AMERICAN UNIVERSITY OF IRAQ ____________SULAIMANI__________

The Factors That Affects the Success or Failure of Auto

Dealerships in Kurdistan Region and Iraq

Study on Niva car trading Ltd. and Toyota

Iraq/SAS

Submitted by: Miran Payman Akram Supervised by: Mark Deweaver

A thesis submitted in partial fulfilment of the requirements of Executive Masters in Business Administration at

American University of Iraq, Sulaimani.

Cohort 11 April 2018

I

Certificate of Completion

It is hereby recommended that the thesis submitted by Miran Payman Akram titled " The Factors That Affects the Success or Failure of Auto Dealerships in Kurdistan

Region and Iraq, Study on Niva car trading Ltd. and Toyota Iraq/SAS" has been

accepted in the partial fulfilment of the requirements for the degree of Executive Master

of Business of Administration

__________ Supervisor

II

Abstract

In this paper, we will discuss the factors that affect car dealerships operation in Iraq and

Kurdistan region in general, especially after 2014 by studying how different factors

affected two car trading companies and how it leads to the success of Toyota Iraq/SAS

and failure of Niva car trading Ltd. these factors divided to external factors, like culture,

government regulations, fuel quality, war on ISIS, economic crisis, manufacturer limited

number of models, and bank regulations, the internal factors like management issues,

implementing successful risk management and how to obtain liquidity and the degree of

depending on banks for financing dealers operations and inventory management, and the

effected they did on companies operation and success.

The historical review of regulations and factors that affected dealers before and after

2003, and how the governments, sanctions, and wars affected the buying power and

culture of Iraqi citizen and their view of a dealership through decades of government

monopoly through GAMCO. Regulations and how to improve import regulation that

relates with driver’s safety, roads and vehicles safety, improving fuel quality and its

effect on operation cost and maintenance of vehicles and environment, we suggested

improving traffic regulations for better environment and safety by importing vehicles up

to European and American safety standards.

III

Declaration Statement

I declare that no portion of the work referred to in this thesis, as defined by this course,

has been submitted in support of an application for another degree or qualification of this

or any other university or institute of learning. Further, all the work in this thesis is

entirely my own, unless referenced in the text as a specific source and included in the

bibliography/references.

IV

© 2018

MIRAN PAYMAN AKRAM

ALL RIGHTS RESERVED

No part of this thesis/case study may be reproduced, stored in, or introduced into a

retrieval system, or transmitted in any form or by any means (electronic, mechanical,

photocopying, recording, or otherwise) without prior permission of the researcher or

relevant department of AUIS

V

Dedication

To all my family members whose love and support have helped turn this once lifelong

dream into a shared reality

VI

Acknowledgment

The author/researcher would like to express sincere gratitude to Mr. Goran Rauf Kaka

Acting branch manager of SAS in Sulaymaniyah for his hospitality, eagerness for

answering several questions in the interview, and giving a detailed description of SAS

service centers and showrooms. Dr. Mark Deweaver for his invaluable support and

guidance in the planning and implementation of this research project. Appreciation is

further offered to the managers and staff/employees of Faruk group holding and Mr.

Bayan Akram Ameen CEO of IRALEX for their hospitality and their help in producing

this research study. Without their contribution of time and resources, this study would not

have been possible

VII

Table of Contents

Certificate of Completion ........................................................................................................ I

Abstract ...................................................................................................................................... II

Declaration Statement ............................................................................................................. III

Copyright .................................................................................................................................. IV

Dedication ................................................................................................................................... V

Acknowledgment...................................................................................................................... VI

Table of Contents ................................................................................................................... VII

1. Introduction ......................................................................................................................... 1

1.1. Brief historical view of dealerships in Iraq .................................................... 2

1.2. Market opportunity ......................................................................................... 3

1.3. Government Regulations ................................................................................. 4

2. Unsuccessful case Niva car trading Ltd .......................................................................... 6

2.1.1. Niva car trading Ltd. ....................................................................................... 6

2.1.2. Niva growth and contracts .............................................................................. 7

2.1.3. Niva Market strategy ........................................................................................ 8

2.1.4. Culture and difficulties ..................................................................................... 8

2.1.5. The country regulations .................................................................................... 9

2.1.6. The competition ................................................................................................ 9

2.1.7. Second hand vehicle market .......................................................................... 10

2.1.8. War on ISIS and financial crisis effect on Niva ............................................ 10

2.1.9. Banks financing problem after ISIS .............................................................. 11

2.1.10. Demand misperception ................................................................................... 11

2.2. Factors leaded to Fail of Niva ...................................................................... 12

2.2.1. External factors ............................................................................................... 12

2.2.2. Fuel quality issue ............................................................................................ 12

2.2.3. Fierce competition .......................................................................................... 13

2.2.4. Resale value .................................................................................................... 13

2.2.5. Vehicles not manufactured by Ford ............................................................. 14

2.2.6. Financial crisis central and southern Iraq branches ................................... 14

2.2.7. Regulations of import .................................................................................... 17

VIII

2.2.8. Rule of Banks ................................................................................................... 17

2.2.9. Possible manufacturer-distributor contract termination ............................ 18

2.3. Internal Management Issues ......................................................................... 19

2.3.1. Emptying inventory and closure .................................................................... 23

3. Successful case Toyota Iraq/ SAS .................................................................................. 23

3.1.1. Service centers and showrooms locations ..................................................... 24

3.1.2. Toyota Iraq ..................................................................................................... .25

3.1.3. Culture ............................................................................................................. 27

3.1.4. Market strategy ............................................................................................... 27

3.1.5. Government Regulations ................................................................................ 28

3.1.6. War on terror and ISIS .................................................................................. 29

3.1.7. Hybrid cars and the Iraqi market ................................................................. 30

3.1.8. Financing for customers ................................................................................. 31

3.2. Reasons of success SAS .................................................................................. 31

3.2.1. Factors of success of SAS ................................................................................ 31

3.2.2. External Factors of success ............................................................................. 31

3.2.3. War on ISIS and financial crisis .................................................................... 32

3.2.4. In depth Fuel quality analysis and Toyota .................................................... 33

3.2.5. Toyota vehicles other than sedans ................................................................. 33

3.3. Internal Factors .............................................................................................. 34

3.3.1. Leadership and crisis ...................................................................................... 34

3.3.2. Market knowledge ........................................................................................... 36

3.3.3. Financial strategy ............................................................................................ 37

3.3.4. Choosing of showrooms and service centers locations ................................. 37

3.3.5. Services and warranty .................................................................................... 38

4. Conclusion ....................................................................................................................... 38

5. REFERENCES ............................................................................................................... 40

1

1. Introduction In this paper, we discussed the history of auto dealers in Iraq from the start of the 20th

century and how the government took over this business after 1964 and the effect of all

these years on the logic of the country’s automobile customers from the warranty, resale

value, quality of warranty and after-sales service. The market opportunity opened after

2003 with great potential growth that auto manufacturers should pay great attention to

control how dealers operate in the country and make sure that their customers are getting

best service possible by designing better workshops, showrooms and offer professional

training certificates.

We picked two companies Toyota Iraq/SAS and Niva car trading Ltd. As the successful

case and unsuccessful case respectively, the study we did offers a great deal of detail on

how the market operates in general, opportunities to take, and how to avoid doing wrong

decisions regarding crisis management since Iraq had several wars past decades that

affected business in the country significantly. Crisis management countermeasures should

be taken seriously while operating in every country especially Iraq, the role of banks and

how improving the banking regulations can increase sales significantly.

