The automotive industry is feeling the full force of the global financial crisis. General Motors, Ford and Chrysler are on the brink of collapse after their failed bid to get $25 billion in aid from Congress and many of the major automakers are temporarily shutting down production plants as sales drop around the world. In the Middle East, however, car sales have not been so gloomy. Positive growth has been achieved by all the major brands in the region and massive amounts of investment are being put into improving car sales and after-sales facilities. Still, there is nervousness about the financial crisis’ impact on the Middle East, given the significant amounts of investment that have been made and are being made in the region. Thus, 2009 will be a precarious year for automakers and their local partners in the Middle East.
But 2008 was a good year overall for manufacturers in the Middle East. As Phil Horton, managing director of BMW Middle East, pointed out, “Our January to October sales across the Middle East are up 12% over the same period last year.” Horton is confident that BMW will achieve its sales target for 2008. Julian Millward-Hopkins, press manager for Mercedes-Benz, also reports that 2008 was a good year. “The performance of Mercedes-Benz in the region this year has been exceptional with deliveries currently up nearly 20% over the previous year. For the first time we achieved sales of over 10,000 vehicles for the first half of the year,” he said.
The big manufacturers’ new playground
The continued growth of BMW and Mercedes in the region is significant because the big three markets — US, Europe and Japan — are increasingly saturated and competition is becoming increasingly intense in the Middle East. Infiniti and Audi are two manufacturers that have rapidly increased their presence to capture some market potential, both launching a renewed, more substantial presence in 2005. Abhijit Pandit, director of marketing for Infiniti, reported that the Japanese company has achieved rapid growth since 2005 and now the Middle East is the number two market after the US. In 2008, Infiniti achieved 50% year-on-year growth. Audi tells a similar story. Jeff Mannering, managing director of Audi Middle East, stated that Audi believes it can end 2008 on strongly, “finishing with around 7,500 deliveries to customers, which is a healthy 18% increase over 2007.”
Rapid expansion is being undertaken by manufacturers and their local partners. Horton extolled BMW’s local import partners investments in the brand and stated that, “Our importers in Dubai, Abu Dhabi and Saudi Arabia are all undergoing multi-million dollar expansion plans to accommodate their growing business.” This rapid expansion, which is being replicated by almost all manufacturers in the region, has brought the challenge of ensuring that infrastructure keeps up with this expansion. “With growing sales the biggest challenge is always to provide a strong support system. Audi has invested heavily into training, continuous improvement in after-sales service and the development of our infrastructure,” said Mannering. For brands such as Infiniti that have yet to penetrate fully the Middle East, rapid programs of expansion are being rolled out. Pandit said that new showrooms are constantly being opened for Infiniti cars and by 2012 all the market in the GCC and Mediterranean markets will have exclusive facilities.
His company, Pandit said, “pioneered the crossover SUV with the Infiniti FX,” and now all the car manufacturers are bringing out new SUV crossover models, which are set to dominate sales in 2009. The SUV is an important segment of the car market in the Middle East in particular and, according to Pandit, dominates the luxury car sector. With global warming becoming increasingly important in the minds of consumers, the desire to have an SUV with lower emissions has given birth to the crossover SUV and their popularity has been insatiable. Thus all manufacturers are racing to get their versions onto the market. BMW has brought out the X6 Sport Activity Coupe, which has sold out the year’s quota, Audi reported a strong response to its anticipated Q5 and Mercedes has released the GLK, which is expected to achieve strong sales in the region.
The major challenge that automakers have faced in 2008 has been currency fluctuation. For Infiniti, which deals in yen, this was a major challenge and for BMW and Mercedes, dealing with Euros, it has also been problematic. Horton also stated that “price increases for raw materials including oil, steel and energy,” were issues for manufacturers in 2008 and this decreased the profit margin.
But the biggest snag was encountered at the end of the year: the global financial crisis. In 2009, all manufacturers will be waiting and watching to see what its full implications on the region will be before they make any big decisions. Millward-Hopkins believes that the Middle East is in a much stronger position than the rest of the world, but “we are putting in measures to ensure that our distributors across the region provide customers with a suite of offers.” Thus, even in the surplus-rich GCC, manufacturers are preparing for customers to tighten their belts. “Oil prices are continuing to stay low but I hope the government will intervene as this is a big challenge for the region,” Pandit said. Although manufacturers are aggressively pushing forward their brands in the region, due to the economic crisis they will be hard pressed to achieve a growth on sales in 2009. As Horton stated, the biggest challenge next year will be, “to increase our sales over 2008.”