The UAE automobile sector saw sales plunge by up to 45 percent in the first two months of the year compared to 2008, a remarkable downturn from the years of double-digit growth when the $3.6 billion sector was one of the fastest growing in the world.
“The end of the third quarter 2008 was vastly different from the fourth for manufacturers,” said Mike Devereux, president of GM Middle East. “This year we are looking at a decrease overall, with the same daily sales rates since December to now.”
But while the economic slowdown has started to bite, the sector is not sitting on the sidelines until a recovery starts. It has resorted to a change in financing strategy and a greater focus on services to shift units as access to credit tightens and consumer preferences change.
“The financial crisis has certainly affected automotive sales in the UAE, with banks applying more restrictions on financing. And since nearly 80 percent of the UAE’s automotive sales are dependent on financing, this is more evident locally,” said Waldo Galan, managing director of Ford Middle East. Ford, Lincoln and Mercury sales grew 35 percent last year.
As a result of tighter lending, manufacturers and dealers are teaming up with banks to offer zero percent interest on car purchases and making credit more readily available to customers. The most notable change in sales strategy has been the widespread introduction of leasing, a technique dealers had formerly eschewed as car prices were low and customers preferred to buy.
“Financing is a problem so schemes have to be more tactically focused. Screaming the price from the rooftops is not what it’s about, but customer issues. The change is more tactical and less general as there is too much on people’s minds,” Devereux pointed out, adding that: “Lots of people want vehicles but need financing, so we’re focusing on a partnership with the National Commercial Bank (NCB) in Saudi Arabia and in the UAE a car leasing scheme.”
In with the new but not out with old
While enticing customers into showrooms is one concern for the manufacturers, so is keeping dealerships afloat, having ordered vehicles months in advance that can now not be sold or re-exported elsewhere. This has been further compounded by 2009’s models now being on sale, yet there is excess stock of last year’s lines.
“Credit, wholesale finance and bank loans are difficult for dealers. Stock levels for dealers mean reduced working capital so less money in the inventory,” said Devereux. “We will winnow down our inventory and import much less cars.”
And while there is an excess of unsold cars, manufacturers are hesitant to offload vehicles in fleet deals and government tenders.
“We’re trying not to chase unprofitable fleet tenders that we would have done before, as there is little to no margin,” said Devereux. “We are now focusing on the retail business, with 65 percent retail and 35 percent fleet.”
Consumer preferences are also expected to shift towards more competitive fuel efficiency, fewer SUVs and more crossovers.
“While demand for luxury vehicles would possibly see a reduction, quality and value would still remain on top of the consumer’s list,” said Galan. “We believe that consumers will act more out of a rational mindset and look for quality and value for money rather than the emotional drive.”
After sales is a another area manufacturers and dealers are focusing on as sales stagnate — a sector valued in the Middle East at some $11 billion, while the UAE tire trade is valued at $1.1 billion and slated to grow this year.
“There is a big focus now on services, which will be a stable haven in a downturn. Most dealers here are under invested in service capacity and the number of vehicles has increased so quickly,” said Devereux. “There is a need to invest in new services as vehicles are coming into prime servicing years after 2-3 years since purchase.”
While manufacturers continue to monitor the local environment, they are optimistic that revenues will go up next year as supply and demand align, even though it might not be the double-digit figures of the boom years.
“There is a big focus now on services, which will be a stable haven in a downturn”