The country regulations that the government need to consider from difference tariffs

charges and licensing fees between federal Iraq and Kurdistan Region that shifts the

market demand from region to another, difficulties with registering vehicles that came

through Turkish border in other parts of Iraq, the great deal of improvement the

government should take on the poor insurance policy, import laws of vehicles that meets

international safety standards of the time, offering and importing up to modern European

standards fluids from gasoline, diesel and lubricants to lower emissions, preserve the

environment and prevent additional repair costs for dealers and customers.

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In this theses, the economy in Iraq was struck with many wars, especially in past 3

decades, sanctions with very low income, especially in the 1990s. Government

regulations that affected both consumers and auto dealers in the country and how they

affected Niva car trading Ltd. and Toyota Iraq/SAS, how they faced unstable economy in

the country, implementing crisis management strategies, inventory management, and how

to deal with brand loyal consumers, dealing with the regulations of the country and trying

to suggest better modifications.

1.1. Brief historical view of dealerships in Iraq

Cars importers and dealers in Iraq were private sectors for different vehicle brands, types,

colors, and options from Chevrolet, Ford, Dodge, etc. in the 1915-1964 era, but in

7/14/1964 president Abdulsalam Arif started General Automotive and Machinery Co.

GAMCO, that prevented other private dealerships from importing vehicles during the

nationalization era of different sectors.

Every dealer by then must buy through GAMCO and by then vehicles were imported in

bulk from the same model, color, options and from 2 or 3 manufacturers. People had to

register their names in a long list and wait for their name to appear in a lottery to receive

their vehicle, by the 1980s most sedans in the Iraqi market were the Brazilian made

Volkswagen Passat, Toyota, and Nissan. In 1990, last American made models were

imported are Oldsmobile Cutlass Ciera, and Chevrolet Celebrity, after that no imports

were possible due to sanctions placed by the United Nations on Iraq that lowered the

income of Iraqi capita considered below poverty line, government employee monthly

salary was 3,000 Iraqi Dinars which translate to $1 in 1996 after it was 3.78 US dollars

per dinar in the late 1970s, buying a car between 1990-2003 was a luxury.

3

Until early 2000s import of some vehicles started again through GAMCO no American

made vehicles were among them since the bad relationship with the USA in that era.

After 2003, private sector started importing cars from different brands used, new, and

salvaged to the Iraqi market, this ended the monopoly of GAMCO, the increasing need

for official and authorized dealerships that offer sales and aftersales services especially

for American automakers, since these vehicles were scarce, with the fierce competition

they face from Japanese and Korean manufacturers.

With no import regulations after the chaos of 2003, merchants used to import old used

vehicles with least safety features from several counties, environmentally polluting, and

damaged vehicles some beyond repair, they repair their chassis by cutting and welding

new parts from other vehicles that lead to great compromise of driver’s safety since it is

operating outside of its designed specifications. Local mechanics were unfamiliar with

the maintenance and parts of new American made vehicles which lowered their

popularity in the country.

1.2. Market opportunity

As we previously discussed how sanctions on Iraq prevented the import of new western

vehicles to the market, post 2003 GDP of Iraqi individual started to increase significantly,

large imports of used and new vehicles started saturating the market, the government

started regulating the import of used vehicles after in 2013 to not older than two years, in

2016 damaged vehicles are no longer allowed to enter the country.

Compared to the 15.9 million vehicles in the less populated but wealthier Kingdom of

Saudi Arabia (Arabnews, 2014), Statistics from the Central Statistical Organization Iraq

(CSO) as of 2017 the number of vehicles in Iraq were 5.8 million 115 thousand for the

4

government sector and 5.660 million for the private sector, 1.316 million of them in

Kurdistan region alone, the types of vehicles 1 million taxis, 3.5 million private vehicles,

211 thousand motorbikes and 1.4 million trucks, the estimated daily fuel consumption of

20 million liters divided 75% Gasoline, 24% Diesel, and 1% Natural gas (Alsumaria.tv,

2017).

With rapidly growing population and economy, the projected yearly vehicles market as of

2012 was 120,000 vehicles which increased by 30% over 2011. Iraq holds “a lot of

promise” (managing director of ford middle east Larry Prein), (Walid and Ajrash, 2012)

Ford sales were projected to double in 2012 which was tripled in the year before to 2000

vehicles this what led Niva Car Ltd., plans to invest $200 million over the next three

years to open new branches to tap the rising demand, “we believe in our market that’s

why we are expanding” (Niva CEO Alanaswah) (Walid and Ajrash, 2012). American

automakers are taking market share from competitors in Iraq but still had a long way to

catch up, by 2012 they were doing well only in the middle east and while just recovering

elsewhere.

1.3. Government Regulations

Government regulation differ between Kurdistan Region and federal Iraq, traffic

regulations in Sulaymaniyah governorate is best in the country with speed monitoring

cameras speed bumps with warning and traffic signs that are much less outside the region

this lowers accidents especially on highways, with better-maintained roads especially

external freeways, proper traffic signs are important which are neglected in other parts of

the country.

5

Yearly inspection of vehicles and registration in Kurdistan region only, as for general

problems is the difference in the tariff fees and taxes paid on imported vehicles is much

lower in Kurdistan, vehicles come through Turkish border cannot be registered in other

parts of Iraq which made issues with car dealers.

Importing vehicles that comply with standard safety features is better in Kurdistan region,

we can notice that not every car type can have taxi plates and license unless it complies

with standard safety and quality features, as for other parts of Iraq even Iranian cars used

by taxi drivers promoting fuel economy over reliability and safety of passengers.

Mandatory insurance policy needed to be considered in whole Iraq to lower the problems

faced when someone gets into a car accident, insurance can move the economy and it is

very important part of the economy.

Banking regulations can be made easier for the regular citizen to take a loan and buy a

new car which can improve the economy, strict loan conditions and high-interest rate

moves customers away from financing their vehicles through banks.

Government should improve the quality of gasoline and diesel fuel since they are

outdated quality standards compared to modern European standards, we will discuss in

detail fuel quality and their bad effect on vehicles reliability, pollution, and the

environment, monitoring imports of other car fluids like lubricants non-original

lubricants can cause loss to the economy from costly repairs. Maintaining motorways and

putting proper traffic signs, the government should consider putting traffic monitoring

patrols that monitor speed in the motorways is essential for the safety of drivers.

Adopting environment-friendly acts by promoting environmentally friendly vehicles like

6

hybrid vehicles by lowering their tariffs and registration costs relatively with other

regular gasoline vehicles.

2. Unsuccessful case Niva car trading Ltd.

2.1.1. Niva car trading Ltd.

Limited Liability company established in 2007 as one of the subsidiaries of Faruk

Holding Group in partnership with Jordanian company that has experience in car trading,

it was registered in Kurdistan region in Iraq first then became the sole authorized Ford

distributor and dealership in Iraq. Niva chairman Faruk Mustafa Rasool and vice

chairman Shehadeh Twal. Faruk group holding has 65% and Shehadeh 35%

(linkedin.com, 2018).

The company mission was to deliver customer satisfaction, building customer loyalty,

ensuring service excellence, and optimizing parts Availability as the exclusive distributor

of Ford Motor Company and Lincoln Company in all of Iraq.

Niva car company Ltd. opened 5 main distribution centers and showrooms by 2014,

first in Sulaymaniyah in 2008 which is where the headquarters located, then Erbil 2008,

Baghdad 2014, Basra 2014, and then Dohuk.

More showrooms and service centers were planned to open to cover more governorates in

the near and midterm, Niva showrooms and service centers were offering maintenance up

to the international standards, storage facilities for spare parts were available in Baghdad,

Erbil, and Sulaymaniyah.

