The GCC automotive sector, after an unstable 2016 resulting in a drop in new vehicle sales, is expected to stabilise and show a moderate growth in 2017, a report said. The industry faced an overall tough market in 2016 due to various issues including low oil prices, according to an analysis by Frost & Sullivan.
The new vehicle sales dropped by double-digit number, overstocking of parts by distributors, lack of clarity for the near future – were the main causes for a volatile year in 2016, said the report.
No doubt the sales of vehicles will contribute to the current estimate of 16.5 million vehicles on the roads across the GCC for 2017. This figure is estimated to rise to 19 million vehicles by 2020 according to a report by Frost & Sullivan, which also suggests that Saudi Arabia will be the regional market leader with a 52.5 per cent market share.
The report suggests the UAE will have the second largest market share at 18.5 per cent followed by Kuwait, Oman, and Qatar.
Experts have a positive outlook for 2017 as there are several untapped areas for automotive industry distributors to look into:
1. Pre-VAT Sales: After the drop in new vehicle sales across GCC, the market is set to stabilise due to the macroeconomic factor and VAT, which will be introduced in 2018. Those who were planning to purchase a car after a year or so from now will most likely purchase it by 2017 itself in order to invade the 5 per cent tax.
2. Rise of Far-Eastern brands: Competition is rising in the automotive industry and this also means that there will be pricing wars, which will help drive the prices down and offer after-sales packages at competitive rates.
Furthermore, a lot of Chinese brands are establishing themselves in the region in the budget sedan niche.
3. More regulations: Countries are exercising greater regulations in order to ensure that the cars meet the necessary standards. However, these regulations will further add to the costing for automakers and distributors.
The Corporate Average Fuel Economy Standards (CAFE) by the Saudi government will lead to more competition in the automotive market, while the classification and categorisation of auto workshops in the UAE will create more transparency for the owners as well as auto workshop suppliers.
4. Businesses will become leaner: 2017 is expected to be the year of change for many market participants. Importers, distributors, new and used vehicle dealers, independent part resellers and workshops are likely to change the way they do business.
5. The GCC will shifts from transport to mobility: Following the global trend, the GCC has quickly jumped on ride sharing. The region has been using new mobility platforms since 2012 when Uber was launched in Dubai, but only now two of the largest players in the region, Uber and Careem started receiving full attention.
Experts predict that ride-sharing mobility solution providers will expand their solutions in the Middle East, stated the Frost & Sullivan analysis.
GCC automotive industry makes breakthroughs
The year 2016 saw some major vehicular breakthroughs, which have been documented in the 2016 Auto Industry Trends report by Strategy&.
The study outlines three major factors that have had an effect on automotive trends over the past year.
1. Macroeconomic forces
The report states that over the next 5 years, the MENA region, which is largely unmotorised, will see an increased growth in the sales of automobiles. Furthermore, automotive factory activity will also increase in this region.
It is predicted that by 2021, nearly 3 million cars will be manufactured here, which according to PwC Autofacts, is a 50 per cent increase in manufacturing. Since the region is diverse, more than 50 distinct markets have been identified and automakers need to cater to these local requirements, which can prove to be quite an obstacle.
Some of these include domestic assembly quotas, import and export tariffs and duties for parts and vehicles, gas or diesel preferences, and local customs that may dictate the design of interior and exterior features.
In order to be able to gain a strong foothold, automakers will have to increase factory and distribution presence.
2. Professional transportation
The era of connected and intelligent cars is gaining importance in the auto industry. This has a powerful impact on the manner in which automakers are adjusting their organisations to accommodate this new phenomenon.
In order to develop these new cars, two different industries are merging together to come up with solutions: automotive companies and software developers. However, both these types of companies have differing work cultures, product development models and business operations.
While these new technologies do seem interesting, the fact is that autonomous cars can be tough to sell. However, newer technology and global connectivity will be major factors, based on which buyers will decide their purchase.
For example, 56 per cent said they would switch to a new car if the one they were considering did not offer technology features, while 48 per cent said they wouldn’t make a purchase if the technology was difficult to use, says the report.
3. Strict regulations
While automakers focus on upgrading the transportation and mobility features of their vehicles, there are increasingly strict fuel economy regulations being set up globally.
To meet the standards, automakers will have to make many changes.
In the opinion of experts, upto 75 per cent improvement in the petroleum-based vehicle fuel economy can be achieved with combustion breakthroughs that are dedicated on maximising the efficiency of engine while minimising the emission formation in the cylinders, after treatment technologies for exhausts, which will help reduce emissions and produce energy from the waste heat.
Furthermore, automakers will also have to make tweaks in product development. For example, in 2014, Ford replaced the steel in their F-series trucks with aluminum to reduce weight and increase fuel efficiency.