Bahrain Autos Report Q2 2008

An economic slowdown will force Bahrain's automotive sales growth down to 5.0% from 2009, according to BMI's latest Bahrain Automotives Report.

According to the few automotive sales results available, 2007 was a year of strong car sales growth in Bahrain, on the back of 6.8% GDP growth. These figures confirm BMI's sales estimate of 42,000 units with annual growth at around 13%, up by one percentage point during 2006, helped by low car finance rates and buoyant consumer demand. Overall economic growth is set to decline to 5.4% in 2008 and 4.5% for the rest of the forecast period due to a decline in the oil sector. The effects on the automotive market will be offset by economic diversification.

While average interest rates are likely to remain at around 8.5% over the next five years, car finance rates are likely to be in the region of 4-6% in Bahrain's highly competitive car market. In H207, Kuwait Finance House offered the lowest car finance rate in the country, at 4.25%. Low car finance rates will provide an impetus to consumer demand for passenger cars. At the same time, we do not envisage a significant adjustment in the exchange rate, even if the Emirati dirham is revalued against the US dollar to counter the effects of depreciation against the euro. This gives US carmakers a competitive advantage on the Bahraini market against European and Japanese firms, which are suffering as a result of the appreciation of the euro and the yen.

Overall market performance will be affected by saturation and declining GDP growth, which is forecast to decline to around 4.6% by the end of the forecast period. Consumer demand will also be limited by the problem of congestion in Bahrain and high rates of car ownership. In terms of segment performance, SUVs are likely to see the most robust growth, particularly given the likelihood of domestic SUV production.

By 2012, the automotive market should be at least one-third larger than in 2007, with annual sales reaching around 56,500 units. We expect a soft landing rather than a problematic downturn, since oil prices will remain high by historical levels, while oil-fuelled investment has boosted non-oil output capacity. Moreover, diversification efforts mean that Bahrain is less dependent on the oil market than most other Gulf States.