“We need people in the individual communities to serve those customers. We couldn’t do

that from a central location. And so, our dealers are the embodiment of Ford Motor

Company in their local communities both in how they sell and service our vehicles to the

7

consumers. The system works well because there is entrepreneur’s dealer principals

investing in the facilities and the people locally, to serve customers. And it’s served us

well for over 110 years and will continue to serve us well in the future.” (JOE

HINRICHS, FORD MOTOR CO. VICE PRESIDENT AND PRESIDENT OF THE

AMERICAS) every dealership in Iraq or USA is a private investor that looks over his

business Mr. Faruk’s group are investing in several sectors in the country they seek to

provide best service and also seek gaining profit even they are the sole distributor and

service center for Ford there should be other official service centers that can compete.

Vehicles sold by Niva carries 3 years’ warranty or 60,000km service and free original

spare parts. Ford Motor Company cars which are not cheap nor expensive but meets

standard safety features like at least dual airbags ABS brake systems, we will discuss this

in the next section.

Vehicle types subcompact Figo, compact Focus, midsize Fusion full-size sedan Taurus,

sporty Mustang SUVs and trucks from explorer, to the expedition, f150, raptor and f250

heavy duty trucks. Ford held 41 years bestselling truck in the United States and 25 years

bestselling SUV which are much better than the competition.

2.1.2. Niva growth and contracts

Growth in the country is promising in the public sector and the private sector with Iraq

growing GDP per capita by now is about $5500, Mr. Mohammad Fuad Anaswah CEO

Niva Car trading said in an interview to ‘The Review Kurdistan region of Iraq’ issue back

in September 2014 that Niva achieved 3 figure growth of 250% per year between 2011

and 2014, it was difficult but with great marketing strategy and aggressive campaign (The

8

review, 2014). Niva could penetrate the market in Kurdistan region especially and signed

a contract with KRG government to supply police with Taurus and explorer vehicles.

Another contract with GAMCO signed to supply the federal Ministry of Interior and the

Ministry of Defense to with a great number of F250 heavy duty trucks and all their

necessary spare parts.

2.1.3. Niva Market strategy

Niva had to offer such aggressive warranty service better than any other dealership in

Iraq at the time to penetrate the market quickly and they did a good job from 2011 to

2014 in Kurdistan region, with a warranty service of 60,000 KM or 3 years which comes

first.

Being first to offer official warranty service in the dealership market, Niva was a

breakthrough, the authorized workshops have skilled manpower and use original parts,

the overall warranty on parts and service not found at other local mechanics’ workshops

which they lack skill. Offering discounts on services and new vehicles up to 25%

discount were on the ford fleet purchase price.

2.1.4. Culture and difficulties

The market in Kurdistan region and Iraq had a poor experience with dealerships, as

history from 1964 to 2003 people were maintaining their cars in local unofficial

workshops and not trained mechanics during 1991-2003 even nowadays. Under 1990s

sanction tires were refurbished, battery cells replaced individually repaired, worn engines

overhauled, imports of spare parts were near zero so people had to go with what they had.

9

Mechanics were familiar with certain vehicles from the 1980-2004 era with the

development of technology now all vehicles are stuffed with many computers which need

to be inspected and serviced by authorized skilled mechanics with modern testing tools.

People have the habit of cheaply maintaining their vehicles outside of the authorized

dealership, with little knowledge of warranty service exposing them to losses due to using

non-original parts and lubricants that can lead to a disastrous effect on vehicle longevity

and the safety of passengers.

Financing in Kurdistan region and Iraq is difficult with high-interest rate, the

disappointing banking system which is not compatible with dealership needs, the

dealership business depends greatly on banks for financing the cars they import and

making facilitations to customers to let them buy and finance cars that they can’t afford

full cash payments, there were several banks that offer loans but with strict conditions

and high premium.

2.1.5. The country regulations

Niva car trading Ltd. headquarters in Sulaymaniyah had some difficulties with the

regulations of federal Iraqi government how to import cars and how to move them from

Kurdistan region to other governorates since cars enter Iraq from Turkey, some

unauthorized ford dealers and service centers opened in Baghdad and Basra but after

lawsuits the issue was in solved and in 2014 Niva opened showrooms and service centers

in Baghdad and Basra.

2.1.6. The competition

Market is familiar with Japanese cars like Toyota, Nissan, and now Korean auto makers

like Kia and Hyundai for KRG, as for other parts of Iraq it’s even worse Chinese brands

10

and cheap Iranian brands with no standard safety features been pumped to the market by

GAMCO, dealerships compete with Niva Toyota dealer in Iraq SAS, Kia Iraq (center and

southern Iraq), and Kia Nim (Kurdistan region), also private importers import cars with

no safety features like no airbags nor ABS brakes, that can be sold at lower price

undercuts authorized dealers sales.

2.1.7. Second hand vehicle market

The regulations of traffic police department permit importing used vehicles that its

manufacturing date is not more than 2 years until last year even salvaged vehicles were

permitted in the country to be repaired and sold afterward, the new modified law

forbidden damaged cars from entering (Iraqi Traffic Police, 2018).

Vehicles now are being repaired in Dubai free zone then shipped to Iraq, this market

undercuts dealer’s sales significantly since repaired cars are much cheaper than even the

resale value of internally used ones.

2.1.8. War on ISIS and financial crisis effect on Niva

With the fall of Mosul and other governorates in June 2014, the fall of Baiji refinery

(largest oil refinery in Iraq) in Salah-Al-Din made a fuel crisis in Kurdistan region with

long waiting lines at the fuel stations especially in Erbil, fuel black market was common

at these times and raised issues, some people used to mix improper fuels and sell them as

gasoline which led to engine failure of many Ford engines that were under warranty

which made great pressure on the company, Ford engines are relatively more sensitive to

fuel type and quality than other makers.

With the war on ISIS and the fall of oil prices significantly, affecting people especially

in Kurdistan region which was depending on oil exports to finance salaries, with Most of

11

the budget money spent financing war to defend Kurdistan Region against ISIS attacks,

which left people with no or significantly discounted salaries that lowered the purchasing

power of individuals significantly, with present economic crisis which had more severe

effect on all companies operating in Iraq especially in Kurdistan region the economic

crisis still present in the day of writing of this article.

With late opening of showrooms Baghdad and Basra in 2014 combined with low buying

power and war uncertainty with millions of displaced people from ISIS-controlled

territories All this affected Niva and other dealers’ sales were down to red numbers, and

inventories management didn’t expect ISIS war with most of its business was still

operating in Kurdistan which was in good shape prior ISIS.

2.1.9. Banks financing problem after ISIS

The fall of North bank had great effect on Niva which was unlucky to choose North bank

to finance some of its assets that lead the bank demanding the money back, liquidity was

an issue for both North bank and Niva that time so they gave them back cars which the

bank gave back to its customers in exchange for their accounts we will discuss in detail

next sections (Niva vehicles for North Bank account, 2016).

2.1.10. Demand misperception

Selling 2014 model cars in 2016/2017 along with some newer models means two

possible issues, either the company have demand misperception that leads to ordering of

large quantities ahead of opening new showrooms in Baghdad and Basra or the company

deliberately orders old stock to lower cost but this theory is less likely, as any finance and

business student knows that anything other than gold and maybe land have depreciation

and other issued costs, in the case of Niva storage costs of vehicles are terrible no dealer

12

wants a vehicle to stay more than two months yet two years or even three under the sun

mud or under roof that cost needed more maintenance who buys three years old model

for the price of today’s model, dealer has to sell older models at great loss just to get rid

of that stock and that’s what Niva did.

2.2. Factors leaded to Fail of Niva

2.2.1. External factors

American Automakers have bad reputation for reliability even in the United States in the

1980s Japanese makers especially Toyota started taking market share from GM, Ford and

Chrysler bringing better-made cars with fewer issues out of factory, what applies to US

market have some effect on Iraqi market with importing used American vehicles people

noticed the unreliability American made cars relatively especially 1990-2003 models that

entered the market after 2003, first impressions on people are hard to change.

