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NEWSLETTER No. 1 – December 2009

Analysis of the domestic car market Dear all, The 2009 year has been a milestone for us with the setting up of our company, carrying out awareness campaigns in respect of credit insurance among market players, adapting the product to the local context and tailoring it for domestic business needs and finally the issue of our first policy. This is our first Newsletter and we promise there will be more to come in 2010. We will cover various topics relating to the domestic market including economic indicators, sectorial analysis & performance, amongst others. 2010 will be a challenging year for CGI but the prospects are bright. The CGI Team is looking forward to challenges and rewards along with your support. We take this opportunity to wish you a Happy New Year 2010. And to conclude, YOU TRADE, WE COVER!

Johan Crabeels

General Manager (On behalf of the CGI Team)

Zayd Soobedar Credit Risk Underwriter 31/12/2009


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OUTLOOK OF THE DOMESTIC CAR MARKET With its stable political and social environment, Mauritius is business friendly country. Over the years, the number of new car dealers and reconditioned car dealers has thrived. Car taxes, however, are quite high and this is one of the main reasons why many Mauritians opt for second hand and reconditioned vehicles instead of new ones. For motorcars of 1600cc or less, the duty rate is 55%, while for motorcars above 1600cc, the rate is 100%. Despite the global economic crisis, Mauritius has not been adversely affected and is even expected to post sound macroeconomic indicators for the current year. As such, for 2009, the Central Statistics Office projects the domestic economy to grow by 2.5% compared to world output which is expected to decline by 1.1% as per the IMF World Economic Outlook October 2009 report. The main impact of the crisis on local customers was on their confidence level, which

Figure 1: Overview of domestic car market

resulted in slackened consumption. As per the Mauritius Vehicle Dealers Association

New cars

(MVDA), new car trade has been affected Supply

during 2009, mainly the sub-compact (01250cc)

and

compact

(1251-1600cc)

segments, while the luxury division has

Reconditioned cars

Domestic car market

been rather stable. For the period January to September, around 3,482 new vehicles

Demand

Market demographics

were sold, which is 40% lower than the figures achieved for same period last year. For the year 2009, total new car sales is expected to stand around 4,500. However, as per recent statistics and stakeholders’ opinions, the recession is behind and the Mauritian economy is expected to pick up in 2010. Another important economic factor to take into consideration for the local car market in 2010 is the rising disposable income of domestic consumers. With the Pay Research Bureau report 2008 detailing an upward revision in salaries and benefits of public servants coupled with low inflationary tendencies, can be synonymous to a favourable outlook for car traders next year. In addition, interest rates are low and are not expected to soar in the short to middle term, thus implying that leasing facilities or bank loans can be contracted for purchase of motorcars at lower financing charges. Importantly, there are some drivers in the market that cannot be quantified, but they play a determining role for the car trade. The Mauritian culture defines wealth and power as indicators of success and influence in 3


society. Thus, owning a car is often tantamount to a measure of achievement. Apart from just being simple transportation medium, cars are considered as social tools in the Mauritian culture. It is one of the reasons why the luxury car sales have been rather stable. DEMAND SIDE – MARKET DEMOGRAPHICS Population As per the Population Census 2000, the population of Mauritius stood at 1,142,955 individuals, of which 49% were males and 51% females. The distribution of the population by age and sex is given by the population pyramid (Figure 1). Latest statistics from the Central Statistics Office (CSO) indicate that the population growth rate for Mauritius during the period 2000-05 was 0.9% p.a., lower than the estimated world’s population growth rate of 1.2% p.a. As such, the CSO estimates that the population of Mauritius reached 1,237,286 as at 1st July 2008. Figure 2: Population distribution by sex and age group (population pyramid)

75+

Figure 3: Breakdown of population by major occupational group Legislators, senior officials & Managers 3% Professionals

