RIYADH, 23 January 2003 — The decision by the Council of Ministers on Monday to repeal a 49-year-old law restricting the profits of car dealers to 15 percent is likely to leave the Kingdom’s automobile industry vulnerable to market conditions, dealers and analysts say.
The Council of Ministers revoked Article 1 of the Royal Decree No. 1008/5/2/35 dated 17/6/1374, which said profits from automobile sales should not exceed 15 percent of the cost price.
The Cabinet took the decision on the recommendation of Finance and National Economy Minister Dr. Ibrahim Al-Assaf. The Shoura Council had earlier endorsed the proposal for a change in the law.
The consultative body pointed out that the conditions that warranted government controls on car prices no longer existed, and therefore there was no justification for its continued application.
The proposal to cancel the article was first presented three years ago by the Jeddah Chamber of Commerce and Industry (JCCI). It then had the backing of the Finance and National Economy Ministry.
Abdullah Al-Hosain, a member of JCCI’s Auto Agencies Committee and the Western regional manager of Al-Jazeera Agencies, said the previous system, in which prices were determined on the basis of customs cards, had been an obstacle before the speedy clearance of automobile consignments at the ports.
Saeed Omar Al-Eisai, chairman of the auto agencies committee and deputy executive director general of Al-Eisai Trading Est., believed that the cancellation of customs cards would speed up procedures at the ports and increase dealers’ profits.
Mohammed Saleem, a market analyst, said the lifting of price restrictions must be followed by regulations to prevent hiking of car prices by dealers, who enjoy a monopoly in the market.
Saleem pointed out that car prices in the Kingdom are very high compared to the neighboring countries. “When we remove price controls, we should also open up new markets for the benefit of the consumers,” he added.
Abdul Aziz Al-Teraiki, an economist, said the lifting of the law would not jack up car prices in the Kingdom because of the stiff competition already existing in the market.
“Fixing prices in accordance with demand and supply will not allow profiteering by car dealers,” Al-Teraiki said. He hoped that the Cabinet decision would reflect positively on the consumers.
According to Eisai, the decision will not increase the profits of the dealers.
“At present, as a result of the tough competition among various dealers, the profit range does not exceed five percent,” he added.
Dr. Ibrahim ibn Salamah, a member of the Shoura Council, said the cancellation of the customs card will not encourage competition as the dealerships are limited to a few importers.
“We hope the car prices in the Kingdom will come down like in the neighboring countries,” he said, and stressed the need to allow spare parts imports by big auto workshops.