Even though the Iraqi car market was expanding rapidly during 2009-2014 and ford had

increasing sales, Niva sales of parts and cars raised 10 times over 3 years in Iraq, still,

Ford vehicles had a reputation not up to Japanese and Korean vehicles reliability, the

relatively high cost of parts, and little local mechanics expertise lowers customers interest

in buying American Made vehicles.

2.2.2. Fuel quality issue

Post 2014 severe engine problems started to appear due to very bad quality fuel,

especially in Kurdistan region, in some cases replacement of an engine was required,

Ford vehicles have reputation of being sensitive to fuel quality, this lowered the resale

value of Ford vehicles significantly, it is good for used car market that buyers can bargain

the price but low resale value hurts the reputation of the dealer and lower’s possible

13

customer’s interest in buying a new car from Ford dealer, when a local customer buys a

car other than the options, safety, and looks wants a car with good resale value with no

headache after warranty period is over.

2.2.3. Fierce competition

In the center and southern Iraq Ford suffers more competition from lower-priced well

known Kia, Hyundai, Toyota, Chinese brands like Geely, Emgrand, and Iranian cheaply

made SAIPA brand that dominated the Taxi market. People search for cheaply priced and

reliable car with no problem of its spare parts availability, people and Iraqi government

don’t care about standard safety features in cars like for example in the USA there must

be standard safety features available in each car to be sold in the country like at least 6

airbags, stability control, and ABS brakes, some Korean cars are imported without

airbags and ABS brakes to lower cost.

2.2.4. Resale value

Resale value plays big rule customers decision and they tend to be brand loyal and this

plays well in resale value of brands in the country, for example some weird market

practices and demand by some used cars dealers that they still sell Kia Optima midsize

sedan of the model year 2010 for $17,000 while same 2014 optima can be found for

$13,000 as if the older model is more reliable than the newer one, in Sulaymaniyah you

can find used Toyota Avalon large sedan model 2012 for $25,000 while Ford Taurus

large sedan model 2014 can be found for as low as $14,000 both cars are from the same

category and traveled similar kilometers the trend has been like this for ages when people

like a specific model from a manufacturer, the rumors and the trend local car dealers set

14

to make their influence greatly on the success of one car over another and needs time test

of a new car in the market so people can confidently buy it, this fear from newer models

issues with people of this country is due to decades of no official car dealers that offer

real warranty services.

2.2.5. Vehicles not manufactured by Ford

Some essential vehicles are missing from ford fleet, like Toyota Coaster bus competitor,

Toyota Hiace minibus competitor, and small pickup Hilux competitor which used to be

Ford Ranger but no longer produced at these years (2010-2017), even though Ford offers

F-150 the bestselling pickup but people prefer smaller lower-priced pickups with small 4-

cylinder engine that are more economic and suits the local traffic with narrow roads in

some areas.

2.2.6. Financial crisis central and southern Iraq branches

Compared with the financial crisis in the US the projected number of vehicles sales in the

USA fell from 16.5 million in 2007 to just 12 million in 2009 with actual numbers

according to Reuters was 10.4 million in 2009 (Albuquerque, P., & Bronnenberg,

B.,2012). High fuel prices and people preference for lower priced vehicles shifted the

market trend to fewer SUVs and pickups, with lower liquidity 30% lower sales over two

years led to 11% lower prices, the high costs of dealership network from distribution,

marketing, and many same manufacturer dealers in small area needed reconsidering since

this leads to high competition, lower profits, and lower service quality that can be

provided through them that in return hurts the reputation of the auto manufacturer, this

means much more is less for auto dealers, location far from other manufacturer dealers is

the best strategy, compared with situation in Iraq they have few dealer locations but we

15

can conclude how lower demand lowers prices since it is also applied to the rule of

supply and demand when demand increase makes vehicles scarce and increase their

prices and vice versa lower prices due to less demand only not talking about older model

prices economic crisis lowers demand significantly. Niva in other hard focused on large

SUVs and sedans with big engines that consume relatively more fuel with financial crisis

people prefer smaller vehicles with smaller more efficient engines.

Fewer dealership locations make lower sales because of large geographic distance, before

opening branches in central and southern Iraq people need to travel all the way from

Baghdad to Erbil and Sulaymaniyah to buy from official Ford dealers, exactly opposite of

US scenario they have many more same brand dealers locations in small geographic area

but the financial crisis lowered sales further and forced dealers to lower their prices,

lowering prices on the already low margins on new vehicles sales render profits to zero

and even loss.

At the beginning of 2014 Niva had only Sulaymaniyah and Erbil branches operational,

sales dropped badly after large parts of Iraq fell under ISIS control, then the financial

crisis struck the country because of low oil prices, the war expenses, and the uncertainty

that led people to keep their money instead of spending it buying vehicles and other

goods. The branches in other parts of Iraq were open little too late, Niva could be in

much better shape if they opened more sales and service branches in 2012, less focus on

the rest of Iraq may be due to political reasons that took Niva a long time to be registered

as official Ford dealer in the rest of Iraq, the problems with other not official service

centers, this made company position weaker in the times of war and financial crisis, when

16

one region is financially better than the other, lower sales and profits while fixed costs are

the same, storage departments rent, showrooms rent, salaries, electricity cost, and new

expansion in Baghdad and Basra also added more to fixed cost but increases sales in

return but maybe not by much to compensate loss on the large investments.

During the financial crisis in the United States lower demand lowered manufacturer and

dealer prices by 13% and 11% per year respectively the drop-in prices partially offset the

initial negative demand shock leading to a market 21% smaller after two years, the study

shows that total gross margins became about 53% smaller, the consumer price minus

manufacturer price became negative for all brands that mean most dealers survive on

parts and services business during crisis (Albuquerque, P., & Bronnenberg, B., 2012).

Since all dealers from all manufacturers were running in minus margins on sales and they

depended on parts and services to survive at that time, most Niva vehicles sold to

customers were under warranty, parts mostly under warranty which lowers parts sales for

relatively new vehicles. To rescue dealers and the auto industry the United States

government announced the Car Allowance Rebate System known as the cash for clunkers

program, the program provided $3,500 to $4,500 to a customer that traded old vehicle for

a new one to motivate the market, manufacturer average margin per vehicle for Ford in

the US before the financial crisis was $12,815 the dealer’s margin $1,088 on sales and

$6,200 total with services, after demand shock margin became $8,773 for manufacturer

and $(920) loss on sale for the dealer per vehicle the after sales services/parts total of

$4,198 much lower but helped dealers stay afloat during crisis (Albuquerque, P., &

Bronnenberg, B., 2012).

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In the time of crisis US government paid attention and brought bailout for the large 3 auto

manufactures and saved them from bankruptcy but in Iraq, the government rarely

intervene to save industry or dealers from collapse.

2.2.7. Regulations of import

After several years Niva cars Ltd. Became sole Iraq distributor and dealer for Ford

vehicles and parts after it was in Kurdistan only, there should be a law protecting the

company investments and prevent other dealers from importing new Ford vehicles and

parts outside of Niva, that what Niva insisted on solving before opening showrooms in

other governorates, direct importing for each dealer and service center was present even

for Toyota’s other official service centers and showrooms but they had no other options

but to buy spare parts and cars from Toyota Iraq after it became the sole distributor

otherwise, their license would be canceled. Niva could benefit from other dealers in Iraq

by offering them license and training selling them parts and vehicles could make the

company much better position.