Male

65-74

3%

Female

55-64 45-54

Technicians and associate professionals 9%

Elementary occupations 22%

35-44

Clerks 9%

30-34 25-29 21-24

Service workers & shop & market sales workers 14%

Plant & machine operators & assemblers 18%

18-20 15-17 10-14

Craft & related trades workers 19%

0-9 150,000

100,000

50,000

0

50,000

100,000

Skilled agricultural & fishery workers 3%

150,000

Household Based on the findings of the Population Census 2000, the number of households in Mauritius amounted to 288,156 with an average household size of 3.9 (same was reviewed downwards to 3.7 in the Household Budget Survey 2007). As per the Household Budget Survey 2006/07, average monthly household disposable income amounts to Rs19,083 compared to average monthly consumption expenditure of Rs14,300. The following graph and table provides breakdown of households in terms of location, average monthly income & expenditure and household size.

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Table 1: Average monthly household income and expenditure Main details

Urban

Rural

Figure 4: Breakdown of household by location Pamplemousses 100,000

All regions

Average monthly household

22,677

16,977

Port Louis

Riv. Du Rempart

80,000

19,083

60,000

income (Rs)

40,000 20,000

Moka

Average monthly per capita

7,027

4,981

5,739

16,215

13,174

14,300

Flacq

0

household income (Rs)

Average monthly household

Black River

Grand Port

expenditure (Rs) Plaines Wilhems

Savanne

No. of households

Table 2: Breakdown of household by income and household size Distribution of Income class (Rs)

household income (%)

Households

Average monthly household income

Income

Average no. of Average household

persons deriving

size

income per

Average monthly

household

household income

Average monthly per capita income

< 2000

0.0

710

3.1

0.5

710

314

2,000 to < 5,000

1.2

3,657

1.8

1.2

3,657

2,530

5,000 to < 7,500

2.9

6,338

2.9

1.4

6,338

2,900

7,500 to < 10,000

5.3

8,787

3.3

1.5

8,787

3,265

10,000 to < 15,000

16.1

12,323

3.7

1.7

12,323

3,875

15,000 to < 20,000

15.2

17,162

3.9

2.0

17,162

5,077

20,000 to < 30,000

21.5

24,200

4.2

2.3

24,200

6,651

30,000 and above

37.8

49,506

4.2

2.4

49,506

13,747

All classes

100.0

19,083

3.7

1.9

19,083

5,739

DEMAND SIDE â&#x20AC;&#x201C; DRIVERS IN THE MARKET Driven by psychological factorsâ&#x20AC;Ś A demand function for cars was modelled to include the price of cars, taxation, exchange rate, fuel prices, financing options, purchasing power, population and economic growth. The findings of the model revealed that in terms of measurable items car demand in Mauritius is price driven.

The price component is

predominantly influenced by changes in taxes and, surprisingly, in a much lesser extent by exchange rates. It was interesting to note however that the residual term of the model was very significant. This suggests that non-observable items such as psychological factors could well be the significant component of demand. 5


Table 3: Change in CAGR following tax reforms

1. Changes in tax policies

Growth rates

1980-1986

1987-2000

2001-2004

2004-2008

The observed change in growth rate

Car

1.3%

5.5%

10.0%

9.5%

after a tax reduction is clear evidence

Taxi

-2.0%

3.2%

5.2%

0.7%

Dual purpose

4.6%

10.8%

3.2%

3.1%

Total

1.7%

6.9%

7.3%

7.0%

of the fiscal effect on demand and supports the findings of the model. The years characterized by duty changes are 1987, 2001, 2004, 2005 and 2006.

Figure 5: Growth rates in number of cars registered, 1980-2008 10.0% Growth in car registered 8.0%

Figure 5 shows the jump in growth rates following the implementation of

6.0%

tax cuts. The increase in growth rates 4.0%

in the period 1987 – 2000 compared to 1980 – 1986 is in marked contrast as

2.0%

shown in the Table 3. 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

0.0%

2. Exchange rates -2.0%

Year

All the major currencies affecting the car industry have appreciated vis-à-vis

Figure 6: Effect on exchange rate depreciation on demand for cars

the Mauritian Rupee during the period

120

1980-2008. However, according to the –0.15.

It

suggests

that

the

appreciation of the dollar has not significantly reduced the demand for cars.

