It is no surprise to hear that most vehicles and parts sold in Saudi Arabia and UAE are imported. Nor is it a shock to hear that the downward trend in sales in the aftermarket reflects a drop in car sales in both the KSA and UAE markets over the past five years.
However, Glasgow Consulting Group’s auto-expert Vishal Pandey believes that the passenger car aftermarket can grow as sales return and the second-hand market booms.
“The auto parts market potential in Saudi Arabia and UAE is robust and expected to grow at a healthy rate in the next 5 years,” notes Pandey.
He adds: “Both the Saudi and UAE automotive markets are now more geared towards a ‘service oriented’ business model with more players focusing on customer experience and after sales service.”
Currently there is a small local auto parts and truck production, but no light vehicle production, in Saudi Arabia. But this burgeoning sector will be a major beneficiary going forwards.
Spurred on by government support, Saudi Arabia is also creating a domestic automotive industry and has encouraged global vehicle manufacturers to establish local operations, which will lead to local job creation, as well as technology and skills transfers, he believes.
In the more immediate short term, there is the fall-out of the Covid 19 pandemic to contend with and the disruption caused by events in Europe which are driving volatility in the price of oil and the global economy.
“The KSA passenger vehicle aftermarket component market contracted from SAR 12.5 billion in 2019 to SAR 10.6 billion in 2020 due to COVID 19… a dip of 16%,” he notes. “With vehicles in operation remaining same and increasing demand for used cars, the aftermarket demand for auto components is expected to remain resilient. The dip in the average miles driven by vehicle is likely to have gone down and would have a mild negative impact on parts demand. But this should be back to normal in the second half of 2022.”
Indeed, Vishal Pandey predicts that the passenger car market in both KSA and the UAE will recover in 2022 and their dip in 2020.
“Owing to the high dependence on personal cars for commutation in KSA, the demand for passenger cars is likely to rise in the short to medium term,” he predicts. “Also, with vehicles in operation remaining same and increasing demand for used cars, the aftermarket demand for auto components is expected to remain resilient.”
While the volume growth of aftermarket parts in the aftermarket is expected to remain muted due to the dip in sales of 2016 to 2020 in passenger car sales.
Pandey forecasts that in value terms there could be a growth of around 8.5% driven by post-Covid with pent up demand and the inflation caused by price increase by suppliers.
This could see the total value of the parts such as tyres, batteries and components contributing to a select maintenance parts market worth over a billion dollars per year by 2025.
This constitutes a rise from $10.6bn in 2020 to $16bn in the next three years. In both the UAE and Saudi Arabian automotive markets, Covid has changed the habits of consumers in the passenger car market with mobile servicing, shared mobility, contactless servicing, vehicle pick-ups, among the trends seen at the retail end of the auto-industry. But there are other market drivers too, says Pandey, including the impact of the rise in female drivers.
“About 3 million-plus female drivers (15% of the total female population of KSA) are expected to be on the roads of KSA after the ban got lifted in June 2018; augmenting the demand for aftermarket spares parts and service in the country,” he says.
Localised production by OEMs will also have an impact in the years ahead.
“KSA is currently developing a car manufacturing hub and working to incentivise investors to pump money in the industry. The auto cluster aims to attract local and foreign investment, increase export capabilities, create employment and contribute to economic diversification as a part of Kingdoms’ 2030 Vision Reform Plan.”
The second hand auto spare parts market in the KSA has also significantly developed over the last decade and it is one of the key suppliers of second hand automotive spare parts in the Middle East owing to largest automotive fleet in the region.
“Second hand auto spare parts are primarily sourced from damaged cars, which are sold by insurance companies at throwaway prices, and the remaining are collected from police auctions,” he remarks.
Rising investments are being perceived in new channels of customer engagement such as quick delivery modes and online sales of spare parts in KSA. Online websites — such as Babatin Auto Parts, Souq (an Amazon company), Desertcart, Awok and ACDelco — are now selling automotive spare parts and have increased/boosted sales through online channels over the last few years. This reflects a shift in how people are buying in the aftermarket and how they want services such as car washing, servicing and parts changes, as well as roadside assistance when they break down.
“Mobile apps for auto-servicing are gaining traction in both Saudi Arabia and the UAE,” he says. “In KSA, there is an increasing preference for mobile app aggregators – such as Car Hub, elzhalha and Morni – that connect users with service providers.”