Used cars in the GCC and Levant could not be more contrasting. While in the Levant the used car market has been the mainstay of car sales for decades and is seen by those in the industry as saturated and even dangerous, in the GCC the used car market is weak, very poorly developed and seen as a primary target for growth. Until now, the used car business has not been taken very seriously by official importers in the GCC and is seen as a risky business and one to stay away from.
Changing perspectives
Manufacturers are trying hard to change the view of the used car market held by their official import partners in the Gulf, but it is a big task. Charles Strothard, chief operating officer for Al-Habtoor Motors, official importers for Mitsubishi, Bentley and Aston Martin, explained that the used car market is seen as tricky because it is very difficult to control the trade in terms of prices, and that there is a big potential for fraud. “The market has not really demanded used cars, this is driven by the fact that finance providers are reluctant to finance used vehicles and when they do it is at a premium interest rate,” Strothard said. Thus, currently the used car market has been left to the traders’ suqs, such as al-Aweer in Dubai that has up to 200 showrooms. However, manufacturers disagree with the idea that there is not a demand for used cars in the GCC and see this market as increasingly significant and an important area for growth. The establishment of a controlled used car market is seen as critical by manufacturers because it is an essential element for maintaining the re-sale value of their cars, broadening the customer base and can be a great source of income. What is needed most in the GCC, the manufacturers argue, is a change of mindset amongst the official importers.
“Generally, the focus has been to change the mindset and showing the dealers that there is an opportunity here. In the past, other people have tried it and have not been successful,” explained Terry Johnsson, president and managing director of General Motors Middle East. GM, for instance, sells less than one used vehicle for every 10 new and, Johnsson said, he wanted the achieve the ratio of at least four or five to 10. This is compared to a more mature market where the ratio is 12-15 used cars sold to every 10 new ones. Jeff Mannering, managing director for Audi Middle East, asserted that Audi identified the “critical need” for a used car program in 2005. “Now we are starting the Audi Approved Plus car program. We are spending a lot of time and effort on Audi Approved Plus in Dubai, Abu Dhabi and Saudi Arabia and this program will be rolled out elsewhere,” Mannering said. Johnsson noted that things are changing rapidly in the used car market. Specifically, two important changes have occurred. “For the first time we are seeing organized auctions and web locator work put in place. Also Red Book, which is an Australian based company that publishes used vehicle prices, are just publishing their first edition for the UAE market. This is extremely important for getting a standardized view on used vehicle prices and re-sale values, and builds the foundations for a strong used car business,” he said. Mercedes has also been growing its used car sales business but Frank Bernthaler, director of sales and marketing for Mercedes-Benz, noted that, “we don’t get many quality used cars because people don’t trade their cars; they keep them and pass them down the family.”
Wrecks on the road
In Lebanon, the problem is quality, not quantity. Nabil Bazerji, managing director of G.A. Bazerji & Sons, car dealers for Suzuki, Lancia and Maserati, estimated Lebanese used car sales at 50,000 per year but has major reservations regarding the market. “What the government does not understand is that import of used cars in Lebanon is too big for the local need. This has negative effects on the country. One is fuel consumption, because people will upgrade if they buy a used car for the price of a new one, and they buy bigger cars with bigger engines. Secondly, the older the car gets the more it will pollute. Thirdly, there is a safety issue, as the imported used cars, in order to be competitive for the traders, have high mileage or are out of circulation in the countries they come from.” Safety issues have been a major concern when it comes to used cars in Lebanon and can be seen as one of the biggest motivations for the growing trend of Lebanese to buy more new cars. Nadim Mehanna, presenter and producer of the first and leading Middle East car show ‘Motorshow,’ voiced concerns over the lack of monitoring of used cars in Lebanon and the significant danger that this represents. ‘Cut and shut’ cars are of particular danger; this is when two halves of different cars are welded together. Mehanna warns that, “Even if the welding is done extremely well, if you brake heavily the slightest difference — I am talking millimeters — will make the car swing all over the place, and if it seriously hits another obstacle separation can easily occur.”
Bazerji is particularly scathing about the government’s sluggish response to this situation. “Unfortunately, I believe that the government’s mind is elsewhere, or sometimes there are some personal interests even if they are not involved financially. But politically, it helps to support these operations even if they are not beneficial to the country,” he said. A better regulated system has slowly started to appear with the Lebanese government gradually attempting to clamp down. By and large, one no longer finds shop owners putting two used cars for sale outside their stores. More importantly, however, is the fact that, encouraged by the manufacturers, official importers in the GCC have started to see used cars as a more important business opportunity. Porsche, for example, has just opened a brand new center for pre-owned vehicles. For Lebanon this is especially important because of the Lebanese habit to punch above one’s weight. “You have the Lebanese syndrome of ‘what car are you driving?’,” Mehanna explained, “If you make a survey of those in Lebanon that want to spend $20,000, 60% will go and buy a Mercedes or a BMW 2003 model, and only 40% will buy a new Renault or Kia instead. It is very important for the Lebanese to have these types of cars and this is what is keeping the used car market alive.”
The region’s used car market is alive and well, and should continue to be so. As official car importers take this market more seriously, at the behest of the manufacturers, this can only be a positive thing for those buying used cars. An end to unofficial and semi-official dealers and a move to a more institutionalized and professional used car market will be a happy development for those concerned about road and car safety. Soon it will become the norm in the region to buy used cars at all levels in the market, as in mature markets, but also expect with the used car a warranty and guarantee. And a lot of old cars are about to get cleaned up.