2.2.8. Rule of Banks

Banks plays great rule in financing operations of companies everywhere, the conditions

the Central Bank of Iraq (CBI) sets must be followed by all the financial institutes in the

country financing of LTD corporations must not take a loan more than 300% of the

company’s registered capital, Niva cars Ltd. Depended on North Bank to finance

inventory stocking and opening new branches in 2014, we don’t have access to exact

information.

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after the financial crisis sales were not up to expectations especially in the Kurdistan

region, which led to large number of 2014 model cars like Taurus, and Explorer remained

in storage for a long time even though the company was importing newer models for

specific customers but they have to deal with old model vehicles they have so a brochure

was printed in Arabic and Kurdish that anyone with North bank account can buy any car

from Niva showrooms, the offer was valid in Sulaymaniyah, Duhok, Erbil, Baghdad,

Karbala, Ammara, and Basra, with many North Bank depositors located in southern Iraq.

This Brochure means that at least hundreds of cars Niva financed with North Bank loan

then the bank customers took in exchange for their accounts (Niva vehicles for North

Bank account, 2016).

This is not a bank failure this is aggressive loan taking strategy by Niva to bring and

stock many cars that quickly became older model and lost value, the bank being kind by

taking back cars and give them to its customers, North bank also had huge problem with

liquidity after 2014, Niva could avoid this issue by ordering on-demand bases.

2.2.9. Possible manufacturer-distributor contract termination

A dealer or distributor purchases vehicles from manufacturer or exporter then sell them

for his/her own benefit so there are two invoices for the sale one from the

exporter/manufacturer and another from the distributor to the customer, the resale price is

on the distributor to decide and make money on sold vehicles, the distributor then bears

the risk on vehicles until they are sold, the risk taken from cost of the car, dropping price,

cost of investment, rent, and other associated costs with dealer’s business (CASE, D.,

1997).

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There is a contract between the manufacturer or regional distribution center and the

distributor, for example ford middle east acknowledges that Niva car trading Ltd. is the

sole distributor of Ford parts and vehicles in whole Iraq, since most dealers are privately

owned they fear for their reputation and investments, so they tend to behave well to

please customers to make better sales, in case the otherwise behavior is detected Ford

middle east can terminate the contract with the current distributor, first they warn them to

improve their services, then if no improvements detected they give the distributor several

months prior notice, just like what happened in Kuwait when Ford Middle East

confirmed the termination of dealership agreement with Arabian Motors Group WLL on

27 July 2016 and confirms Alghanim Auto as authorized importer of Ford brand products

and parts (Ford media center, 2018).

Every auto manufacturer wants the best representation and service possible to their

customers to be provided by their exclusive country distributors and service centers, any

bad reputation can be reflected too on the manufacturer’s reputation in that country, as

for Niva Ford didn’t mention any contract termination which means the company wanted

to withdraw from the market due to another reason. Ford announced on 4/3/2018 that is

has selected Al-Kasid Group as its new authorized ford importer, distributor, and dealer

for Iraq (Ford media center, 2018), this means Ford motor company and its new

distributor still believes in the Iraqi market promising potential growth for Ford vehicles

in the next coming years.

2.3.Internal Management Issues

The average American dealer margin from selling a new car is 6.5% or $1,600 which is

much lower than Auto manufacturer margin, but if services accounted total value per car

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rise to $6,220 per car the additional services of $4,590 which is reasonable amount since

industry reports state that profits resulting from car servicing are about four times that the

value of profits from selling new cars (Albuquerque, P., & Bronnenberg, B.,2012). The

annual cost of running a dealership in the United States is about $3.6 million $2.2 million

of them are salaries and $600,000 other fixed costs from advertising to rent

(Albuquerque, P., & Bronnenberg, B. 2012).

Rents and salaries in Iraq are much lower than in the United States, but we can make an

idea about the fixed costs of running a dealership, 62% to salaries and rest to

advertisement, and rent, these costs must be met.

Before all around dealers in Iraq, dealers used to make profit only from sales but now

aftersales services account for much more profit per vehicle sold the profit margin on a

vehicle sold is a little higher than in the US since same manufacturer dealers are much

less than in the USA, but profit on services is less or about the same since it is less costly

to service vehicles in Iraq compared with US higher hourly rates and other associated

costs like taxes, insurance and corporate taxes.

Most business models are not designed with high level of instability of business

environment and potential crisis on the mind. Business crises are usually unexpected and

happen beyond usual, routine with some warnings that not necessary leads to crises

inadequate procedures, activism, ignoring technical deficiencies for cost efficiency and so

forth (Fearn-Banks, K, 1996; Millar, D.P&Heath, R.L.2004) (Majda Tafra-Vlahović,

2006).

Every company should have planned their business with crisis in mind from vulnerability

assessment, risk mitigation, and impact probability and should be planted within the

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management strategy to be ready in case of crisis, there should be someone to assets the

company readiness to a crisis and make sure that the leaders would not be a part of the

problem but only its solution. Leadership plays a big rule in how a company reacts to a

crisis, the reaction speed and solutions decided by the leadership, responsible leadership

takes in mind crisis management planning and consider it in the company strategy. “A

business leader in a contemporary company is a captain of a ship that sails no calm

waters. His or her ship sails in the perfect storm” (Dotlich, D.L., Cairo, C., Rhinesmith,

S.H., 2009) (Majda Tafra-Vlahović, 2006).

Leadership of Niva should have planned for crisis prevention plan and not sail the

company into an iceberg, since crisis and wars are rarely predictable but cars dealers

business forbade storage of high numbers of vehicles even with expansion in mind, and

new branches were planned to be opened, cars are valuable and lose value quickly

borrowing large sums of loans to buy this unsold inventory of cars is like forcing the

company in the corner with no solution but to wait for the cars to be sold even at great

loss. Niva brought many large SUVs and Large sedans they were expecting financial

bloom in the country but the opposite happened people started moving away from large,

low fuel economy vehicles, and prefer smaller vehicles with smaller engines.

What Niva should have done is joining forces with other service centers offering them

training, license, and parts could increase the company reputation and sales which could

make them much stronger especially in the central and southern Iraq, joining forces with

these other centers would have been consistent with the Ford policy of making use of

"dealer-principals." SAS/Toyota Iraq did a better job here.

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Every company makes mistakes and every company can face shakeups like financial

crisis which make partnership weaker and weaker, issues within high ranks of

management can appear disagreements in this case between Faruk Group Holding and the

Jordanian businessman company Shehadeh Twal leading to eventually breaking apart the

partnership due to several accumulated issues that we discussed.

The aggressive strategy doesn’t always work especially in car dealer business a dealer

can offer discounts but can’t order many hundreds of cars, efficient inventory

management is one of the keys to the success of dealers.

Using improper fuel from black market is a customer’s fault Niva should not take the

responsibility of broken engines due to running them out of specification fuels, it seems

that pressure from outside parties on Niva to do free repair for vehicles under warranty

that costs even more than the profit they already got from selling them, unless Ford

parent company replace them for free that would be clearly a management issue. Cars

lose much of its value if one year pass on the model what led Niva offering 25% discount

on 2 years old models even though they offer newer models but they should get rid of old

stock.

The management of Niva was on the Jordanian company the CEO was Jordanian, since

they have experience in the dealers’ market, Mr. Faruk has the higher percentage but no

experience in the field the Jordanian company took responsibility for higher management

of Niva, the possibility of issues raised by the partners that lead to dismantling the

company in the end, partnerships require commitments of both parties any struggle can

easily break it down.

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2.3.1. Emptying inventory and closure

At the end of 2016, Niva started selling its cars at a discounted price of up to 25% for the

Ford Taurus which was 2014 model selling for $19,000, it was clear that they were

emptying their inventory for closure which happened at May 2017.

