TBY talks to Assaad R. Raphael, Chairman and General Manager of Porsche Centre Lebanon, on restructuring, market conditions, and demand for hybrids.
TBY How has Porsche Centre Lebanon developed since your transition to majority shareholder status in 2005?
ASSAAD R. RAPHAEL The Porsche Centre Lebanon started as a partnership between an automotive company and myself, and I was appointed Managing Partner. In 2005, the company decided to spin off its automotive business, and I ended up acquiring the majority with the addition of two fresh partners. Since the beginning our efforts have been rewarding in Lebanon. In our first year we submitted our business plan to Porsche with the goal of selling 75 cars that year. We ended up selling 135 cars, and we have continued to grow over the years. Our best year ever was 2010, when we sold 360 new cars and 160 pre-owned vehicles through a dedicated pre-owned showroom.
Can you tell us about your move into Syria and your expectations for that market?
In 2007 Porsche gave us the opportunity to be among the candidates to apply for the Syrian market. In 2008 we were allocated the importation rights as Porsche Centre Syria, which we operate with a Syrian partner and completely independently of Porsche Centre Lebanon. Our best year in Syria was also 2010 with 137 cars sold. Syria is a bigger market than Lebanon, so geographically we must cover a bigger area. We have started with Damascus, the capital and the city with the most purchasing power. We will probably move into other big cities, such as Lattakia or Aleppo. We have drawn up the strategy and we believe that the Syrian market is very promising. We are waiting for the time being for the opportunity to present itself.
Coming back to Lebanon, you went from a goal of selling 75 cars in 2002 to selling 360 in 2010. What are the driving forces behind this growing demand?
We see two dominant variables. Firstly there is the story of the Lebanese consumer, and secondly there is Porsche’s own growth. Regarding the latter, Porsche has grown worldwide from 30,000 to 35,000 cars produced per year in early 2000 to more than 100,000 cars produced in 2011. A lot of this growth has come through the addition of new models and variants. Porsche introduced its first SUV, the Cayenne, in 2002. It has introduced new variants to the 911 and the Boxster as well as two completely new cars: the Cayman in 2006 and the Panamera in 2009. The future continues to look bright. If you read interviews with the top management of Porsche, you can feel that they know where they are going. Their medium-term objective is to produce 150,000 cars annually; by 2018 they are targeting 200,000 cars per year. This has a direct effect on all the markets, and we will certainly grow by the same percentage. Coming back to Lebanon, there is an exceptional consumer profile. We have gone through 30 years of war. During these years many Lebanese sought refuge outside of the country. When these people came back, they brought back different cultures. This added to an existing multi-culturalism stemming from the golden days of Beirut in the 1960s and 1970s. Because of this exposure, the Lebanese have acquired a good perception of luxury products; they have experience in looking for quality, trends, design, power, and performance. This is what typically a connoisseur looks for in a vehicle. Besides just the experience and exposure, there is also a specificity in Lebanese expatriates for their connection to Lebanon. There is definitely a large Lebanese diaspora that is living outside Lebanon that has businesses in Europe, the Arab world, and North America. These people are often very successful, but they maintain strong connections to their families and their native country. They go away and they make money, but very often they repatriate their money or even come back to start businesses, start charities, and buy cars. Many of our clients are people who have been highly successful outside of Lebanon. In this way Lebanon provides solid ground for luxury brands, and Porsche stands tall in our complex market.
In that context, which models does the Lebanese consumer prefer?
I’m happy to say that Lebanese consumers are a little bit different from their counterparts in the region. In the rest of the Arab world, the Cayenne has significantly contributed to Porsche’s sales volumes. Here we have an excellent mix between the bigger cars—the Cayenne and the Panamera—and the sports models. The ratio is about 40% sports cars and 60% the rest. This is due to the high perception of Porsche as a sports car even though the road network in Lebanon was bad until lately. Porsche cars are known to be heavy duty and maintenance free, and are easily an everyday car.
In 2010 Porsche began putting hybrids on the market, most notably the Cayenne hybrid. Do you see an increasing demand for this type of vehicle?
For the last four or five years Porsche has made it a primary objective to reduce CO2 emissions, build greener engines, and enter the hybrid production market. The Porsche concept of “Intelligent Design” has always reflected the importance it puts on efficiency. Even before the hybrid, I can say confidently that Porsche has the lowest CO2 emissions per kilometer when compared to counterpart models from other manufacturers. We have a tradition of leading the charge against CO2 emissions. In early 2010 we introduced the Cayenne hybrid, which is cutting edge in many ways. In addition we have a hybrid Panamera. And running on tracks around the world we have the sports car GT3R hybrid. This is not intended to be produced or sold, but is rather a “racing lab” through which Porsche can test and pioneer new cutting-edge hybrid technology.
So the supply for hybrids is there. Is the demand?
The demand for hybrid cars, generally, depends on the tax incentives that are made available to customers. It is currently more expensive to produce a hybrid car than a normal one, which makes it more expensive than internal combustion engines on the market for all manufacturers. Therefore the state, in whatever country, needs to promote the use of hybrids by giving tax incentives, reducing road taxes, giving rewards for scrapping old cars in favor of hybrids, and putting forward legislation creating ceilings for CO2 emissions. In Lebanon, unfortunately, there are no such laws, and therefore a hybrid is positioned at about 10% more expensive than a similar petrol car. As a result, the consumer is faced with a higher price without incentives, plus the concern that this is new technology that may change in the near future. The fuel advantage is marginal, providing a 10% or 15% reduction. The strongest reason to buy one of these cars is to reduce your environmental impact. In order for this to be reason enough for consumers, you need a culture that is pushing you in that direction. We are hopeful that this can become the case in Lebanon.
In 2005 you saw the potential of the Lebanese market, and you invested personally. What is your outlook and where do you see potential?
The future is bright. From the Porsche side, the company is increasing its production and occupying new market space by introducing new models. Porsche is taking advantage of its knowledge, R&D, and heritage to fill in the gaps that it doesn’t supply yet. In Lebanon, we see big opportunities. First there is the potential to reduce taxes. Second, there is pending legislation that would affect the driving culture, such as the renewal of the existing car fleet and the continuous upgrading of the road network. We now see the road network getting better and better, and people enjoy driving more. I feel that the day will come when the government revamps automotive legislation in Lebanon. As a member of the Lebanese Association of Automobile Importers, we have sent many proposals to the authorities based on laws that have been successfully implemented in other parts of the world. These include a reduction of customs duties, which would promote the car industry as well as make the roads safer, and emissions-reduction measures such as taxes on higher polluting older cars. I am optimistic about this type of reform in Lebanon, and I see continued potential in the country.
© The Business Year