Rough ride continues for UAE’s auto market

Dubai: The UAE’s car dealerships wouldn’t be looking back on 2018 with fond memories — in fact they are on the verge of closing what has been another exceptionally difficult year. The drop in new car sales for the full year is estimated 15-20 per cent, according to industry sources. And that too only because of a slightly better fourth quarter sales performance put in by some of the bigger dealers.

The projection is for overall new car sales to be around the 240,000 unit mark this year, of which about 70,000-80,000 would have been for re-exports. And if 2019 can deliver a similar set of numbers — or in a best-case scenario growth of even 2 per cent — it would make for a decent year.

But senior industry sources say the decline in volumes this year — and over the last two years — should be placed in a proper context. “Don’t look to just the 420,000 units sold in 2015 and say it’s been terrible since then,” said Michel Ayat, CEO of AWR Automotive, the local dealership for Nissan and Renault. “Since 2015, the annual drop has been about 15 per cent each year — but we have seen worse.

“From 2008 to ’09, the drop was 43 per cent … and the industry managed to come out of that well. What we are experiencing now is a market cycle and not a full-scale crash. That’s what the industry needs to be thinking about.”

Sure, there are still categories where the numbers have not seen as alarming a drop. Fleet sales, both corporate and to rental car companies, are only down by about 10-15 per cent. Compare that with car sales to individuals, which is down by nearly 50 per cent, and you see why dealerships believe it hasn’t been all dark and gloomy.

Because for every individual putting aside a new car purchase, there is someone willing to go in for a car hire or even opting for a second-hand purchase.

Plus, the ride-hailing industry, led by Careem and Uber, continues to record growth in the number of drivers and vehicles wanting to get onto these app platforms. Sure, it’s only the premium models that get to be in an Uber or Careem fleet, but for dealerships it all counts.

Selling to fleets has been the dominant theme in the auto industry this year … and no dealership wants to be left out. “As a premium dealership, we aren’t at all missing out on the opportunity to provide fleet services,” said Ayhan Olcer, CEO of AGMC, the Dubai and Northern Emirates dealer for BMW and MINI. “I’m sure you see regularly on Dubai roads (that) we provide Emirates airline with a fleet of BMW 520i models for their chauffeur-drive service for business class passengers.

“Additionally, we recently partnered ekar, the car-share operator, a fleet of 15 MINIs as a part of Dubai Government’s Smart City initiative with RTA. The rapidly growing field of mobility services is one of AGMC’s cornerstones and in line with BMW Group’s corporate strategy.

“AGMC aims to continue to align corporate efforts with the increasing demand for future mobility fleet solutions.”

But can fleet alone provide a boost to industry prospects in 2019? The cost of taking ownership of a car via bank finance is getting costlier by the quarter. (Current auto loans on a flat or reducing rate basis average around 2.5- and 5-7 per cent, respectively.) At this point, it’s proving difficult to hazard a guess as to whether individual buyers will turn up in greater numbers than was the case between 2016-18. More of them are getting used to retaining their vehicles for longer and sit out this downturn before they make a commitment on the next big purchase.

“Market cycles can even last up to 10 years … but we need to keep hoping that a turnaround would happen much sooner than that,” said Ayat. “It’s not just the UAE car market that’s been hit — Saudi Arabia would be closing with less than 400,000 units of new cars sold. And it used to be 800,000 units plus three years ago. We will need to see this cycle out.”

One problem for the industry is that many dealerships made massive commitments on new car showroom and service centre expansion when the times were good, in 2014-15. Those facilities are now up and ready, but the buyers are not turning up in enough numbers to justify those spends.

“This is where the industry is hurting — funds that got tied up in new facilities and which will take longer to recover because the market is hurting,” said one senior official at a dealer.

If 2019 can get more prospective car owners — individual as well as fleet buyers — to turn up, that would be some relief.