TOP OF THE LINE

UAE, Dubai 2012 | INDUSTRY | FOCUS: AUTOMOTIVE INDUSTRY

High-end vehicles are especially attractive to consumers residing in Dubai, and multinationals see the Emirate as a prime location for the development of a more comprehensive components industry.

Although auto manufacturing in the Middle East is largely limited to a small number of assembly lines dedicated to commercial vehicles such as buses and trucks, the UAE is one the largest consumer markets in the GCC. The country makes up approximately one-quarter of all passenger car sales in the entire region. The UAE's rising national wealth has created a niche market for the sale of imported vehicles, and a large re-export trade exists based on the country's regional status as a key strategic location. Dubai takes the lead in the country's car market, home to 50% of the vehicle stock, and continues to be a high-consumption, fast-growing market for the automotive industry, with a consistently high ratio of cars per household in recent years.

The combination of a young demographic, relatively high living standards, a growing population, and generally favorable oil prices continues to be a key driving force behind growth in Dubai's auto sector. According to the recently conducted New Vehicle Buyer Survey, 66% of all new car purchases in the UAE are made by customers between the ages of 18 and 29. First-time buyers make up 61% of all new car sales, due largely to the young demographic profile of the UAE as a whole. The survey also revealed that car buyers in the UAE make brand choices based on seating and ride comfort in addition to style and reliability. The styling aspect is particularly notable in the UAE, where cars have long been demonstrative of an individual's public image.

Figures indicate that Japanese automobiles dominate the auto market with a 60.98% share, while Korean brands come in second at 13.78%, followed by US brands at 10.15%, and European brands at 8.20%. The industry reported strong figures in early 2011, and despite the disaster in Japan, car sales continued to perform strongly throughout the year. This was due in part to high stock levels, according to Khaled M. Issa, COO of Hyundai Dubai. The local automotive market grew by 19.7% in 2010 to $11.1 billion, up from $9.2 billion in 2009, according to figures released by the Ministry of Foreign Trade. Trade in small passenger and luxury cars grew by almost 24% to $10.6 billion in 2010 compared to $8.5 billion in 2009. Domestically, car sales in the UAE in 2010 increased by 10% to $42.4 billion compared with $38.5 billion in 2009. Overall UAE passenger car sales of all types rose 15% to 273,924 in 2011 and are expected to climb a further 13% in 2012. Al Majid Automobiles, the UAE retailer for Hyundai, witnessed a 40% growth in sales in 2011 for the first seven months of the year. Similarly Arabian Automobiles, the UAE retailer for Nissan, recorded an 18% improvement in sales over 1H2011. The dealer also registered a 40% increase in its second-hand car sales in 2010 and expects sales of new and used cars to equalize over the coming years owing to the rising popularity of pre-owned vehicles in the region.

Evidence that the automobile industry is also benefitting from the UAE's safe-haven status has been demonstrated by the dramatic growth in the sales of SUV and luxury cars. Consequently, although the overall market was hit hard by the global financial crisis, regional political unrest during 2011 helped to boost local sales. The UAE is the world's fourth largest market for Rolls-Royce and is a strong market for Cadillac model sales. General Motors launched a variety of new Cadillac models in 2011, including the CTS, CTS-V, SRX, and Escalade, and according to Middle East President John N Stadwick, these have been performing extremely well in the Dubai market. Luxury car sales rose around 20% to 25,010 in 2011, after a 16% rise in 2010, and are predicted to rise by up to 15% in 2012. Luxury vehicles account for 9% of the country's car sales, with purchases driven by the country's young population. According to Business Monitor International, roughly 66% of all new car purchases in the UAE, which has the world's sixth highest per capita income at over $47,000, are made by customers between the ages of 18 and 29. The impact of a further slowdown in the European market may be felt in the UAE luxury car market however, and Dubai's safe-haven effect may also fade as partial political stability returns to other Arab countries. However, even if growth in the luxury market does slow, it is unlikely that the top-end brands such as Rolls-Royce, which sells cars priced above $270,000, will see a significant impact. The manufacturing of the components sector, as with that of automobiles themselves, remains underrepresented in the UAE. It is estimated that approximately two-thirds of the auto parts and accessories that are imported are re-exported to other countries, predominately in the Middle East, Africa, and Europe. In fact, auto parts and accessories are among the top 10 products that Dubai re-exports.New tire imports have risen steadily over the last decade, while imports of auto components too have shown healthy, double-digit growth. The main components imported and exported include tires, mounted brake components, gear boxes, drive axles, mufflers and exhaust systems, glass, lead acid batteries, and accessories. In the long term, Dubai has the strong potential to become a production base for components, due to the availability of key materials locally, particularly aluminum and plastics. For the time being, investment from international companies into Dubai as a key parts distribution hub continues, with international giants such as General Motors expecting to make a $70 million investment for the expansion of its parts and distribution segment in 2012. The regional used car market is also expanding rapidly, registering annual sales of 100,000 units and valued at $1.5 billion, creating opportunities for Dubai as a hub for spare parts distribution. Environmental challenges such as the climatic conditions have also driven the market for accessories and spare parts, as citizens and expatriates continue to update and maintain their vehicles.