Gray-Market Cars Continue to Deter Potential Investment

Germany’s car manufacturers are on edge as the U.K., their No. 1 importer, prepares to leave the E.U. And although expanding into Cambodia’s market is unlikely to ease their anxiety, German investors who gathered in Phnom Penh on Thursday said whatever potential might exist here was being obstructed by the roads remaining awash with gray-market cars.

Antoine Jeanson, chairman of the European Chamber of Commerce’s (Eurocham) automotive committee, delivered a brief pitch to German investors in a sideline session of the International Business Summit. The audience seemed reluctant.

A car sits on the floor of an Audi showroom in Phnom Penh on Thursday. (Emil Kastrup/The Cambodia Daily)

“The new investors may be less keen on investing in such a market,” he said after the session. “What you see from the whole business summit, there’s definitely some good parts of Cambodia. Things that are really making Cambodia a good country to invest [in], but it is not ideal yet for everything.”

One of those industries is cars—specifically new ones from officially licensed dealers.

Mr. Jeanson, who is also managing director of Audi Cambodia, said the main barrier to breaking into the automobile market was neither corruption nor difficulties in starting a business, but rather the continued dominance of used cars, often imported illegally.

“We are hoping to see some reforms in order to clean up the market on used cars, which is about 90 percent of the market,” he said.

Offering updates and insight on a range of industries in the country in its White Book published last year, Eurocham said that not only were used car dealers undercutting official dealers, but were also selling unsafe vehicles.

“A 2012 study inspected cars at 20 used-cars dealerships around Phnom Penh and found 40% of vehicles to be insurance write-offs considered not roadworthy in their country of origin,” says the report, citing data from Cambodia Industrial Development Policy 2015-2025.

The report also states that 80 percent of used cars inspected had their odometers tampered with to misrepresent the vehicles’ mileages. But they also cost a fraction of new cars on the market.

Peter Brongers, president of The Cambodia Automotive Industry Federation and chairman of BMW in Cambodia, said the gray market began to form in the socialist 1980s and began to thrive when the country opened up in the 1990s.

“Almost everybody was buying second-hand. The big shift started just five years ago when official dealerships started to open,” he said. “The response from the consumers toward new cars were positive, but slow.”

The government’s campaign to increase tax collection has only made it harder for new car dealers, imposing a 50 percent to 65 percent tax on their imports since April last year.

Sreng Voeung, who oversees the Ford brand at RMA Cambodia, said the tax helped ensure that the status quo continued when it came to the share of new car purchases.

“For a used car that is imported, it is a lot cheaper. And I think they don’t pay VAT, so they can earn more profit,” he said.

“For a model from the U.S., before we sold them for $90,000. Now we need to increase to $100,000 after the increase of tax, which affects our sales a lot.”

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