GCC automobile sector: 2017 and beyond
* Auto sector facing slowdown amid weak economy and low oil prices
* Passenger car sales will continue to remain under pressure in 2017
* Advent of connected vehicles expected to revolutionise the industry
Abu Dhabi is the latest city in the GCC region to announce its plans for a new public transportation infrastructure project. The emirate has signed agreements with a California-based company to build a hyperloop link to Al Ain, which is located nearly 160 kilometres away from the UAE’s capital.
Dubai has already started homework for its own hyperloop network. There are a number of rail and metro projects underway in the region such as Mecca-Medina high-speed rail link, extension of Dubai Metro, Etihad Rail, Qatar Rail and Doha Metro among others.
These new public transportation projects are inevitable, as the countries that have high population growth and these projects are vital for their economies.
But on the receiving end will be the region’s automobile industry, which is already facing a slowdown amid a weak economic environment and low oil prices, as consumers scale back new car purchases.
Dubai-based investment banking advisory firm Alpen Capital says that passenger car sales will continue to remain under pressure this year after a poor 2016.
Growth drivers and challenges
Expanding consumer base, growing wealth of population, rising disposable income, lower cost of vehicle ownership, attractive insurance and financing options and availability of low-cost fuel have all driven sales of new vehicles in the region.
But the challenging macroeconomic environment, increase in prices of petrol after removal of subsidies, the appreciation of Japanese yen, Korean won and euro that made imports costlier, stricter government regulations and a thriving used-car market are posing serious challenges to the industry.
Looking forward to 2020
Although vehicle sales in the GCC are have remained subdued during 2016 and will be under pressure in 2017, the automobile sector is poised for growth in the coming years to 2020.
The number of passenger cars in use in the GCC is expected to grow at a CAGR of five per cent from an estimated 10.3 million in 2015 to 13.2m in 2020, according to Alpen Capital. New passenger car sales are projected at 1.4m in 2020, compared to 1.2m in 2015.
These significant trends will come for the rescue of the region’s ailing auto sector:
Growing investments in vehicle and component manufacturing: The region is going to be home to many vehicle manufacturers as Saudi Arabia, the UAE and Oman are receiving investments to set up automotive manufacturing plants. The governments are also providing incentives and devising plans to establish themselves as regional automobile manufacturing hubs.
A growing automotive aftermarket: Increasing number of vehicles coupled with hot climatic conditions and a rugged terrain, which affects the lifespan of tires and batteries, has created a thriving automotive aftermarket in the region.
Increasing popularity of Chinese brands: While the Japanese brands of vehicles remain popular in the GCC and the high-end market continues to be dominated by European makes, Chinese brands are fast closing the gap with low pricing and less maintenance cost.
Vehicle customization: The UAE is witnessing a growing trend of vehicle customisation, as can be seen by the growing number of car accessory outlets across the country.
Increasing adoption of technology: The rising number of tech-savvy people and use of social media for reviews and recommendations have encouraged the automobile dealers to establish online presence. On the other hand, the Internet, combined with new technologies, is revolutionising the automobile industry, with the advent of connected vehicles.
Entry of taxi-hailing service providers: Mobile application-based taxi-hailing service providers are gaining presence in the GCC. Uber, which entered the GCC market in 2013 by launching its services in Dubai, has now grown its presence in other major cities in the region.