Saudi Arabia Autos Report Q4 2009

Saudi Arabia's automotive sector is showing signs of weathering the economic storm that hit the global economy in the latter half of 2008 and which continued to wreak havoc throughout the first half of this year. While the fundamentals are still weaker than in previous years, there is gradually increasing confidence that the worst is over for the kingdom's auto sector and that things could start to improve. Nevertheless, structural difficulties still remain despite this growing confidence.

A report by automiddleeast.com said that sales in the GCC continued the growth started in March, with many distributors reporting better-than-expected results. In some cases this is feeding into further expansion and/or new products. The report also said that while there are still challenges in the form of restricted credit and reduced liquidity, the problems of global manufacturers are unlikely to affect the regional markets.

These developments largely support BMI's view for the GCC, where we expect any downturn to be less pronounced or sustained as elsewhere. While the UAE, Kuwait, and Bahrain are expected to show declines, growth in the Saudi economy, along with liquidity injections and less dependence on sales to expats, should see it grow by over 2.0% this year. Overall BMI expects that by end-2013, sales should be up by nearly 50% compared with 2008 levels.

Market revival from 2010 will be spurred on by increased lending, with car loans to rise from under 50% to over 70% of car sales, which has been typical of other Gulf markets. After tepid growth in 2009 in the value of total car sales of around US$600mn from 2008, in the 2010-2013 period growth in the value of auto sales will be more robust. The value of sales is expected to reach US$18.53bn in 2010, a US$2bn increase over 2009, and will rise further to US$20.37bn in 2011, US$22.73bn in 2012, and US$25.05bn in 2013. Between 2010 and 2013 the number of vehicle units sold in Saudi Arabia is forecast by BMI to increase from 676,000 to 880,000, an increase of just over 30%.

Results for some major auto companies have been encouraging. Ford Motor increased its sales by 13% in March in Saudi Arabia, tracking similar sales increases for the US motor giant in Kuwait and the UAE.

Although sales for the first half of 2009 were well down compared to the same period in 2008, the decline has not been as dramatic as was expected earlier in the year when the sector's fundamentals were particularly weak.

Meanwhile, new rules were implemented by the Saudi Customs Department in June, setting the maximum age for imported used vehicles at five years. The regulations cover cars, buses, and light commercial vehicles (LCVs), while the age limit for heavy vehicles is 10 years. This should impact sales of used cars, although BMW Premium Selection, the used car arm of Germany's BMW, should continue to prosper as it only sells car less than five years old.