From high-rise buildings to shopping complexes, Phnom Penh is slowly but surely morphing into an updated and unrecognisable city. Nowhere is this more evident than the narrow and cart-lined streets, where a growing number of cars and SUVs are edging out other forms of transport.
BY JOANNA MAYHEW AND JESSICA SANDER
“The time is now,” says Graeme Hunter. “There is wealth here.” The general director of Precision Cars (Cambodia) Ltd, the official Porsche importer in Cambodia, believes an increase in disposable income for middle and upper sectors of the population has created the ideal breeding ground for the luxury car market.
It is an opinion shared by Laurent Genet, chair of Automotive Asia (Cambodia) Limited, Audi’s authorised car dealership in the Kingdom. “The population in Cambodia is car literate,” he says, adding that this reflects a more general change in society. “The lifestyle here is open and evolving over time with an existing upper class who are potentially Audi customers, and a growing middle class moving beyond just survival mode.”
Peter Brongers, CEO of Premium Auto BMW, agrees. “Cambodian society is opening up in general with more people travelling in and out of the country, bringing with them a taste for certain goods. Consumers are now well informed via their smartphones and social media. Their needs are becoming more sophisticated.”
And there is substance behind their assertions. The year 2013 saw a 15 percent growth in automobile imports to the Kingdom, sustaining the trend in previous years. New car imports totalled around 4,000 in 2014, which includes all types of vehicles such as cars, pick-up vans, and delivery trucks; this figure is expected to increase this year. Of these, approximately one-third are luxury, according to BMW. This proportion is considered high, and Brongers predicts it will slowly reduce to 15 percent. It also differs from nearby countries. In Thailand, luxury cars make up a significantly smaller portion of the market, but a greater number of individuals buy new cars. In Singapore, by contrast, BMW is the number-one selling car brand, partly due to high taxes that make the jump from a mid-range vehicle to a luxury car relatively small, says Brongers.
In Cambodia, Mercedes-Benz first carved the path for a luxury market in the 1960s, but dissolved with the arrival of the war, resuming sales in the 1990s. BMW officially entered the market in late 2013, as a result of the 21st ASEAN Summit held in 2012. In order to provide transport for the visiting dignitaries, the Cambodian government contracted Royal Group’s Royal Cambodian Limousine Service rental company. The company purchased a fleet of almost 100 BMWs, leading the German car manufacturer to propose a dealership.
Now, after the ever-popular large luxury cars from Lexus and Land Rover, BMW has swooped third place in the market, according to Brongers. “In the last year, we sold maybe 200 cars, which is extremely high,” he says. “We did a lot better than all the others; you can see it on the road.”
But BMW is not having it all its own way. Several international authorised luxury car brands have set up operations in Phnom Penh over the past 18 months. Audi launched its showroom in September 2014 and Porsche commenced operations in February 2015, with the launch of a $2 million showroom facility. Despite not yet being officially open for business, the German luxury car manufacturer sold 14 Porsches in 2014. Several other companies such as Mercedes and Land Rover have also entered the hungry market. International brands are tailoring their products for the Cambodian market, producing SUVs, which are the main volume sellers in the Kingdom, but this is changing.
Despite all models being on offer, BMW’s sports activity vehicles, such as the X5 and the X3, are the hottest sellers. “If I look at the customer base, we see more young successful business people are starting to move away from the big four-wheel drives to the more practical, economic and elegant luxury cars,” says Brongers.
Compared to the region, BMWs can be purchased relatively cheaper in Cambodia, according to Brongers. Prices in Thailand are 50 percent higher, in Vietnam 40 percent higher, and in Singapore 200 percent higher. Still, with prices ranging from $70,000 to $200,000, the cars may seem like a contradiction in a context where the 2012 poverty rate was 18.6 percent. But Brongers quickly dismisses this argument. “We cater to a certain percentage of the market,” he says. “Cambodia’s economy is growing faster than most other countries in the world. It is a poor country, but it will not stay poor forever. Cambodia can only go one way, and that’s up.”
But challenges for new car dealers remain plentiful. The relative size of the market is one, as Brongers estimates potential buyers at 10,000. “It’s fast growing, but it’s still small,” he adds.
One of the big influencers in driving this trend is social media. Audi Phnom Penh launched its official Facebook page just after opening and reached almost 10,000 likes in just two months, although such figures should be tempered by the general tendency for companies to buy Facebook likes, this is still a significant achievement. BMW has the number one car dealership following on Facebook, which it uses as a platform to educate and inform potential customers about the brand and to build consumer loyalty.
“It’s all about trust,” says Brongers. “The grey market has been ruining this. We have a commercial interest in protecting our name.”
Cambodia has one of the least regulated “grey” car markets in the region, relying on imported used cars mainly from the US. The Cambodian Automotive Industry Federation (CAIF) estimates that the second-hand car import market is at least 10 times larger than that for new cars, which includes luxury vehicles.
