Kuwait Autos Report Q2 2008

Kuwait has fallen well behind other Gulf states in terms of automotive sales growth in recent years. This is due to a lack of economic diversification, which has prevented the kind of consumer boom seen in the UAE, Oman, Bahrain and Qatar, according to BMI's latest Kuwait Automotives Report.

The rising cost of living in Kuwait is depressing the country's car market, despite an expected acceleration of real GDP growth to 6.8% in 2008 and a supportive macroeconomic environment. We estimate that automotive sales fell 0.2% in 2007, but forecast overall growth of 1.2% in 2008, with sales peaking at 112,728 units. However, sales will fall throughout the rest of the forecast period, dropping to 108,180 units by 2011, 2.9% down on 2007.

While we expect no dramatic slump in sales, Kuwait's automotive market is enduring a period of stagnation due to saturation. However, for Japanese and European carmakers, there is still room for growth. The revaluation of the dinar has made it easier for them to compete on the Kuwaiti market, which is highly price responsive, although the tumbling value of the US dollar means that US carmakers still have a price advantage. A lack of data from autos majors makes is hard to track trends, although there are indications that the SUV segment is growing while the luxury segment is contracting; luxury car sales are set to fall by 5% over the next five years, in sharp contrast to other Gulf states, where the segment is booming.

Despite ongoing concerns about Kuwait's luxury car market, German premium carmaker Audi is continuing its expansion in the country with a new supply contract for leasing firm Priority Automobile Company. Under the terms of the KWD9.5mn (US$34.8mn) contract, Audi Kuwait, through local distributor Fouad Alghanim & Sons Automotive Group (FAA), will supply a minimum of 440 Audi vehicles to Priority, which offers two-year lease terms. Expansion in Kuwait has been at the forefront of Audi's Middle East plans. In November 2007, Audi Volkswagen Middle East revealed that it would build a new sales and service complex in Kuwait City, starting with a 5,000 sq m Audi showroom. Based on the 'terminal showroom' concept implemented by Audi's German headquarters, the centre will accommodate 80 new and used cars on display, as well as 45 servicing bays. Work will begin on the Audi section of the complex in Q108, with the Skoda and Lamborghini brands to follow.

The government has implemented policies aimed at deterring used car retailers, but the move may not benefit new car sales. Used cars are bought by poorer segments of Kuwaiti society who cannot afford to buy new. BMI anticipates that the government's moves will not eliminate the used car sector, but the closure of smaller dealerships could make it harder for private individuals and corporate fleets to sell secondhand vehicles, bringing down the price of used cars.