Although the demand for road transportation is increasing, the registration of new buses which saw an increase of 31% in 2006 has decreased by 21% in 2007. Responding to the need to re-fleet the private sector buses, approximately 35% of which are over 10 years old, a government project has been launched whereby a ‘subsidy’ will be provided to the private bus owners to buy newer models. (Source: Central Bank Annual Report 2007)

One of the main challenges faced by this business sector has been the high tariff regime prevalent in Sri Lanka. Presently the tariff on petrol passenger cars and SUV’s over 2000 cc is a staggering 285%. The rates on other types of vehicles too are equally high and are a serious impediment to the growth of the industry.

Another dilemma the industry has to contend with is the continuously depreciating rupee against the Euro. The high tariffs, coupled with the steeply depreciated rupee, especially against the Euro since 2004, has meant that the price of many types of vehicles imported by DIMO have escalated. For instance, the price of European luxury cars has increased by over 160% over the period 2004 to 2008.

DIMO keeps a close watch on the development of the transportation system in Sri Lanka, as its development directly benefits all business sectors of the Company. The Government of Sri Lanka has aptly identified the transportation system of a country to be a crucial player in the successful implementation of all its development activities. Road transportation in Sri Lanka accounts for about 85% of the passenger miles travelled by all modes of public transportation. As such, the Government has pledged to improve the road network in the island through various new road building and reconstruction programmes.

The Commercial vehicles business is greatly dependent on the growth of the industrial sector in the country. Infrastructure development and growth in industrial production remain the key drivers of demand for Commercial vehicles. The growth potential in the Eastern Province therefore has been identified to be significant to the commercial vehicle business. The Company is optimistic about the Government-sponsored three year Eastern Province Development plan (Negenahira Navodaya) to improve and upgrade the infrastructure and supportive services in this province. Encouraged by these developments, DIMO too has plans to increase its presence in this growth area in the coming year.

Another impediment to the commercial vehicle business is the high interest rate regime that is prevalent in the country. Sales of these vehicles are largely dependant on commercial borrowing and hence indirectly on the level of interest rates. Interest rates and rates of inflation in Sri Lanka appear to be poised for further escalation, given the current upward pressures on prices in the global oil and commodity markets. Adding further upward pressure on interest rates, and concern for the growth of the industry and the economy is the escalation of the armed conflict in the North of the country.

Mercedes-Benz, continues to enjoy the position of the market leader in the luxury car market. This business unit dominates the market with a share of over 60% of the luxury car market (where the vehicle values is over Rs. 10 mn). This segment has succeeded in achieving 93% of its budgeted turnover for the year 2007/08, slightly lower than the 98% achieved in the year 2006/07.

The newly launched ‘C’ class cars were the main contributors to the sales figures. This model has contributed significantly to the top line of this business segment. The expected launch of the new facelift CLS class cars during the ensuing year is expected to make a significant contribution to the bottom line.

We continue to sponsor the Mercedes-Benz Golf tournament & the MB Pageant. Both are much looked-forward to events in the participants’ calendars and usually generates great enthusiasm for the Mercedes brand.