After a number of subdued years, the UAE’s passenger car market is set for a healthy rebound, according to a new strategic market study by Glasgow Consulting Group. Owing to slowdown in consumer buying, a shift from ownership to usership and a maturing second-hand car market, the sale of new passenger cars in the UAE dropped from a high in 2015 (408,000 cars) to 153,000 last year, although 2020’s drop was exacerbated by the economic impact of the Covid-19 induced downturn.
At first glance, Glasgow Consulting Group’s Vishal Pandey paints a gloomy picture when looking at the reasons for this fall.
“Since 2015 the sales have been low consistently. The trends of stagnant sales are due to economic uncertainty, overstock of supply by dealers, and an overstock of pre-owned vehicles. The industry faces entirely new challenges due to the COVID-19 pandemic from supply chain disruptions, reduced consumer spending power, and little or no sales.”
According to Pandey, this drop represented a 17.8% CAGR decline over the five years but the signs of recovery are so strong that the firm has adjusted its forecasts looking ahead. Previously it had predicted that the car sales would reach 391,100 cars by 2024 and now it believes that it could be just shy of 2015’s figures with 403,000 cars shifted in the market.
“The market is predicted to return to growth this year and in the coming years,” he says.
“By 2024, total new car sales is expected to be (roughly) at the same level as in 2015, on the back of three main drivers: an improving economy emerging out of the Covid-19 crisis, a continued high dependence on personal cars for commuting, and an accelerated shift to electric vehicles and luxury cars.”
Digging further into the data he suggests that 2022 will see the UAE market enter a full recovery with sales passing 300,000 cars by the end of the year.
“Owing to high dependence on personal cars for commutation in UAE, the demand for passenger cars is not likely to be muted for long,” he says, although it does come with a notable caveat: “The shift from ownership to usership, adoption of mobility services and digitalisation will lead to fall in new car sales.”
The UAE market remains dominated by Japanese brands. Brands such as Mitsubishi, Nissan, Toyota and Honda represent a market share of 70%. Toyota by itself owns over a third of the market with a 36.6% share of sales. It’s a long way back from there to Nissan, who in partnership with Renault, own a still healthy 23.2% of the market. It is further back even still to find Mitsubishi and its 9.2% share of sales.
Toyota has been the consistent market leader in the 2015 to 2020 period, followed by Nissan and Mitsubishi, but there is now more competition than ever before from one of its closest neighbours.
“South Korean car makers (Hyundai has a growing 6% share of sales) have been gradually increasing their market share in the region over the past year,” notes Pandey.
One of the major reasons that Japanese car makers remain at the top of new car sales in the UAE is their relatively cheap cost of ownership, particularly in a market where most of the parts are replaced, rather than repaired “which in turn increases the overall invoice value” when your vehicle is up on the workshop ramp.
“Only original parts are used at dealerships and the market has a higher replacement time which leads to a higher labour cost. Japanese cars are dominant in the UAE market due to low cost of ownership, easy availability of spare parts, 10-20% lower servicing cost and better fuel mileage,” he explains.
In total, the UAE has around 3.5 million cars on the road, 40% of which drive around in Dubai. Notably, the percentage of SUV’s in the UAE is relatively high compared to other countries in the world, at 43%. Over half of all cars (53%) are seven years or older, says Pandey. The impact of the economic disruption of the past few years is also evident in cars aged three years and younger only owning 18% of the market.
However, Pandey sees several trends forming in the UAE car market which will shape and in many cases boost sales over the next decade: “The rise in car sharing and mobility solutions is likely to drive the demand for more cars in the UAE.”
He also notes that the UAE is likely to be furtive ground for autonomous vehicles and more practically he sees signs of a changing trend from relying on imports to local production and the potential for the expansion of vehicles produced in the UAE: “There is an encouraging Automotive Sector (emerging) with a handful of vehicle assembly units and this is growing.”
Other important trends will be return of tourism which should stimulate the growth of taxi and rental fleets and the Expo 2020 Dubai event should provide significant opportunities to boost various sectors even after the event closes later this year.
Overall he sees two dominant classes of vehicle moving forwards: “The increasing demand for SUVs and Sedan will contribute to the majority of sales,” he says.
In the slipstream of growing new car sales, UAE’s car insurance market is expected to increase in 2021 to a total market value of AED 9.8 million.
“In particular among drivers of luxury cars and expatriates demand for motor insurance is on the up – as they are accustomed to the concept of insurance as a risk mitigation tool,” says Pandey.
He also expects the rise in sales will be a boon to the aftermarket and service centres in the country.
“The UAE service market is anticipated to grow rapidly from 2025, with the current stagnant due to the low sales in the past five years,” he notes.
The way car owners interact with them is also changing across the globe and is likely to continue to evolve at a rapid pace in the UAE and other emerging markets. Indeed the growth rates of digital vehicle inspections, digitised OEM repair procedures, workflow management systems and the use of scanning, diagnostic and calibration technology all outstripping growth in the developed world. Although he warns that they will also push up prices of replacement parts and repair shop costs. In the case of the cost of repairs/services it could see prices increase by as much as 20%.
To conclude he looks at the parts market. He estimates that: 40% of the parts fitted for insurance claims are non-genuine parts and aftermarket brand parts.
“Customers often opt for non-genuine parts where the customer has to pay a large amount for part depreciation (~30%),” he explains. “In such a case, the customer has to sign a transfer of liability document, where by the insurance firm is not responsible for such parts failing or causing other failures and upon sign-off only non-genuine parts are fitted.”