UAE car dealers face challenging times

Automotive sales in the UAE grew by 29% in the January-September period of 2008, with full-year growth estimated to be 22% on sales of 362,585 units, according to a new report by UK-based Business Monitor International (BMI).

However, the tremendous growth in car sales that occurred in the UAE in recent years is now forecast to fall sharply in 2009.

Sales have been on a downward slide beginning in the fourth quarter of 2008, as lending tightened due to the credit crisis. General Motors, which reported sales growth of 28% in the first 10 months of 2008, said the rate of vehicle loan rejections in November had risen from 5% to up to 30% in the UAE, the report said.

It is no surprise that stricter lending requirements have impacted greatly on UAE auto sales as 70% of new car purchases in the country are made on credit. As the credit crunch continues with no clear end in sight, BMI predicts that annual growth in the UAE car market will slow to just 2.9% this year.

Sales are expected to remain sluggish in 2010, but BMI predicts that over the long-term the UAE market will rebound strongly, with double-digit growth in sales expected to resume from 2011.

By 2013, the UAE automotive market will have reached around 570,000 vehicle sales per annum, a 57% increase over 2008, BMI says.

Sales dry up

Car dealers admit that they have not been immune to the impact of the financial crisis. 'The UAE has not been spared from the effects of the global economic slowdown; nor the impact that the slowdown has had on the auto sector.

'We expected growth to slow down and the economic situation has certainly brought that home - perhaps a bit sooner than we would have liked,' said Yolanda Delport, General Manager for Marketing at Trading Enterprises, which owns Honda, Volvo, and Chrysler dealerships throughout the UAE.

She said the biggest challenge that dealers face is the lack of confidence among customers. 'We're still getting a healthy level of enquiries across our brands but people are slower in making the buying decision. When consumer confidence dips, people become more cautious and often drop into a holding pattern before making long term commitments,' she said.

Another challenge is the growing number of questionable offers that some dealers are making to attract customers. 'Open any newspaper and you will find advert after advert all offering 'special deals'. Our advice to customers is to make sure that they fully understand what the offer really is, and make sure it represents good value, rather than a discounted price ticket. The latter of course, can impact the residual value of the car,' she said.

Price focus

Tom Pryor, Marketing Manager for Ali and Sons Audi dealership in Abu Dhabi, agrees that customers are focused on price, and he acknowledges that he is losing business because people have an expectation that prices will keep falling.

But he is quick to point out that prices cannot keep falling forever. 'At the end of the day, we still have to be viable as a business. There is only a certain price point we can go to,' he noted.

Although sales have slowed, 'there are still people out there who want to buy cars', Pryor says optimistically. 'We are down in terms of people walking through the door, but we are at the same closure rates that we were last year. The people who are coming in are more serious about buying a car.'

At the moment, the majority of purchases are being made by UAE nationals, whose buying habits have remained relatively unchanged. The challenge is regaining the expat market, both in terms of western expats and Arab expats.

'The reason why a lot of the expat customers have gone is because they don't want to commit a significant amount of money in the form of a deposit in a car, which is an asset that will depreciate, and they don't want to be tied into something for three or four years when there is uncertainty as to their situation here,' he said.

One of the steps he is taking to recapture the expat market is to offer a leasing product, the goal of which is tie up less of customers' money. Another strategy is to offer additional specifications but keep the price level of the car unchanged.

Optimism prevails

Dealers remain positive despite the hardships at the moment. 'What places the UAE in a slightly more favorable position is that we have a regular influx of new residents who require transportation, a number of cash buyers in our market and of course, a community that has a passion for cars,' said Delport.

She said Trading Enterprises is constantly engaging with banks and places a great deal of emphasis on maintaining good relationships with them. 'Working in cooperation with the banks permits us to clearly define parameters that lead to finance approvals and vehicle sales,' she said.

Pryor says the positive side of the current economic climate is that people are doing more research before they buy. 'From a marketing perspective that is great for us because of the strength of our products. We feel we have a great opportunity to capture more market share,' he said.

UAE-based Liberty Automobiles believes there already are signs of a turnaround in the sector. After four very slow months, sales improved slightly in February, especially among the dealers' non-premium brands, said Abdul Malik, Group General Manager of Liberty Automobiles, a General Motors dealer with showrooms across the UAE.

One factor that is helping sales is that a growing number of banks are starting to entertain car loan applications. Islamic banks in particular have proven to be the most keen to issue car loans, Malik said, because they tend to have more funds available for lending and are eager to grow their automobile financing business.

Foot traffic at the dealership has also improved, and so has the quality of customers. 'While we are still far away from the level where we operating in the first half of 2008, there are signs of recovery and improvement,' Malik said.