3. Successful case Toyota Iraq/ SAS

Sardar Group is one of the largest car trade companies in Iraq, it was founded in 1970 as

small motorcycle trading shop and in the 1980s it started trading cars with a showroom in

Kirkuk, in 1990 Sardar had the largest showroom in Iraq. As a well-known car trading

company which have now the authorized distribution of Toyota Iraq after 2016, Jaguar,

Range Rover and Hino, Sumitomo wanted to partner with a large and experienced car

dealer in Iraq.

Sumitomo company founded in the 17th century in Japan it was about how merchants

should do business, and with 400 years of experience in business, the company which

was incorporated in 1919 and currently have 75,000 employees all over the world.

Sumitomo has experience with Iraqi market since 1965 it was the sole exporter of Toyota

vehicles to Iraq since then over 300,000 vehicles have been delivered.

SAS is an automotive services company was established in 2012 as a joint venture

between Sardar Group and Sumitomo corporation to offer officially approved Toyota

Vehicles and services to the Iraqi market with 3 years, and 100,000KM warranty which

comes first, provide official Toyota genuine parts with part warranty and provide high-

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quality aftersales support with highly skilled officially trained engineers and technicians

they didn’t tell exact partnership stakes but as Sardar is chairman and his assistant and

general manager is Mr. Masahiko Taniguchi likely in 60-70 percentage range for Sardar

group.

The vision of the company is “To be the number one in everything we do by putting

Customer and Quality first” (SAS Iraq, 2014).

“We are determined to deliver the greatest value with top customer services. We will

focus on continuous improvement and quality and quality assurance with a promise to

provide an excellent customer experience” (Chairman Sardar H. Hassan, 2013).

3.1.1. Service centers and showrooms locations

The service center in Baghdad opened on October 2013, Basra service center opened on

February 2015, Erbil service center opened on November 2013, Dohuk service center on

September 2013 and Sulaymaniyah on December 2013, a new service center is planned

for Kirkuk.

As for Showrooms in June 2015 state of art SAS showroom opened in Baghdad located

in the heart of Al-Mansour District facing Al-Harthiya mall the showroom was designed

by Toyota signature identity for Iraq, large 2-level showroom is the first of its kind in

Iraq with stunning interior and exterior design, Erbil showroom located in 100 M airport

road 30+ vehicles on display, Sulaymaniyah 3S (sales, parts, and service) showroom is

the largest 1-level automotive showroom in Iraq located after the airport on the road to

Tasluja, Basra showroom will open in the future next to the current service center, Dohuk

3S (sales, parts, and service) 15+ vehicles on display the showroom located next to

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Aviro city. The exact number of Sales for each branch is company confidential but they

mentioned in Kurdistan Erbil branch is first then Sulaymaniyah after that Dohuk branch.

3.1.2. Toyota Iraq

Prior to establishment of Toyota Iraq which is also under Sardar and Sumitomo on March

2016 there was no official Toyota vehicles and parts distributor in Iraq, SAS is the

official dealer and service center, Toyota Iraq is same partnership between Sardar group

and Sumitomo as sole distributor of vehicles and parts in Iraq before that Iraq never had

Toyota sole distributor that offers official training for all service centers in Iraq and

Kurdistan region.

Each one of the three authorized service providers MERKEZ AL-MADINA, SAS

Automotive services, and Cihan Motors, used to import cars and parts independently

before the establishment of Toyota Iraq. “Our dealers know their markets better than we

ever can. They compete against one another to provide Toyota customers with the best

buying and service experience possible. They are the experts in every aspect of selling

and servicing our products. Our dealers have invested so much of their hard-earned

money and sweat equity into their businesses. When they succeed, we succeed.” (JIM

LENTZ, CEO, TOYOTA NORTH AMERICA).

After Toyota Iraq was established now each one of the three licensed dealers can bring

vehicles and parts only through Toyota Iraq which helped Toyota mother company to

have more control over product planning, the three licensed service centers and

showrooms compete on offering services and sales but all their vehicles and parts come

through Toyota Iraq.

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By collecting customer data, fuel samples, and road test Toyota mother company makes

sure that each vehicle sold in Iraq comply with Iraqi standards, regulations, and suitable

to operate in weather conditions of the country.

“Toyota Warranty offering official car warranty 3 years or 100,000 km whatever comes

first, being first to offer a warranty on parts purchased and installed by the authorized

service provider for 6 months or 10,000 KM from installation date” (Toyota Iraq, 2016).

Toyota Iraq offers professional training and certificates for the technicians and engineers

in all Toyota authorized service centers in Iraq a to ensure all customers get the best

possible service.

Control over the availability of genuine spare parts and quick delivery to authorized

service centers two warehouses one located in Basra and the other in Erbil.

Corporate social responsibility Toyota Iraq/SAS promotes creating jobs, promote hybrid

technology, promote safety, provide skill training, and support local technical institutes.

The strength of friendship between Japan and Iraq, Sardar group brought and planted 200

Sakura tree in Sakura park in Erbil, this tree carries flowers that is the national flower of

Japan it will bloom in Iraq in 2 or 3 years (Toyota Iraq, 2016).

Cars offered by Toyota SAS officially ranges from, sub-compact Yaris, compact Corolla,

midsize Camry, crossover Rav4, Fortuner, SUVs Land Cruiser Prado, Land Cruiser,

pickups Hilux, Land Cruiser Pick-up, mini-bus Hiace, bus Coaster, and Hybrid Prius and

they will release 2018 Camry hybrid in the country.

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3.1.3. Culture

Since the 1980s people in Iraq were familiar with Japanese made vehicles since they were

relatively in-expensive vehicles imported by the government from sedans, buses, and

pickups over the years Japanese automakers gained very good reputation of non-

expensive maintenance, good reliability, and low fuel consumption, through all these

years trust is built in the customers for Toyota brand, Nowadays you can find Toyota

buses from the late 1970s models still operates especially in Sulaymaniyah, the trust in a

brand makes a good resale value of its cars.

Toyota has better resale value compared to other competitors in Iraq and Kurdistan

Region, most people want to buy a car that they want to sell quickly and with less loss

and this is not a problem with Toyota brand.

After decades Toyota no longer holds the price advantage with more and more

competitors entering the market Koreans, and Chinese competitors have better-equipped

cars for less price, the competition is high especially in central and southern Iraq with

even Iranian cars that are cheap but with no safety features, price is big factor in car sales

and Toyota can’t afford cutting on safety and reliability to lower the price further.

3.1.4. Market strategy

When Toyota Iraq was established in 2016 the distribution chain of vehicles and parts

with part warranty from all authorized service centers, SAS offers best service in short

time ensuring each customer is equally served through all parts of Iraq, SAS offer

services to all Toyota cars including used ones that have been previously or recently

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imported from the United States in which their spare parts don’t always match with

locally available Toyotas, SAS offer to order parts for the customer after full payment,

SAS customer service center responds to calls and requests 24 hours a day 6 days a week

offering appointment booking, customer service index to make sure sales and aftersales

sections aligned up for best customer satisfaction, handling of complaints are taken

seriously and are reported to be solved quickly.

PDI center (pre-delivery inspection) two PDI centers currently operational in Erbil and

Basra ensures that the vehicles are in perfect conditions and filled with all fluids like fuel,

oils/lubricants, and washer fluid, tightening bolts and checking for damage.

With continuous improvement with SAS Sardar group have another company called

Body Masters or Hayakal this company is authorized body repair service for Toyota,

Mercedes Benz, Range Rover and Land Rover, three Body Master centers currently

operating in Erbil, Sulaymaniyah, and Basra that works with computerized technology

which is the first in a body shop in Iraq to repair even the slightest dents in the body of

vehicles, being first to repair aluminum body panels, with high-quality paint shops and

paint ovens ensure factory like paint quality. Even during the economic crisis, SAS looks

for the future and by 2020, more SAS service branches and showrooms will open to

cover most of Iraq governorates.

