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ANALYSIS

Gulf car sales underline GCC consumer boom

Dubai, November 9, 2013

By Martin Dokoupil

A surge in passenger car sales across most Gulf countries underlines the momentum behind the region's consumer spending boom, and sales are likely to continue rising strongly for at least a few years, automobile sector executives said.

Car sales are an important indicator of business activity in a region where official macroeconomic data, such as gross domestic product, is often unreliable and released with delays of many months.

Analysts estimate GDP in the richest Gulf economies - Saudi Arabia, the UAE, Kuwait and Qatar - is now growing at annual rates of around 3 to 5 per cent, fuelled by high oil prices and heavy government spending.

Data from executives at this week's Dubai International Motor Show suggest important areas of consumer spending are rising at much faster rates, and that Gulf citizens are spending much of the welfare handouts which governments have provided since the Arab Spring uprisings of 2011 to ensure social peace.

"Sales are 17 per cent up so far (this year). It will be a good strong end of the year as well," said Trevor Hill, managing director at Audi Middle East.

Audi, the luxury arm of Germany's Volkswagen, sold 9,155 cars in the Middle East last year; the UAE accounted for over 40 per cent. In January this year, the company predicted that 2013 sales in the region would rise 12-15 per cent.

Official industry-wide numbers are not available, but because of consumers' high average incomes and ultra-low, subsidised petrol prices, car sales in the Gulf are skewed towards upmarket brands and large sport utility vehicles (SUVs), in comparison with Europe and many Asian markets.

Britain's Jaguar Land Rover (JLR), a luxury carmaker owned by India's Tata Motors, saw a 38 per cent year-on-year jump in Mena sales for the first nine months of 2013, with the UAE and Saudi Arabia its top two markets.

"The economy has been very strong and a lot of the markets in the Middle East are doing very well generally," said Robin Colgan, JLR's managing director for the region.

Real estate recovery

One reason for strong consumer spending growth in some Gulf economies, particularly the UAE and Kuwait, is a recovery of real estate and equity markets from the global financial crisis; this has made customers feel richer.

Residential real estate prices in Dubai, the UAE's business hub, which had tumbled more than 50 per cent in 2008-2010 as a bubble burst, are up over 20 per cent in the last 12 months - in part because of an inflow of money from investors fleeing political unrest in North Africa.

Dubai's foreign trade in motor vehicles jumped 18 per cent to Dh32 billion ($8.7 billion) in the first half of 2013, with Japan accounting for a quarter of the total followed by the United States, according to the emirate's customs office.

That number includes re-exports as well as imports since the GCC countries do not produce passenger cars of their own. Dubai imports many cars that are subsequently shipped elsewhere in the Middle East and Asia.

Auto makers are keen to expand sales in the Gulf partly because they face overcapacity and price pressures in Europe, which has been hit by the euro zone's debt crisis.

Opel, a German unit of US carmaker General Motors Company, exhibited at this week's Dubai motor show for the first time in 15 years, after entering the UAE market in February.

"We are back now after 15 years and clearly identified the Middle East as a growth region," said Lutz Jäckel, director of sales, marketing and after-sales at Opel International Operations.

"We expect in the region average growth of the car market of 10-15 per cent, and we want to participate."

Rival US carmaker Ford Motor Company said it planned to launch 17 new or refreshed Ford and Lincoln vehicles in the Middle East over the next two years to accelerate growth in the region.

"In the Middle East over the last four years it is growing by 60 per cent. Our forecast is that by 2020, the industry could reach about 5.5 million units, so that is another 40 per cent growth on top," said Stephen Odell, president of Ford Europe, Middle East and Africa.

New car sales in the UAE are likely to jump to 380,000 units in 2013, up 23 per cent from 2012 and above the 2008 peak hit before the global credit crunch, according to the Middle East Automotive Council, an informal body of auto makers in the Gulf.

Audi's Hill said growth could accelerate further if Dubai won the right to host the 2020 World Expo; the result of its bid to stage the world's fair is expected to be known late this month. "There will be an influx of investment, influx of hotels, a lot of customers coming to the market."

A tantalising prospect is that rising auto demand in the Gulf Arab countries will eventually support the opening of car making plants in the region.

With weak manufacturing sectors outside the oil industry, the countries lack much of the infrastructure needed to produce cars competitively. But that is changing; governments are spending billions of dollars on better ports and communications, and are keen to promote private sector industries that would diversify their economies and create jobs for their citizens.

In December, JLR signed an agreement with authorities in Saudi Arabia to complete a feasibility study of vehicle manufacturing there.

"Saudi Arabia is interesting for a number of reasons, not least for the proximity to a very important SUV market," Colgan said, declining to comment on the study's progress.-Reuters




Tags: UAE | economy | Saudi |

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