Figure 5 shows that while the

Mauritian Rupees lost 138% of its value

400 350

80

300 60

250 200

40

150 100

20

50

against the USD between 1980 and 2008, the number of cars more than quadrupled.

0

0 1983

As such, tax cuts and

1988

1993 Depreciation Rs/USD

1998

2003

2008

Growth of cars

rising incomes have out-weighted the effect of exchange rate depreciation. Unfortunately, in the absence of a counterfactual we cannot establish the growth in the number of cars had the Rupee not lost its value. Arguably, the impact could have been significant. 6

Cars Index

is

450 100

Depreciation Index Rs/USD

model, the dollar elasticity of demand

500


3. Credit facilities The leasing market has considerably evolved since the set up of the first leasing company in 1970. Presently, the market is made up of 13 leasing companies that provide a wide variety of leasing facilities. In 1995, Finlease Co. Ltd was the first to introduce leasing facilities for the purchase of vehicles, and others followed including some car dealers. In addition, commercial banks also provide loans for the purchase of cars as an alternative financing option to leasing. As such, the ever-increasing facilities for the acquisition of a vehicle can contribute to the level of cars sales and consolidate the growth potential of the car market. 4. Non measurable items The high significance of the stochastic variable in the model provides evidence that there are other strong factors that influence Mauritians in their choice of car acquisition. The appetite for cars is real. Mauritians spend 23% of the household income towards car loan repayments. Given that this amount as a % of income hardly buys a decent car, then personal savings should make up for the gap. In fact, the lower income segment is more likely to dispose a disproportionately higher amount of income and savings towards a car purchase. Psychological factors like status, social and personal aspirations, and emotional aspects that Mauritians attach to their cars explain this situation. The need for tangible demonstrations of achievement is so prominent that families contract large debts to make acquisition material belongings. As the Household Budget Survey 2006/07, 46.5% of the surveyed households reported having at least one loan repayment. As such, about 11.6% of domestic households declared having a motor vehicle (average monthly repayment of Rs4,036).

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CONSUMER BEHAVIOUR Based on DCDM Marketing Research’s “Socio-Style de Vie©”, the following gives an overall idea of the various consumer behaviours.

Clan

Opportunist/Image conscious

Conservative

5

6

4

Adventurous

Stability

3

1

2

Adaptive to change

Mixed

Wisdom

Characteristics

Category

Quality sensitivity

1 Very High

2 Moderate to High

Moderate

Low

Low

Low

Price sensitivity

Low

Low to Moderate

Moderate to High

High

High

Low

Elasticity of demand

0<Ed<0.5

0.5<Ed<1

Ed> 1

Ed>1

Ed>1

0<Ed<1

Income group

High

High

Middle

Low

Low

Low

Social grade

A, B

A, B

C1, C2

D, E

D, E

D,E

Age group

30-40

30-40

30-40

30-40

18-29

Above 40

Ethnicity

Caucasian, Chinese origin

Indian origin

Multi-ethnic

Multi-ethnic

Multi-ethnic

Indian origin, General population

Level of literacy & in harmony with technology

High

High

Average

Low to average

Low

Low

Informed choice (aware of different promotions and products on offer)

Highly aware. Decision guided by quality

Highly aware. Decision guided by both price and quality

Highly aware and value for money deals

Highly aware and price is the main driver at the expense of quality

Moderate awareness

Poor awareness

8

3

4

5

6


SUPPLY SIDE: CAR MARKET TRENDS Evolution in number of cars registered Figure 7: Number of taxi, car and dual purpose vehicles registered, 1979-2008

The number of cars registered

160,000

(including private car, taxi and dual

Dual purpose vehicle

purpose vehicle) has increased by a

Car

compound

annual

growth

Taxi

rate

120,000 Number of vehicles

(CAGR) of 6.9% over the past 10 years, with the growth of the private car segment averaging 8.8% p.a. The upward trend in demand for cars have been mainly driven by increasing

purchasing

power

80,000

40,000

of

Mauritians, rising income, declining taxes on vehicles over the period,

0 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979

changing lifestyle and psychological factors

like

status,

social

Year

and

personal aspirations, and emotional aspects. Table 4: Number of car, dual purpose and taxi registered, 1999-2008 Year

