I had a great privilege to visit to Abu Dhabi and Dubai of UAE last year. I was invited to facilitate a luxury car buyer experience training. The participants were from ten countries in the Middle East primarily from GCC or Gulf Cooperation Council. They ranged from frontline sales people to managers, marketing and distributer personnel. During the sessions and brakes I was able to get a glimpse into their world. I found out that the two biggest automotive markets of the GCC are Kingdom of Saudi Arabia and United Arab Emirates. Let’s take a look at those two starting with UAE.
It’s hard to imagine, but even in the places like Dubai economy goes up and down. Naturally, UAE’s economy attached to prices of oil or petrol as they call it there. During the last few years the plummeting prices of oil had an effect on local economy. Additionally, the rising cost of living is playing a major role in consumer confidence. Tax-free living could be great but expenses can add up quickly. Education, medical care and housing cost eat up a large portion of families’ incomes. With rising cost of living, uncertainty of the market and economy leads to consumers spending less money on their transportation needs. In addition, the largest customer of the auto industry, UAE government also shrunk its transportation budget. Will there be more Bugatti’s in the police force? They might have to settle for Bentleys. The new vehicle market experienced low single digit growth in 2014 and 2015 with new car sales in low 200,000s per year. This trend seems to continue during this year as well. Anecdotal evidence suggests that pre-owned market is growing faster and doing much better than new sales. This may not be a surprise with the large population of immigrant workers. In most cases their salaries can only afford pre-owned transportation.
According to some reports credit is becoming more readily available for prospective buyers as well, including terms with a low APR financing. But as someone from Oman, UAE’s neighboring country, mentioned “they (Dubai) live on plastic, we have money in the bank”, which is an indicator of what the perception of “big spenders” is in the region. Looking at the mechanics of transactions it does takes time to deliver a vehicle to a consumer in UAE. There is no such thing as “spot delivery”. Once a consumer says “yes” to the vehicle, it takes on average 5 to 7 days for them to take a delivery of it. This process includes time lenders take to approve a transaction and dealership preparing for the delivery – apparently PDIs take couple of days.
Another interesting observation was the abundance of large SUV’s. Toyota Land Cruiser is the most researched online vehicle in the country and the new comer Nissan’s version of the Armada is looking to take that spot. With gas prices at about $1.30 USD, why wouldn’t large trucks make sense? Another reason is the fact that, many families consist of two or more wives (this is how they do it in the Middle East), two-plus children and a nanny, naturally seven passenger trucks are the most desired transportation mode. Additionally, the AWD is the preferred type as families enjoy safari weekends in the hot desert.
As far as dealership world they are owned by different distributors who pretty much have a brand monopoly. With that said though the competition is fierce. Couple years ago the Ministry of Economy asked car dealers or distributers as they are called there to lower vehicle prices. One distributor for an Asian OEM, mentioned to me that this year they have been operating with “losses”.
The neighboring Kingdom of Saudi Arabia is the largest market in the GCC as well as one of the largest in the region. With oil being the driver of their economy, naturally, they face similar issues as UAE. Similarly, to UAE, nearly 48% of all families in Saudi Arabia have six or more members. This drives the large SUV market demand. With that said there are major differences between the two countries. For one, Saudi Arabia has very strict religious laws. One of them does not allow women drivers. This maybe shocking in 2016, but it is another reality of the Middle East. There are other laws that prohibit entertainment such as movie theaters, night clubs and bars. Naturally, I wanted to know – what do people do then? Well, they spend money on cars, I was told. And spend they do. With over 50,000 princes in Saudi Arabia, luxury car market is still doing well. In 2015 total new vehicle sales were a little over 670,000.
While luxury vehicle buyers are abundant, the industry there is struggling providing luxury experience both on sales and service side. I heard multiple stories how high end customers of Rolls and Ferrari’s are being mistreated or ignored by their dealerships. In many cases, in the effort to make a statement, owners of those vehicles do something outrageous to their own cars, like destroying them in front of the dealership or painting a sign on those $300K+ cars – “never buy this @#$%@ car”. Additionally, dealerships in Saudi Arabia are in the early stages of adopting online strategies. The perception I got from people I spoke with, is the market in a very responsive mode. For years many dealerships did not have to do much to sell cars. It may of been similar to the “Cash for Clunkers” type of environment – “You want it? No. Next.” When the economy was great people would simply flock into the dealership and spend money. Now, with an uncertainty of the oil market and Saudi’s involvement in the neighboring country Yemen’s war, dealerships have to focus on customer acquisition and after-sale service. Combine all of this with emerging mobile technologies this is a new territory for the Saudi’s car market. One gentlemen from Britain, who works as contracted manager in the Saudi dealership, told me they just got into the internet game and CRM is a new thing. Speaking of CRM, he mentioned sales people are struggling to understand its value and tell him they are not admin people to enter data. These and other cultural differences that are continuously have to be dealt with.
Getting to know the Middle East market was an interesting experience. Regardless of economic uncertainties, both Dubai and Abu Dhabi of UAE, show the signs of wealth, luxury and money. With high rise buildings being built left and right one has to wonder how all of it will be sustained? Both UAE and Saudi Arabia are growing other sectors beside the oil one and this for sure, as experts assure, will help grow the overall economy as well as the car market of these two big players in the GCC.
by Tony Troussov