Accelerating change: The auto market takes off again with growing Chinese involvement

Even the well-documented acquisition, by the Dubai police force, of a series of high-powered sports cars in 2013 was topped for exclusivity by an announcement that the emirate was to be the manufacturing base of another of the world’s fastest automobiles. In November, Ralph R Debbas, the CEO and managing director of W Motors, said he planned to move production of the Lykan Hypersport from Italy to Dubai in 2014. A prototype exists and only six of this and the slightly tamer Lykan Supersport model combined will be built. The Hypersport is said to accelerate to 100 km per hour in 2.8 seconds, have a diamond encrusted cockpit and cost about $3.4m.

Foreign Trade

 Behind these headline-grabbing stories is one of stability for the sector. There was solid evidence of a resurgence of auto sales and reexports in 2013 and, according to Dubai Customs, in the first half of 2013 overall foreign trade in motor vehicles rose by 18% compared with the same period in 2012, going from Dh27bn ($7.3bn) to Dh32bn ($8.7bn). Imports went up by 21% from Dh19bn ($5.2bn) to Dh23bn ($6.3bn) while automotive reexports grew by 13% to Dh9bn ($2.4bn).

The Customs statistics show that three countries of origination shared almost two-thirds of the imports, with Japan accounting for 34%; the US, 19%; and South Korea, 9%. Even when re-exports are included, the first three positions are held by the same countries albeit with lower margins that give then 44% of the overall market. Japan has 25% of the total; the US, 13%; and South Korea, 6%.

When recipient countries of automotive re-exports from Dubai are taken alone, China’s 10.2% share, worth Dh917m ($250m), leads the pack. Second comes Libya’s Dh757m ($206m) or 8.3%, followed by Dh708m ($192.7m) worth of vehicles to Iraq (7.8%). A deal announced in August 2013 by Al Habtoor Motors may be the start of a process that will ultimately threaten the traditional dominance of Japanese, American and Korean manufacturers in Dubai auto imports. Perhaps best known as UAE distributors for Bentley, Bugatti and McLaren (of which a 205-mph MP4-12C model now resides with Dubai police), Al Habtoor revealed an agreement with China’s JAC Motors to handle its passenger, light and heavy commercial vehicles. Sales director Joe Rogan told local press the company was planning to “mix and match” JAC and Chery vehicles alongside Mitsubishis, which Al Habtoor also represents. In the past decade, state-owned JAC has added MPVs, SUVs and passenger cars to its traditional range of trucks.

Al Habtoor is not the only group to recognise the potential for cheaper vehicles; however, the bottom tier of the automobile market in the GCC is still under-represented and could offer major opportunities. The market for used cars has remained strong, with demand coming both domestically and from sale to neighbouring countries. Dubai’s advanced shipping infrastructure also means that it is in a prime position to ship vehicles to developing markets, where demand for used vehicles remains strong.

Premium Brands

 If Chinese vehicles are set to make an impact in the overall market, it may be felt most in the re-export market, at least in the immediate future. The relative affordability of upper-scale models was brought to the fore again in the first half of 2013 and indeed there was fluidity throughout all segments of the market. This uptick in sales was a stark contrast to the business climate that characterised the global economic downturn, when automobile sales declined as expatriates left the emirate due to the financial crisis. Premium brands continue to capture significant demand, with some industry players suggesting that high-end vehicles are more popular in the UAE than in the US or EU.

Sales figures for the first half of 2013 amply demonstrate the popularity of high-end cars. A 22% sales increase by BMW Middle East proved to be the company’s best start to a year on record, with Dubai and Abu Dhabi accounting for around half of the 12,600-vehicle total. The BMW 3 series is globally the German marque’s best-seller. In the Middle East, it accounts for around 12% of sales. Jorg Breuer, managing director for BMW Middle East, told local press the (more expensive) 6 series comprise 75% of sales in the region. Full-year figures were not available at the time of going to press, but BMW executives were hopeful that 2013 the second half of events such as the release of the 4 series, the M6 Gran Coupe and the X5 kept sales gains high.

BMW’s Japanese rival Infiniti targeted a 25% increase on its 2012 UAE sales of 2000 vehicles, with plans for four new vehicle launches over the next four years. “Sales of 2500 is a big jump, but we have a lot of things happening in the UAE market specifically,” Badreiddine Mansouri, business manager for Infiniti Middle East, told local press.

Soaring sales translate not only into successful business but also on occasions into mounting headaches prompted by unofficial activities in the market. Karl-Johan Sandesjo, general manager of Gargash Enterprises, official distributors of Mercedes Benz vehicles in Dubai, Sharjah and the northern emirates, told OBG, “As UAE automotive sales hit record highs, the grey market has become an increasingly severe problem in recent years for cars as well as for spare parts. Regulations need to be tightened in order to curb grey market activity as it is important to protect distributors as well as consumers with proper safeguards against inferior products.”

Time & Place

 One market peculiarity that has persisted over the years is the high sales during the holy month of Ramadan. Special promotions have met with such success that they are now regularly extended beyond the holiday. Nusamah Ahmad, former retail analytic manager for Nielsen Ratings in the UAE, told OBG that it was not unusual for car sales to increase by a factor of around 10 during this period, turning otherwise average monthly sales of 12-15 vehicles into 100-150. In 2013 Ramadan sales extensions were offered by Al Nabooda (Volkswagen), Al Habtoor (Mitsubishi) and Juma Al Majid (Hyundai).

Cars and Loans

 The increase in sales has been aided by agreements between auto dealers and banks to lower the costs of borrowing. Emirates NBD was the financing source for individually tailored deals for both Volkswagens and Mitsubishi Pajeros. In the case of Volkswagens the loans were granted to suitable borrowers free of interest for up to five years. The Pajero deal also involved interest-free loans with a maximum repayment period of three years. Both deals retained the usual requirement for a 20% deposit, although even that was eliminated in some cases. Car sales promotions are frequently underwritten in part or in full by manufacturers or dealers, or a combination of both.

The bonus in a glittering year for cars in Dubai rests with Lykan Hypersport. It is to play a role in a Hollywood film partly shot in Dubai. “For the first time a car made in the Arab world will be used in a big Hollywood production, right here,” said Debbas.

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The Report: Dubai 2014

Retail chapter from The Report: Dubai 2014

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