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Friday, September 24, 2021
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Market analysis: Where are we heading?

Glasgow Consulting Group’s Vishal Pandey looks at the post-Covid-19 outlook for the region

It is easy to sympathise with Glasgow Consulting Group’s automotive market expert Vishal Pandey. It is his job to understand what is going on in a market that remains deep in shock from the Covid-19 pandemic and the effects it has had on the sales of vehicles in the past 18 months.

“As we all understand, some countries are still in a state of a partial lockdown and the pandemic still continues,” he tells the T&F Conference UAE.

“However, with some countries like Saudi Arabia, you have to say it has done phenomenally well in tackling the pandemic, whether it was with policies or how they dealt with the whole vaccine programme,” he begins.

The good news, then, is that there really is light at the end of the tunnel. Even if it feels someway off.

“I think by 2023 we will see a complete recovery,” he says. “And when I say 2023, I’m talking across the market, not only the automotive industry because in some ways all industries, the whole market, are interlinked. And thus, we need everyone’s recovery right for a complete economic recovery.”

Pandey notes that some sectors like hospitality and retail suffered more than others during the pandemic: “But, then we saw the emergence of new things, such as healthcare, really grow exponentially. E-commerce saw a huge jump and I think fundamentally you and I as consumers have changed. There are certain elements of our lifestyles which I think are going to remain. We are go to embrace online more and do more online transactions. I think that is fundamentally here to stay.”

The move to online is a major shift which has accelerated during the past 18 months. The online shopping habit will be hard to break for most people. If they ever shake it off at all.

“That is the major shift, right? We used to always talk about how much of online and e-commerce will penetrate into our lives. But I think that is here to stay,” he says.

The GCC has seen the introduction of VAT over recent years, but enthusiasm to raise it has receded as the reality of the hit consumer spending would take has set in – with Saudi Arabia, again, leading the way.

“We also saw certain strategic steps taken by governments. Saudi had raised the VAT rate from 5% to 15% which was at the start of the pandemic, (I think it was June/July last year). So early in 2021, the Saudi government announced that VAT would go back to 5%. So again, a very thought-through ,strategic decision, and really commendable. The Saudi government has had to think about how do we restore an economy? How do we drive numbers? So, in comes the multiple-entry visa and a lot of initiatives are being announced, which I believe are going to continue. And overall, the underlining fact is, that this will drive more people to come into this country. And then the car ownership would go up, right? Eventually, it benefits all of us.”

Whichever way you look at it, this has been a tumultuous period for the automotive industry in the region. The effects of going into lockdown and the shortening of staff numbers –with the uncertainty that both bring – has forced people to re-think their vehicle buying habits.

“New vehicle sales have dropped. Customers preferences have changed and how,” he muses. “We’ve seen a major shift to buying used cars. To give you a statistic, in Saudi, four to five years back, for everyone new car transacted there were four old cars transacted.

Fast forward to today, there are roughly around eight to nine transactions of used cars for every new car. If you look at the net fall off –- used cars over the last four year – it has been drastic. Almost a 25-30 percent dip.”

Again, like catching the online buying bug, opting for a used alternative is going to be your most likely option – statistically at least: “With the volatility that is around us – the macroeconomic factors or just sometimes you feel insecure with your job – that will motivate an individual to buy a used car. So, fundamentally, I think one of the key messages is that used cars are here to say.”

Understandably, more used cars, means more demand for components and parts from the aftermarket. Although that was not immediately obvious at the height of the lockdowns in the region.

“Obviously, since people were more indoors, they came out less for their periodic maintenance and thus all these service stations,” he says before confirming: “That business is back now. We are currently studying the service and maintenance market in the UAE and I can tell you the numbers are back on track. All of them are close to hitting their targets, so it’s at least good news on that front.”

“The impact has been minimal. So I think that there the recovery is happening. We have seen a huge surge and preference for used cars, which as I have already said is going to continue.”

Meanwhile, the team at Glasgow Consulting Group believe that car sales are expected to fully recover by 2022. And much of these sales, as he suggested, earlier will be channelled through online.

“A new trend which we have seen is a huge spike in online websites, e-commerce-based initiatives,” he notes. “Now you have the Dubi Cars of the world who have seized more and more of the online sales. These are now players and there has been a huge surge in funding (for them) as well. They’ve been able to gather seed funding or incremental additional rounds of funding.

“So, again, this is indication that there is an element in the market which feels that consumers will use them…Now, if I want to go and service my car, I’m likely to use an app.

To what extent that penetration is, is a different debate and question we’re not getting into but more or less everybody wants to now jump into the bandwagon of online and e-commerce: whether that is for servicing or even to go through the purchase process (whether it’s a used car and online).

“The key message is that online e-commerce is something any business would have to consider, if the consumer is willing to engage with that channel.”

For distributors and OEMS this means they must provide the right solution online if they are not already competing in that space: “This is a very very relevant and emerging trend.”

Moving ahead, he forecasts that people will continue to work from home as businesses understand the benefits and keep numbers down in the region’s offices. This, he argues, should encourage more people to turn to carpooling .

“We saw various initiatives by the municipality and transportation authorities on carpooling. And you can fast forward to a new world where carpooling is a phenomenal trend which is going to remain for a while.”

Continuing his look ahead, he says that there is good news for the passenger car market in the UAE and Saudi Arabia.

“We expect it to be back on-track by 2022 and the same for the other GCC countries. Covid-related, disruption in sales which happened primarily in 2020 has pretty much recovered in 2021 and definitely in the last two quarters. There is a major recovery expected and a lot of distributors that we speak to are pretty happy with their current performance both on the new and used car sales sides,” he explains.

“On the component side, we believe economic uncertainties have increased the preference for used cars. This is a new trend I have mentioned and by 2024/2025, we would reach the pre-Covid level of sales numbers.”

He adds that these seemingly reassuring figures do come with a caveat: “Obviously, we have seen a major dip starting from 2017. We had the VAT coming in and we had whole lot of issues where we were in a consistently slow market (if you look over the last four years).”

He continues: “If you look at the CGR counts between between 2019 to 2024, we witnessed a growth of 0.7, which is not so bad. From an aftermarket and component perspective, I think we will see more of vehicle cleanliness being a core concern, more disinfection, more car washing…you go to service stations and these days they seem to be busier. I think these trends are here to stay and thus, every aftermarket business should look at solutions which help in enhancing the whole offering and the customer experience.”

Ultimately, with online and e-commerce here to stay, he believes that across the whole automotive market companies will need to introduce new business models: “New business models will emerge and new entrepreneurs will come and try new things because the end consumer is more willing to experiment.”

Read the full report including a look at green mobility in the region in the T&FME September issue out this week!

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Stephen Whitehttps://truckandfleetme.com/
Stephen White was formerly editor of Big Project ME.
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