3.1.5. Government Regulations

We did an interview with Mr. Goran Rauf Kaka Acting branch manager in

Sulaymaniyah, he mentioned that Toyota Iraq/SAS are working according to Iraqi rules

with no issues regarding tariffs, vehicles for Kurdistan Region gets in Iraq from turkey

and vehicles for the rest of Iraq comes through Basra. The difference in tariffs amount,

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licensing, and plate fees between Iraqi government and KRG make vehicles prices differ,

tariffs and license plate price and other related costs are significantly lower in Kurdistan

Region, for example same equipped Toyota Corolla priced $20,000 in Sulaymaniyah

costs $24,000 in Baghdad with Erbil or Sulaymaniyah car plates which also costs less in

the region which force some customers from other parts of Iraq to buy their cars from

Kurdistan which is good for the region’s economics during the time of writing this paper.

The severe financial crisis that hit the region since 2014 and the region still yet to recover

from this situation. This situation will not last long after unifying costs and tariffs

between federal Iraq and KRG prices will settle and the gap closes and customers will no

longer need to travel to Kurdistan to get a lower price.

3.1.6. War on terror and ISIS

During war on ISIS and bad economy from June 2014, every company in Iraq and

Kurdistan Region got affected by the war, millions of refugees and the horrible financial

crisis that stormed the Kurdistan region and whole Iraq due to loss of some oilfields and

the collapse of oil prices which is the sole engine of the economy in this country.

At that time, unified Toyota Iraq was not yet established, SAS and every other service

providers used to bring parts and cars by themselves, the sudden war is a hit for everyone

and unexpected economic collapse can lead to disastrous effect on companies especially

ones with high risk, “business leader in a contemporary company is a captain of a ship

that sails no calm waters. His or her ship sails in the perfect storm” (Dotlich, D.L., Cairo,

C., Rhinesmith, S.H., 2009) preparing for the storm is the best way to survive expecting

the unexpected is one of the golden rules of reaching safe shore, effective leadership is

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effective to overcome the crisis, leaders should work to develop a positive company

reputation during normal times to build a reservoir of good will, leaders who manage

crisis successfully may create opportunities for renewal, a weak leader can make crisis

much worse, leaders have specific communication obligation for managing and learning

from a crisis (Ulmer, Sellnow Seger, 2007).

The strong and lean management of Sardar group and its Japanese partner Sumitomo

with its deep knowledge in Iraqi dealership market surviving three wars in Iraq,

precautions must be taken, not to depend largely on banks, not to import more vehicles

than needed the ordering of vehicles depend on daily demand bases which is one of the

old Japanese lean business principles.

3.1.7. Hybrid cars and the Iraqi market

Toyota’s goal is to offer Hybrid vehicles in many counties as possible, hybrid technology

reduce emissions by lowering fuel consumption by more than 40% for the same engine

output power, which helps lower emissions and preserve the environment and lower the

cost of running the car in the long run, since the added cost of hybrid battery and electric

motor and control units adds upfront costs to hybrid vehicles, being first not the last to

offer a hybrid car the all-new 2017 Toyota Prius in Iraq, SAS and Toyota Iraq has been

working hard with the government to change some rules like tariffs and license plate

costs to make exceptions for hybrid vehicles to encourage people to buy them since

hybrid vehicles is higher priced than their gasoline counterparts, little support from the

government regarding regulations for hybrid cars importing, and encouraging people to

invest in a car that is new to this market even that few cars were sold thorough 2017 SAS

will offer 2018 Camry hybrid soon.

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3.1.8. Financing for customers

anyone who is eager to buy a Toyota from SAS and doesn’t have full cash can have bank

financing with Al-Mutahida bank with easy monthly payments up to 3 years including

Islamic banking with two conditions to mortgage a property, and have proof of income,

sales financed through banks is not that high accounts no more than 15% of sales of SAS

due to bad economic conditions and strict conditions applied by banks to allow loans on

vehicles financing.

3.2. Reasons of success SAS

3.2.1. Factors of success of SAS

The situation in the country is difficult for every company, and cannot be measured

compared with the United States and Europe several wars, sanctions and outdated

regulations made the country a unique case even compared with other countries in the

middle east, SAS and Sardar Group, the financial crisis, war on ISIS, and severe financial

crisis in Kurdistan Region affected every business in the country, continuing to work and

surviving those situations is a success, neither war nor financial crisis last forever, in

every economy there is business cycle when economy is blooming then reach its peak

then it starts to decline but financial crisis can be sudden mostly, the crash of stock

market, crash of oil prices, and war every company must prepare for the worse.

3.2.2. External Factors of success

Toyota has a rising reputation from the 1980s to our current time in the middle east, even

in the “1975 Toyota surpassed Volkswagen to become the No. 1 import brand in the

united states and won the Import Triple Crown by leading all import brands in sales of

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vehicles, trucks. Production of Toyota today exceeds five million vehicles per year and

have 320,000 employees” (Toyota Iraq., 2016).

Toyota is a well-known brand for reliability, fewer defects, fuel economy, and reasonably

priced spare parts as of 2016 Toyota occupies about 14% of US market share, GM is at

17% (wards auto, 2016) that means reliability of Toyota vehicles is trusted in the USA so

as in the middle east and Iraq, especially in Kurdistan people trust Toyota brand and their

vehicles have very good resale value, the seven years old 2011 model well equipped

Toyota Avalon is currently selling for $22,000 while the latest model sells for $36,000

retaining more than 62% of its initial price, while Ford Taurus 2013 model currently sells

for $13,000 the latest model can be found for $27,000 that is 48% of its initial price

which is much lower than Toyota’s resale value given the model is 2 years newer.

Mechanics in Iraq and Kurdistan are familiar with Japanese cars and their spare parts are

relatively cheaper and require less major maintenance.

3.2.3. War on ISIS and financial crisis

The war on ISIS and the financial crisis in Iraq and especially Kurdistan Region during

2014-2018 affected every company and it affected SAS too with financial crisis took a

toll on sales of vehicles and lowered profits significantly but strong leadership and

knowledge of Sardar Group and its experience with several wars in Iraq made it easy for

SAS to cope with the crisis and survive.

3.2.4. In depth Fuel quality analysis and Toyota

Toyota vehicles have been present in the region since the 1970s and their engines are

well designed to withstand the fuel of the region, the fuel in Iraq is leaded and the gradual

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phasing out of lead or Tetraethyl lead (TEL) from gasoline by mid-2015 according to

Iraqi Oil Ministry, TEL contains lead which is very dangerous and affects growth of

children’s brain and rests in their bones, in exchange refineries are mixing locally refined

gasoline with imported grade Octane number 95-90 to make 81 grade Octane and this is

the improved gasoline higher grade the regular grade gasoline has much lower octane

number around 65 (Oil.gov.iq, 2017).

Most Auto manufacturers recommend 87-91 octane for their vehicles otherwise severe

knocking and reduction of engine performance happens and severe knocking leads to

engine breakdown especially if coped with high ambient temperature of more than 50C in

Iraqi summer, gasoline in Iraq contains 500 part per million of sulfur, and diesel fuel

contains 13,000 parts per million (CEDARE, 2015) which is much higher than European

standards which leads to more malfunctions in engines and more polluted emissions with

dangerous gases.

Toyota engines are well suited for local fuel and weather compared with Ford engines

which are more sensitive to fuel quality, with the availability of black-market fuel in

2014 in Erbil especially Ford engines tend to break down, Toyota engines were much

better to cope with bad quality fuel.

