Saturday, October 24, 2015

The Cambodian Car Market

The Toyota official dealership announced that it is going to import used cars from the U. S. and other countries, checks them for safety, roadworthiness, and environmental criteria, and will sell them as pre-owned certified cars. I have been wondering why the authorized dealerships have not used this very important tool till now. Up to now they relied on selling their new cars and SUVs and the service that needs to be done by the authorized dealership so that the warranty would not become void. New cars usually come with a 3-year or 50,000 mile warranty. Some brands include free servicing in their package.

Although Cambodia is a growing market sales were quite modest for most authorized dealers given the 125% tax and duty levied on cars. This brings the sticker price up to $125,000 for a car that costs $50,000 in the U. S. or Europe, e. g. roughly an Audi A6. It is also remarkable that especially the luxury car segment has added practically all the biggies in the industry, like Range Rover, Jaguar, Audi, Porsche, Mercedes, etc.  I personally believe that all these brands want to get in on the action on the ground floor believing that the upper middle and upper class will tire of their Lexi and Landcruisers eventually.  They see how successful Range Rover has become – as a used vehicle. Rarely is any on the roads bought new. Additionally, a one-year old used car is a lot cheaper as you usually lose 10% of the new car value the minute you drive it off the lot. They are just as good as a new one. Or take the show room models that are deeply discounted by dealers in the West. Why go for a new one?

As with most things in Cambodia, Cambodians follow a very simple pattern. If my neighbor has it or something seems to be successful they will just do the same – do it like the Joneses as the Americans say. Initially, way back in the 1989/90 they liked the Mercedes 190, also called the baby Benz in the U. S. As it happens I was the one who imported and supplied them. Next, once the U. S. trade embargo was lifted, the overseas Khmer started importing Toyota Camrys, the best-selling car word-wide, mainly from California. It caught on and soon you could only see Camrys on the roads. Next followed the smaller Corolla and the pick-ups. Of course, the Mercedes 190 had become too small a status symbol for the ministers and state secretaries so they took a shine to what all the UNTAC people used to drive, the Landcruiser -not a bad choice, of course, considering the road conditions at that time. Slowly other brands started showing up, and in the 2000s the car market had become pretty diverse, but the Toyotas and the Lexi still dominated the picture. Everybody who wanted to be somebody needed to drive those gas guzzlers, even if they couldn’t afford them.

One day somebody introduced the Range Rover, an excellent SUV, no doubt, and it became the SUV of choice. Since Cambodians are enamored with all things American, some even imported the Cadillac Escalade, another vehicle that is to Cambodia as pearls are to swine. But the Range Rover with its various types outdid it by far. Soon the more adventurous added Porsche SUVs, BMWs, etc. They were all what the authorized dealers here call grey market. There is no such thing as a grey market, mind you. This is nothing more than a free market economy. Anybody who registers a business, has the funds, can import and sell cars. Before cars are registered they have to pass an inspection, which needs to be renewed every two years. So the argument that these cars are unsafe does not hold much water, not for newly imported cars. Again, as with all things in Cambodia, enforcement of that 2 year interval inspection requirement is not or rarely enforced, most certainly not on all those minivans and trucks.

The calls by the authorized dealers for laws and regulations curbing these imports would be tantamount to a controlled market as in Vietnam – as in Communism. The one regulation that would most definitely put an end to many illegal and unsafe practices is the safety inspection. If the Ministry of Transport would enforce this law that would take care of the biggest hazard on the roads by eliminating the many minivans that in other countries would be condemned. Also the vast majority of the trucks and overland buses on the roads are completely unsafe; the many accidents, with many fatalities, is striking evidence of this deplorable state of affairs.

If authorized dealers want to increase their business they should not rely just on new car sales and high priced service. It is just not affordable for the emerging middle class. A case in point: I had my Mercedes (which I imported myself) serviced at the dealership in Phnom Penh before I moved to Sihanoukville. Labor charges were still within reason but the price of parts was just outrageous. Now I found a good shop here in Sihanoukville with a trained technician who knows how to handle and read the computer diagnostics and do repairs just as well. He gets his parts from a source that imports them from Singapore and the Middle East. In Phnom Penh one part would be $4000, he got it for a little over $1,000. I bought a part directly from the U.S. for $80 and I paid regular duty on it; in Phnom Penh it was $250.

Take a page from the Western playbook. Toyota’s step is only a half-step. The big game changer would be to take trade-ins. Inspect them, repair them and resell them. That would partially dry up what they have incessantly been complaining about – the so-called grey market. Make those used-cars into certified used cars, possibly even with a one year warranty, and they would have a completely different ball game. In the west car dealers, even used car dealers, can buy insurance for this purpose. In any event, this would take away business from the shady dealers on the market and drive their new car sales as well. Large scale advertising campaigns would certainly change the public perception quickly. Why nobody has ever come to this conclusion has been baffling me for a long time. The entrepreneurs in the business obviously do not trust their own expertise.

Another big problem, the extent of which is not really known, is the import of salvaged or condemned cars, which are then repaired here and resold. Sometimes, they put together a complete car from salvaged parts. Quite obviously, there was a reason why these vehicles were condemned and only had a salvage title left. This is just as dangerous as changing Thai cars or Japanese imports from right-hand to left-hand steering as they used to do in the 90ies. This is the sector where stiff regulations should take effect. A few years ago when the Prius craze started I also bought one for city driving. It cost me $17,000 (I forgot the year). It came with a 3-month warranty, though. When I checked the price in the U. S. for the same model and year I was surprised to read that it retailed for $14K to $15K there. We owned it for a year and then sold it. We never had a problem with it but it most certainly must have been a junk car.

As long as the authorized dealerships don’t take the initiative with more advanced marketing techniques, nothing much will change in today’s car market. Calls for regulations might be heard but are uncalled for. So far they have fallen on deaf ears anyway for fear of depriving many people of their livelihood. And, last but not least, there will always be a greased hand that will look the other way. So, take it in your hands, for goodness sake.

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