Worst may be over for Dubai car sales

Auto sales have slumped across the globe, especially in Europe, where sales of new cars have fallen for thirteen straight months through the month of May.

One indicator of the drop in new car sales in Dubai is the sharp decline that has occurred in the number of new registered vehicles in the emirate during the first six months of 2009 compared to the same period last year.

'We have witnessed a decrease in the growth of the number of new vehicle registrations, which was 4.5%, compared to 17% last year,' said Ahmad Behroozian, head of the licensing agency of the Dubai Roads and Transport Authority.

He noted that the number of vehicles registered in Dubai reached 1.045 million at the end of 2008 compared to 853,827 in 2007 - an increase of 191,173 vehicles in one year. 'But this year the number of new vehicle registrations has fallen due to the economic downturn,' he said.

Sales 'tank' in February
Sales have been slow for all types of cars, including luxury vehicles, due to the credit crisis, said Pankaj Dev, managing director of AutoMiddleEast.com an industry analysis firm. 'People still aspire to buy these cars, but the availability of money has become tighter,' he said.

Sales began to 'tank' in February, he noted, but in the second quarter things started to improve as banks started lending again. Yet banks are still being very choosy about who they will finance and on what terms, he added.

Dev expects sales to take a dip toward the end of July but pick up again towards the end of August when Ramadan begins, as traditionally it is a high sales period. 'During the holy month there are a lot of promotions, and it's considered to be an auspicious month to purchase cars,' he noted.

One trend that has emerged during the financial slowdown is that the market for used luxury cars has jumped as high as 50% over the same period last year mainly due the substantial drop in the resale value of high-end vehicles, he said.

And while it is true that there has been some distressed selling by people who have lost their jobs and are leaving the country, the level of selling might not be as high as has been claimed in some of the news media. 'These reports were based on a lot of hearsay and bits and pieces, but the government has clearly come out and said these numbers are not correct, and there is no way to cross verify and get a complete picture of what is going on,' he said.

Price discounts

To help boost sales when demand started to suffer, dealers in Dubai initially offered price discounts, but now they are focusing on other types of incentives such as longer warranties, free registration, and free insurance.

Some dealers are even offering trimmed down versions of their vehicles to appeal to consumers that are more price-conscious. 'Toyota came out with what they called limited edition sports models, which were stripped down versions - lower in price - and put them out in the showroom as a parallel product line,' he said.

Dealers want to avoid lowering prices for a variety of reasons, not the least of which is it's hard to raise them again, he said. 'Also, the person who just purchased the car the previous month feels cheated, and he'll lose confidence in your brand. Thirdly, if you cut your price by say 10%, it will hit your price on the resale market by much more than that. So you are hitting yourself on two ends,' Dev noted.

For these reasons, and because there are have been signs that the financial crisis may have bottomed out, car prices will not go down any further, Dev predicted. 'There has been talk that prices are going to go down further, but that is not going to happen,' he said.

Liquidity boost helps sales

Car sales have gotten a boost from the steady flow of liquidity that has flowed back into the local economy as certain banks have relaxed their lending criteria, Michel Ayat, CEO, Arabian Automobiles, exclusive dealer for Nissan, Infiniti and Renault vehicles in Dubai and the Northern Emirates told AME Info.

The dealer's sales rose 28% in the second quarter of this year compared to the first quarter of 2009, he said, and it is offering a number of value-added incentives to help keep the momentum going through the summer.

In addition to free insurance and two years free service contract, customers who purchase a new Nissan or Infiniti vehicle will receive free travel vouchers as part of the company's 'Unbeatable 5' summer campaign. Vouchers worth Dhs3,000 will be offered on 2008 model year vehicles and vouchers worth Dhs2,000 will be offered against 2009 model year vehicles, Ayat said.

'While I am sure that the local trading conditions will remain tough for the foreseeable future I do think there are signs of improved consumer confidence and certainly for our part we are striving hard to put the very best deals together for our prospects and customers,' he noted.

Free redundancy cover

One of the more unique initiatives to boost sales in the UAE was launched by Al-Futtaim Automotive, which is offering free redundancy cover for customers who purchase a new car. Under the programme, car buyers at its many dealerships get free insurance cover (provided by Arab Orient Insurance Company, which is also owned by Al-Futtaim) that pays out 15% of the car's purchase price in the event of a layoff.

The new initiative, the first of its kind in the Middle East, along with an easing of lending criteria and other special offers, has led to a rise in foot traffic and sales month-by-month, said Len Hunt, Al-Futtaim's Automotive Group Director.

'In market conditions such as these, innovation is critical,' said Hunt. 'Companies that provide good value, offer great customer service and continue to innovate will come through this slowdown stronger.'

Hunt says it is difficult to predict whether dealers in the emirate have seen the worst of the economic crisis. 'The market is changing literally on a month-by-month basis. We are seeing an increase in consumer confidence and an increase in the number of loans being granted monthly. We still see people coming in to make a cash purchase, but in general, the decision process is a little slower than last year this time,' he said.

However, he remains 'cautiously optimistic' that the market has already hit bottom and sales will steadily climb. 'July is always a defining month as the school year draws to a close and people either get to the end of their contract cycle or the families return home for the summer holidays,' he noted.

'We believe that we will close the year strongly if we remain focused on the key areas of great products, excellent value and outstanding customer service.'