cgi newsletter no.1 december 2009
DESCRIPTION
An analysis of the domestic car marketTRANSCRIPT
NEWSLETTER No. 1 – December 2009
Zayd Soobedar
Credit Risk Underwriter 31/12/2009
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)
2
3
Domestic car market
Supply
New cars
Reconditioned cars
DemandMarket
demographics
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
resulted in slackened consumption. As per
the Mauritius Vehicle Dealers Association
(MVDA), new car trade has been affected
during 2009, mainly the sub-compact (0-
1250cc) and compact (1251-1600cc)
segments, while the luxury division has
been rather stable. For the period January
to September, around 3,482 new vehicles
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
Figure 1: Overview of domestic car market
4
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.
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.
Figure 2: Population distribution by sex and age group (population pyramid)
Figure 3: Breakdown of population by major occupational group
150,000 100,000 50,000 0 50,000 100,000 150,000
0-9
10-14
15-17
18-20
21-24
25-29
30-34
35-44
45-54
55-64
65-74
75+Male
Female
Legislators, senior officials & Managers
3% Professionals3% Technicians and
associate professionals
9%
Clerks9%
Service workers & shop & market sales
workers
14%
Skilled agricultural & fishery workers
3%
Craft & related trades workers
19%
Plant & machine operators & assemblers
18%
Elementary occupations
22%
5
DEMAND SIDE – DRIVERS IN THE MARKET
Driven by psychological factors…
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.
Main details Urban Rural All
regions
Average monthly household
income (Rs)
22,677 16,977 19,083
Average monthly per capita
household income (Rs)
7,027 4,981 5,739
Average monthly household
expenditure (Rs)
16,215 13,174 14,300
Income class (Rs)
Distribution of
household
income (%)
Average
monthly
household
income
Households Income
Average household
size
Average no. of
persons deriving
income per
household
Average monthly
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
0
20,000
40,000
60,000
80,000
100,000Pamplemousses
Riv. Du Rempart
Flacq
Grand Port
SavannePlaines Wilhems
Black River
Moka
Port Louis
No. of households
Figure 4: Breakdown of household by location Table 1: Average monthly household income and expenditure
Table 2: Breakdown of household by income and household size
6
0
50
100
150
200
250
300
350
400
450
500
0
20
40
60
80
100
120
1983 1988 1993 1998 2003 2008
Cars
Inde
x
Dep
reci
atio
n In
dex
Rs/U
SD
Depreciation Rs/USD Growth of cars
1. Changes in tax policies
The observed change in growth rate
after a tax reduction is clear evidence
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 shows the jump in growth
rates following the implementation of
tax cuts. The increase in growth rates
in the period 1987 – 2000 compared to
1980 – 1986 is in marked contrast as
shown in the Table 3.
2. Exchange rates
All the major currencies affecting the
car industry have appreciated vis-à-vis
the Mauritian Rupee during the period
1980-2008. However, according to the
model, the dollar elasticity of demand
is –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
against the USD between 1980 and
2008, the number of cars more than
quadrupled. As such, tax cuts and
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.
Growth rates 1980-1986 1987-2000 2001-2004 2004-2008
Car 1.3% 5.5% 10.0% 9.5%
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%
Figure 5: Growth rates in number of cars registered, 1980-2008
Figure 6: Effect on exchange rate depreciation on demand for cars
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
Year
Growth in car registered
Table 3: Change in CAGR following tax reforms
7
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).
8
CONSUMER BEHAVIOUR
Based on DCDM Marketing Research’s “Socio-Style de Vie©”, the following gives an overall idea of the various
consumer behaviours.
Characteristics Category
1 2 3 4 5 6
Quality sensitivity Very High 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
6
4
3
Adaptive to change Wisdom
Conservative Opportunist/Image conscious
Clan
Adventurous Stability
1 2
Mixed
5
9
SUPPLY SIDE: CAR MARKET TRENDS
Evolution in number of cars registered
The number of cars registered
(including private car, taxi and dual
purpose vehicle) has increased by a
compound annual growth rate
(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 of
Mauritians, rising income, declining
taxes on vehicles over the period,
changing lifestyle and psychological
factors like status, social and
personal aspirations, and emotional aspects.
Tug-of-war between new cars and reconditioned vehicles…
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.
Year Private Car Growth yoy % Dual purpose
vehicle
Growth yoy % Taxi Growth yoy %
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
Table 5: Number of car, dual purpose and taxi registered, 1999-2008
Figure 7: Number of taxi, car and dual purpose vehicles registered, 1979-2008
0
40,000
80,000
120,000
160,000
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
Nu
mb
er
of
ve
hic
les
Year
Dual purpose vehicle
Car
Taxi
Table 4: Number of car, dual purpose and taxi registered, 1999-2008
10
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000New cars Imported 2nd hand cars
89,823
118,009
155,528163,862
191,769
219,676
2000 2004 2008 2009 Forecast
2012 Forecast
2015 Forecast
Figure 8: Growth in the number of new and reconditioned cars and ratio of new cars to reconditioned 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 here…
Based on the past trend in number of cars
registered, we have tried to determine the
growth potential of the sector. As such, we
have forecasted the evolution of the cars
registered over the period 2009 to 2015.
In that line, we expect the number of cars
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.
Figure 9: Forecasted evolution of number of cars registered (incl. private car, taxi and dual purpose
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
New cars Imported 2nd hand cars
11
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
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.
139
121
94 9184
Iframac ABC Motors Axess Toyota Leal & Co