Private Car

Growth yoy %

Dual purpose

Growth yoy %

Taxi

Growth yoy %

vehicle 1999

47,987

3.7

32,262

9.3

4,905

3.0

2000

49,872

3.9

34,912

8.2

5,039

2.7

2001

52,764

5.8

36,984

5.9

5,318

5.5

2002

57,506

9.0

38,129

3.1

5,801

9.1

2003

62,545

8.8

39,383

3.3

5,979

3.1

2004

70,860

13.3

40,667

3.3

6,482

8.4

2005

78,020

10.1

42,026

3.3

6,798

4.9

2006

85,051

9.0

43,221

2.8

6,860

0.9

2007

92,885

9.2

44,635

3.3

6,885

0.4

2008

102,566

10.4

46,021

3.1

6,941

0.8

Tug-of-war between new cars and reconditioned vehiclesâ&#x20AC;Ś Following the 2001 tax reforms, the market witnessed an outburst of reconditioned car imports at the expense of the new car market and around 50 licenses were granted to second-hand vehicle dealers in 2002. The result was a systematic fall in the market share of new cars since 2001.

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Figure 8: Growth in the number of new and reconditioned cars and ratio of new cars to reconditioned cars

7,000 New cars

Imported 2nd hand cars

6,000

2008 2007 2006

5,000 2005

4,000 3,000

2004

2003 2002

2,000 1,000

2001 2000 1999

0 0%

10%

20%

30%

New cars

40%

50%

60%

70%

80%

90%

100%

Imported 2nd hand cars

However, with the introduction of new duty rates for cars in 2006 (with only 2 duty brackets), sales of new cars are on the rise again. In 2008, 46% of private cars sold were new compared to only 37% in 2004. As per the Motor Vehicle Dealers Association, this tendency is expected to persist in coming years, with new the new car segment projected to forge further its market share. The growth potential is hereâ&#x20AC;Ś Based on the past trend in number of cars

Figure 9: Forecasted evolution of number of cars registered (incl. private car, taxi and dual purpose

registered, we have tried to determine the

219,676 191,769

growth potential of the sector. As such, we have forecasted the evolution of the cars

155,528

registered over the period 2009 to 2015. In that line, we expect the number of cars

163,862

118,009 89,823

registered to reach 219,676 in 2015, that is, 1.4 times higher than the number of cars registered in 2008. This implies that an average annual growth rate of 5.1% for the period 2009-2015.

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2000

2004

2008

2009 Forecast

2012 Forecast

2015 Forecast


APPENDIX New vehicle dealers Car Dearlers

Car make

ABC Motors Ltd Alfa Romeo, Nissan, Porsche Allied Motors Ltd Audi, Volkswagen Axess Ltd Citroen, Ford, Isuzu, Jaguar, Land Rover, Mazda, Suzuki Eldomotors Ltd Chevrolet E.A.L Man Hin & Sons Ltd Honda Hummer (Mauritius) Ltd Hummer Iframac Ltd Chery, Chrysler, Jeep, Mercedes, Mitsubishi, Peugeot IMC Ltd Hyundai Leal & Co Ltd BMW, Mini, Renault Magic Motors Lifan Ring One Ltd Kia R. Dusmohamud & Co Ltd Perodua, Proton Toyota Mauritius Ltd Lexus, Toyota United Motors Ltd GWM Please note that the above table is not fully exhaustive, but gives an indication of the various brands provided by the main new car dealers

For 1H09, the top 5 car dealers based on sales of vehicles is given below: Figure 10: Top 5 new car dealers by sale of new vehicles, 1H09

139 121 94

Iframac

ABC Motors

Axess

91

Toyota

84

Leal & Co

Reconditioned vehicle dealers Based on latest statistics, there are around 50 businesses operating in this imported 2nd hand vehicle segment. Most of them are mainly specialised in Japanese vehicles.

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CGI Newsletter No.1 December 2009  

An analysis of the domestic car market

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