An analysis by Dubai Chamber of Commerce & Industry indicates that whilst the UAE does not possess a sizable domestic automobile manufacturing capability, its high national wealth has created a niche market for sales of imported vehicles in recent years, and there is a large re-export trade based on the country’s regional status as a key strategic location.
Auto car sales are expected to rise by an average of 5% between 2009 and 2010 whilst car ownership is forecast to rise above 55% this year for the first time in the country’s history (see table). Though, it is important to note that growth in the number of cars imported within the UAE does not mean growth in sales of cars in the domestic market, as a sizable number of cars are re-exported.
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Table 1. UAE Automotive Sector | ||||
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2007 |
2008e |
<?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />2009f |
2010f |
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Total Auto Sales (USD, bn) |
8.60 |
10.60 |
11.03 |
11.68 |
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Total Re-Exports (USD, bn) |
1.81 |
2.09 |
2.30 |
2.61 |
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Car Ownership
(% of Population) |
54.0 |
54.8 |
55.4 |
56.2 |
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Source: Dubai Chamber of Commerce and Business Monitor International | ||||
Dubai Dominates the UAE Auto Sector
The analysis further revealed that though Abu Dhabi contributes over 55% to overall UAE GDP, its economy is dominated by the energy sector. Thus, it is diversified Dubai that is experiencing the most rapid growth, and it has taken a lead in the auto sector, accounting for nearly 50% of the total vehicle stock. This is despite the fact that Abu Dhabi took over Dubai in terms of population growth in 2006 (40% of the total UAE population compared to around 30% for Dubai).
The Dubai Statistical Centre suggests that nearly 28% of vehicles in Dubai were owned by Emirati citizens, with the rest owned by expatriate households. Thus, the majority of cars are owned by non-Emiratis, but an Emirati household owns on average of 2.35 cars, compared with 0.92 for a non-Emirati household. This suggests that Emirati households represent a major source of potential growth in Dubai and indeed throughout the UAE going forward.
HE Eng Hamad Buamim, Director General, Dubai Chamber, maintained that the automotive sector was affected by the financial crisis as banks became more cautious in granting auto loans. But with the UAE accelerating on the path to economic recovery, banks are now being more flexible with auto financing which will no doubt benefit the sector, fuel the demand, and ultimately increase sales.
Positive Aspects of the UAE Auto Sector
A general high level of disposable income and renewed consumer confidence in the UAE on the back of easing liquidity conditions provides a favourable background for the auto sector in the coming months. What’s more, plans for a car production plant in the UAE could help initiate a local automotive manufacturing industry. Finally, with the UAE being the fastest growing auto market in the Middle East, the sector is in a position to expand with preliminary plans for a car production plant to help spawn a local auto manufacturing industry already in place.
Car Dealers Optimistic on Future Prospects
Car dealers in the UAE are optimistic on the outlook for the second half of 2009 and are confident that their sales will grow though at a lower rate, in what seems like a challenging year on the back of the global financial crisis. This is primarily down to an easing in lending conditions (note that over 70% of new car purchases are made on credit in the UAE), with banks loosening their belts and imposing lower rates and more lenient requirements on borrowers.
In particular, car dealers remain sanguine about the luxury and premium segments of the car industry which are expected to thrive, despite the challenging economic environment. This is primarily due to residents with high net worth remaining relatively unaffected by the slowdown.
UAE Auto Sector Outlook
In its outlook of the overall auto sector, the analysis disclosed that it is increasingly apparent that the UAE automotive market is mature, with vehicle ownership rates of over 540 per 1,000 inhabitants, a rate that exceeds most of the developing world (see table). The potential for growth lies only in car renewals and immigration. Any decline in employment opportunities will likely lead to a severe curtailing of immigration, while the credit crunch should lead to a delay in new purchases. As a result, the market has very little room for growth in the short-term.
The combination of relatively high living standards, a growing population in the UAE as well as a resurgence in oil prices (now hovering US$65p/b) have been the key driving forces behind the growth in the auto sector in the UAE. Despite an expected slowdown in auto sales this year, the outlook based on resurgence in consumer demand on the back of a pick-up in the global economy is likely to lead to robust growth in 2010 and beyond.