“Cambodia is the garbage belt for used and accident cars from the US market,” says Brongers, who was recently elected president of the CAIF. The CAIF seeks to enhance and protect the goals of the automotive industry and assist in the improvement of road safety, consumer protection, and vehicle safety and driver awareness.
Whereas BMW and others make adaptions to cars being sold in Cambodia, such as changes to the engine to cope with the country’s low-quality fuel, unofficial importers do not.
Many of the unofficial dealers also avoid paying duties, VAT and salary taxes by importing cars under the radar, according to Brongers. “The government doesn’t get tax collection, and we get cars in that are basically not meant for this country.”
Cambodia also has preferential treatment for older cars, which have lower import duties, says Brongers, adding this creates difficulty for official dealers who invest in taxes, hardware, buildings and staff training.
The CAIF unifies official dealers to address these issues of concern. The federation lobbies the government to promote environmentally friendly cars, address road safety requirements and improve infrastructure. “Even though we are competitors, there’s a lot of issues where we have all the same goal,” Brongers says. “Jointly we have a bigger voice.”
According to Genet, unofficial importers are not liable for the cars they sell.
Often buyers are unaware of the origins of their vehicle, its accident history, technical recalls or suitability for Cambodian road conditions. “Cars imported via the grey market are not subject to strict regulations and therefore do not come with warranties,” explains Genet. “The engines are often not suited to Cambodian fuel or the road conditions here, thus dirtying the engine which leads to costly repairs.”
One industry source informed ASEAN Forum that in a spot check carried out at Sihnaoukville port in November 2012 on 80 randomly selected cars imported into Cambodia, 40 percent turned out to be insurance write offs and 80 percent had falsified mileage; a rate the source found “staggering.”
Brongers believes that the federation has a duty to educate potential customers as to their rights. “The concept of warranty is alien to most Cambodians,” he cites as one example. He believes that the introduction of authorised international importers and dealerships is bringing Cambodian customers dependable products designed for Cambodian road and petrol conditions. The CAIF recently drafted a white paper that contained a summary of recommendations to the Ministry of Commerce on curbing parallel imports. The report recommended either placing a cap on the import of used vehicles or following in the footsteps of Laos which recently ceased importation of all used cars on the grey market.
“If used cars remain in the market then they need to be subject to safety inspections,” says Brongers. A viewpoint echoed by Hunter. “We just want an even playing field and the CAIF is working with the government towards that.”Brongers also observes that the latest generation of cars are greener than their gas-guzzling ancestors.
“New cars are cleaner and more efficient by producing less pollution,” he says. “Last year Thailand implemented regulations to charge import duty tax based on the level of CO2 emissions in milligrams each car produces.”
Greater regulation within the automotive industry is a trend across the region. Over the last two years, with support from different car brands, the Vietnamese government has been putting a stop to grey market importers. As a result of the country enforcing appropriate customs and tax collection as well as limiting the age of imported second-hand vehicles, grey imports have decreased significantly, and consumers are better understanding the importance of buying from authorised dealers, according to Genet.
“Consumerism grew in Vietnam,” says Genet. “This stems from a growing middle class who are knowledgeable about their consumer rights. Of course the upper-class and now the middle-class are starting to understand the difference between an official importer and just a trader.”
With Cambodia’s economic growth rate in 2015 expected to reach 7.5 percent, reaching a saturation point in the car market will take years, according to Brongers.
“Selling luxury cars is a by-product of economic development. We are not the engines of economic growth, but we play a big part in it.” As new cars are taxed approximately 131 percent, importers contribute almost a quarter of the total tax collection, he says.
Dealerships have also brought previously foreign concepts such as warranties, and education about investing in cars with greater value, safety, and environmental friendliness, says Brongers. And there is a growing demand in Cambodia for cars that meet these requirements, he adds.
Brongers predicts more brands will enter, increasing the already stiff competition. But BMW welcomes this. “It keeps you awake,” he adds. BMW plans to grow by at least 30-40 percent per year to make up for start-up costs, expand throughout the country, and add more brands, such as Minis and motorcycles.
“This is a frontline economy. There’s not many economies left in the world like this,” says Brongers. “Everything has to be done; there’s so much opportunity.”
AUDI Base models retail prices start from $90,000 for the Audi Q5 2.0 TFSI quattro, to over $200,000 for the Audi A8L 3.0 TFSI quattro.
BMW Base models such as Luxury sedans 218i, 320i, 320i Sport start from $70,000, SUV models X1- X6 priced from $140,000 and sportscar models such as Z4 sDrive 20i (convertible), M5 and M6 retail for $219,800. All cars are fully optional.
PORSCHE Base models begin at $85,000 for the Macan compact SUV and go up to $175,000 for sports models such as the Boxter or 9/11.