3.2.5. Toyota vehicles other than sedans

People in Iraq use Toyota buses since the 1980s the Toyota Coaster from that model can

still be seen Sulaymaniyah streets, Toyota minibus Hiace and Toyota pickups with 4

cylinders economical and not large compared with Ford F-150 series, the Toyota Land

Cruiser is well Known 4X4 SUV that have fame in the area.

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3.3.Internal Factors

3.3.1. Leadership and crisis

“Managers, consultants, and researchers have traditionally focused on problems of

financial performance and growth and pay little attention to crisis management”.

Reaction to the crisis is divided into proactive and reactive, preparing the company for

crisis management and prevention like the fire alarm or firefighting systems in buildings,

first step is the detection of the crisis then coping then repair, recovery, and assessment

(Mitroff, I., Shrivastava, P., & Udwadia, F.,1987). What SAS did as proactive is by

following lean strategy by not ordering large number of vehicles or more than needed

parts, wasting valuable resources, and taking large loans from banks, what they did as

reactive since they can’t change war situation and financial crisis they coped with the

economy especially in Kurdistan region slowing down on expansions like not opening

new unnecessary showrooms and extra expenses in the region but focusing on covering

Baghdad and Basra that are relatively better economically, SAS is well co managed

between Sardar and Sumitomo after ISIS is defeated the can open more branches in other

governorates like Kirkuk.

The management of SAS is divided between Sumitomo and Sardar and there is a special

department in Sardar group called Risk Management which is planted in the company

structure since Sardar have good experience in unstable Iraq with first, second Gulf war,

then operation Iraq freedom. Car trading is a risky business and risk and crisis

management is an important part of each car trading company.

To manage crisis each company must ask what can or cannot be prevented? or prepare

for, preparing for the worse and preventing the financial crisis from striking inside the

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company and make it bankrupt, lowering expenses, ordering fewer parts/cars, managing

workforce then the company must cope with the situation until it gets better.

SAS use a lean technique they don’t order too many cars or parts they sell 2 order 2 or 3,

in order not to run into inventory management issue with costly vehicles.

One of the most known examples of “expect the unexpected” behavior of the leader

happened in the known “Tylenol case” in Johnson & Johnson in the US in 1982 when the

first Tylenol crisis seven people were poisoned and died after taking known painkiller

Tylenol, the company leader decided to act against what the company lawyers advised to

not comment on the incident but he went to the public to call people not to use the drug

and recall it from the pharmacies which resulted in short term large damage for the

company but cemented the company positive reputation and increased its consumer

loyalty (Majda Tafra-Vlahović, 2006).

Preparing for crisis in car trading business not just for war and financial crisis sometimes

large recall of vehicles with issues that affects passengers safety also can result in injury

and loss of lives, or affects vehicle’s longevity even if it costs the company to recall the

cars but it increases customer’s loyalty and confidence in the dealer, some of the Niva

customers reported that the company didn’t recall one of the models for important

transmission reprogramming and made it optional by charging money on it, neglecting

informing customers during scheduled maintenance lead to many of them not doing the

important transmission reprogramming that led to issues and fail of many transmissions

in vehicles bought through Niva that lowered the dealer’s reputation among customers

and lowered their vehicles resale value, but for SAS direct Japanese supervision from

Sumitomo with direct contact to Toyota ensures that every vehicle recall is done on time

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and every customer is called with no delay to ensure their safety and reliability of Toyota

vehicles.

3.3.2. Market knowledge

As we mentioned before market opportunity in Iraq for automobiles is great with vast

increase of income compared to 2003-1991 era and growing population, increased the

need for new vehicles for private, public, and government sectors, “ millions of people

start their day on the move behind a steering wheel always on the move to improve, to be

successful and to find joy in life people depend on their vehicles for their freedom of

movement, so their safety and ease of mind is vital in everyday life” (Toyota Iraq.,2016).

With the regulations of importing used vehicles are getting tighter and tighter, the number

of vehicles in the country is still much less than relatively less populated countries in the

region, the projected growth of auto sales is high.

The need of whole official dealership package in Iraq and Kurdistan region is high, and

this is what Sardar Group vision “Born with an inspiration to constantly innovate”, since

the 1980’s Sardar business shifted to Car trading, after the business moved to Baghdad in

the 1990’s and the building of largest covered showroom in Iraq (Sardar Group, 2017).

“The group has specialized in car trading with more than 30 years of rich experience in the

automotive sector in Iraq, this knowledge in Iraqi market helped import, stock and sell the

right brands, types, and models, the excellent reputation, credibility, and track record of

Sardar helped to grow the business times over since the year 2003” (Sardar Group, 2017).

Companies under Sardar umbrella, Sardar trading agencies exclusive distributor and dealer

in Iraq and Kurdistan for Jaguar and Land Rover, Toyota Iraq exclusive distributor of

Toyota in Iraq. SAS automotive services Toyota official dealer in Iraq, Be-Hawta company

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official distributor of POLARIS products, Sardar Auto, Sardar Machinery official dealer

for Swedish company Volvo construction equipment and the Korean company Doosan

forklifts, TAO automotive and spare parts trading co-distributor for Iraq for Shantui

construction equipment and exclusive dealer of Volvo Penta engines and spare parts in the

Iraqi market, with other companies in other investment sectors, Sardar Auto have branches

in Jordan, UAE, and soon in Japan, we can say Sardar have expertise in middle east auto

market (Sardar Group, 2017).

SAS Toyota official dealer which was established in 2012 as a partnership between

Sardar Group and Sumitomo corporation both companies have experience in trading and

Iraqi and global auto market (Sardar Group, 2017).

3.3.3. Financial strategy

Committing reasonable financial strategy to not depend largely on banks and large loans

to finance operations and imports of vehicles, taking large loans can put a company in a

difficult situation with a large inventory and debt to pay, low liquidity is a problem in

crisis times financial strategy must be planned with a crisis in mind.

3.3.4. Choosing of showrooms and service centers locations

Locations of showrooms and service centers in Sulaymaniyah its located outside the city

in Tasluja on Kirkuk road this location is far from another dealer and outside the city

makes the cost of rent low and easier to build largest floor showroom is possible to offer

best service and show as many vehicles as possible, Erbil showroom also located on

Erbil-Mosul road, Baghdad service center is located on Mohammed Al-Qasim highway

on the edge of the city, there are showrooms in city center though. Two parts/cars

distribution centers one in Erbil and another in Basra to ensure availability when needed.

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In Kirkuk, very large service center and showrooms will be built for SAS Toyota/Hino,

Range Rover, and Jaguar called O MO TE NA SHI complex “sincere hospitality to all”

with 400 employment opportunities. These service centers and showrooms are designed

and supervised by Toyota themselves.

3.3.5. Services and warranty

SAS ensures that the vehicles sold through it carries warranty of 3 years or 100,000KM,

offering service and on part warranty of 6 months or 10,000KM. training the staff with

best professional training to ensure best service possible to every customer.

4. Conclusion

After we discussed how government historically intervening in the dealership’s business,

affected people culture, and how it played in the success of Toyota dealer compared to

Ford dealer even though the problem is not from culture but different management

perception of the market with SAS/Toyota Iraq belongs to Sardar Group partnered with

Sumitomo with much more experience in car trading business in Iraq than Faruq Group

Holding that partnered with the Jordanian trade company that have rare experience in the

country combined with several external factors from banks to war on ISIS to economic

crisis that lead to closure of Niva car trading Ltd.. We discussed how weak government

regulations are and how to improve them by implementing a yearly check on vehicles in

whole Iraq, promoting insurance policy, and improving fuel refining quality for a better

environment, lower operation and maintenance cost, regulating laws to lower emissions

and promoting hybrid technology for cleaner environment for our children in the future.

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