United Arab Emirates Autos Report Q2 2008

A modest economic slowdown coupled with the rising cost of living will lead to a marginal decline in the growth of the United Arab Emirates (UAE) automotive market over the next five years, but public expenditure and a low interest, low tax economy will continue to support sales growth, according to the BMI's latest UAE Automotives Report.

GDP growth is set to fall to 6.2% in 2008 from 7.5% in the previous year, marking the beginning of a cyclical slowdown that will be reinforced by a moderation in global oil prices from 2009 onwards.

Meanwhile, the rising cost of living and stock market volatility will prompt many consumers to defer purchases due to inflation, particularly in the housing market due to delays in housing projects.

Nevertheless, the size of the expatriate community - where consumer dynamics are barely influenced by movements in the local stock exchange - will help cushion the effects of any collapse in share prices.

Consequently, the economic downturn is not set to lead to a contraction in the automotive market, nor will it diminish the rate of growth in luxury car sales. By 2012, passenger car sales should total around 340,000 units, a 26% rise over 2007 levels. Much of the growth will be led by luxury car sales, which have experienced above-average growth as well as high levels of immigration-related population growth.

Consumer trends point towards growth in SUVs and entry-level luxury cars which is likely to be sustained over the next five years. Nevertheless, in a country where the cost of living is accelerating, the market will be increasingly price responsive, giving non-luxury brands potential for growth through their top-of-the-range models, which tend to be priced lower than their luxury brand equivalents. BMI expects price discounting in an increasingly competitive market, with the exchange rate set to determine demand.

With US carmakers establishing production operations in China, there is the prospect of Chinesemanufactured luxury branded cars entering the UAE. The one thing that is certain about the UAE is that brand loyalty cannot be taken for granted and local consumers will seriously consider purchasing cheaper models with the same level of comfort and amenities as the more expensive equivalents. However, lower cost entry-level luxury cars will have to compete with a surging used car market, which grew by around 50% in 2007.

In the recent past, some majors, such as BMW, have ruled out establishing manufacturing operations in Dubai. However, the presence of a car assembly line in Dubai would open the way for a local tie-up with a foreign car manufacturer seeking to tap into growing demand for low-cost cars in Africa, the Middle East and Asia. In November 2007, Abu Dhabi-based Gulf Automobile Industry Corp (GAIC) produced a double cab pick-up truck with around 40% local content from the GCC states. In order to achieve its target of exporting half its output, GAIC will incrementally raise its output from the one truck per day rate in 2007 to around 3,500 per year in 2008. GAIC chairman Nasser Hamad Al Hajeri said that by 2014, the company aims to add cars, trucks, SUVs, pick-ups, vans and buses to its range, with an annual production target of 300,000 units by 2018. The project is a further step in the UAE's development as an automotive producer. In November 2007, Dubai-based engine producer Praktiko GT announced plans to begin volume car production in the UAE, in line with BMI's predictions.

" The rising cost of living is leading to a decline in the growth of the automotive market. Written by the experts Business Monitor this report includes a comprehensive SWOT analysis of the UAE environment, and profiles for the major automotive companies, also forecasting information and business trends. "

Reviewed by JB, 06 Sept 2008