIC), explained.
Market recovery
According to a report released by the AMIC in late February, total vehicle sales for that month witnessed a remarkable 21.7 percent increase, reaching 7,397 vehicles, compared to the same period of 2023, which recorded 6,076.
Masrouga attributed this surge in sales to increased consumer confidence in the future, enabling them to make purchases and alleviating concerns.
This positive trend coincided with indicators suggesting progress by the government in addressing the dollar shortage crisis.
“Unifying the US dollar prices between the official and parallel currency market significantly contributed to lowering official car prices,” Montaser Zaytoun, member of the Automotive Division at the General Federation of Egyptian Chambers of Commerce, emphasized.
According to Zaytoun, over 90 percent of car models are no longer overpriced as this adjustment has been swiftly reflected in auto market prices.
The auto market, which previously experienced stagnation of up to 90 percent, has begun to rebound, showing a recovery rate of 35-40 percent due to the decrease in auto prices by 15-30 percent, he added.
Furthermore, auto sales in the first two months of 2024 witnessed a robust 39 percent increase, totalling 10,660 vehicles, compared to approximately 7,692 during the same period in 2023, the AMIC report indicated.
False savings
Zaytoun further explained that the previous practice of pricing autos based on evaluating the US dollar at a higher rate than its value in the parallel market had prompted many consumers to invest in buying autos through hoarding operations, leading to inflated prices.
However, when the US dollar's value sharply declined in the parallel market, driven by the US dollar inflows into the Egyptian economy, the consumers began to sell their cars.
Anticipated price declines
Moreover, Masrouga predicts further decreases in auto prices after Eid Al-Fitr, supported by the possibility of the EGP strengthening against the USD to levels below EGP 40 soon.
CBE’s data indicates that Egypt’s foreign exchange reserves surpassed $40 billion by the end of March 2024 to return to pre-March 2022 levels.
Zaytoun concurs with Masrouga saying that prices will remain stable as long as the USD remains above EGP 40, provided there is an adequate supply of autos in the local market to meet the growing demand and prevent the recurrence of overpricing.
Opportunities for local industry
Zaytoun emphasized that there is a significant opportunity for locally assembled cars to grow in the market soon.
Therefore, he added, priority should be given to deepening local manufacturing and rational managing of hard currency for production necessities.
In February 2022, the car market experienced turmoil after the suspension of opening documentary credits for car imports, with only a limited percentage allowed for import from the export proceeds of some traders.
However, banks have recently resumed managing currency.
“The industry relies on importing about 50 percent of production components,” Khaled Saad, secretary-general of the Egyptian Association of Automobile Manufacturers, highlighted.
Saad added that leveraging localization efforts to increase local content can capitalize on this dependence.
The portion of local content has already increased to 15-20 percent in 2024 compared to 2023, as banks are no longer supplying USD for fully manufactured car imports.
Locally assembled cars currently hold a market share of 60-70 percent, while imported cars account for a share of 30-40 percent.