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Mercedes, grey market face off

James Zemke, director general of Star Auto Cambodia, speaks to The Post at his office last week in Phnom Penh.
James Zemke, director general of Star Auto Cambodia, speaks to The Post at his office last week in Phnom Penh. Pha Lina

Mercedes, grey market face off

Few automotive brands carry as much iconic imagery as Mercedes-Benz, the high-end German luxury car brand. The Post’s Cheng Sokhorng sat down with James Zemke, director general of Star Auto (Cambodia) Co Ltd, the Kingdom’s sole licensed dealer of Mercedes, to discuss the brand’s vehicle sales and struggles against grey market imports.

What is the history of Mercedes-Benz in Cambodia?
We know that Mercedes-Benz has been in Cambodia since the 1960s, because we have a photograph of King Sihanouk driving one, and the cars were also used by high-ranking officials and foreign ambassadors. But it wasn’t until January 2015 that the company set up an authorised dealership in Cambodia.

Mercedes-Benz was looking for a way to enter the market officially for the last four to five years. But only in 2015 did the Hong Kong-based parent company of the dealership, Lei Shing Hong Automotive, decide that it was the right time to invest in a $9 million 5,000-square-metre dealership. Lei Shing Hong Automotive is the authorised dealer for Mercedes-Benz in South Korea, mainland China, Vietnam and Cambodia.

What is the current automotive market like in Cambodia?
From what I know there are about 60,000 cars sold annually in Cambodia, but 90 percent of those vehicles are used cars in the grey market. So that leaves only 10 percent of the market for new cars, which makes the market very small. And with 250,000 new motorbikes being registered last year, Cambodia is still very much a motorcycle market because the average per capita income is only $1,100.

However, with economy growing at 7 percent a year, we believe that the automotive industry will continue to grow as a middle class develops. I don’t know how long it will take for this development – it could be five years or 25 years – but the rise of income levels is a trend that we are seeing across the region.

How do you operate successfully in this market when it is so saturated by grey market auto sales?
We hope that over time consumers will not just focus on price, but will make purchasing decisions based on quality and good customer service and mechanical support. We have high standards and we only import cars that we think are suitable for the Cambodian market, and we provide warranty protection on all of our sales. At our dealership, we have access to 40 different models that range in price from $85,000 to $300,000.

How many cars do you have on stock and how many do you sell a month?
Currently, sales are slow and we only sell a few cars a month. Right now we have around 18 cars in the showroom. But ideally we would have 20 to 25 cars in stock at all times. We plan to sell 50 cars this year and 70 cars next year.

What challenges does the automotive industry in Cambodia face?
The biggest challenge in Cambodia is the tax requirements. For instance we need to pay a 35 percent import duty, a special tax of 60 to 65 percent and a 10 percent value-added tax. If you add those all together, the mark up of a vehicle is over a 100 percent higher than the market value in say the US. So when you have unauthorised dealers that don’t follow the government’s laws and manipulate their invoices, it is not a fair competition.

What actions do you wish the government would take to create fair competition?
All the authorised dealers in Cambodia face the same problems with taxes and the grey market. And I understand that the government has the right to decide how it wants to tax auto imports to generate revenue that will be used to develop the country. We only ask that everybody pays the same taxes.

And I would also like to see Cambodia ban used car imports like the rest of the Asean members already have. If grey market cars continue to come into the market, it will be unhealthy for the auto industry.

This interview has been edited for length and clarity.

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