Slowdown triggers car sales breakdown

Vehicle manufacturers that market their products in the Emirates are trying to ride out the drop-off in business until the fast and heady days return.

Sales of new cars, which in 2008 totalled about 280,000 in the Emirates, were down close to 40 per cent last year as the economy stalled and many expatriates left the country.

While the rise in car sales in the country could not have continued forever, few could have predicted the industry would suffer a realignment of the scale of that seen last year. Sales of new cars, which in 2008 totalled about 280,000 in the Emirates, were down close to 40 per cent last year as the economy stalled and many expatriates left the country.

And there seems little optimism that this year will be much healthier, with those in the industry just hoping for stability in sales numbers after last year's bumpy ride. Japan's Toyota is the leader in sales, claiming a market share of close to one third. While the number of cars leaving Toyota dealers dropped 4 per cent globally in 2008, the car maker's sales rocketed 24 per cent in the UAE to 98,000.

But last year there was no escaping the global realities, and despite early-year forecasts of flat sales, the company says last year's figures were "considerably down" on the previous 12 months. "The marketplace is about 40 per cent down," says Hugh Dickerson, the general manager for sales and marketing for Al Futtaim Motors, the Toyota dealer. "When you speak to people in the industry, they will all tell you [this]."

The Swedish firm Volvo says its UAE sales last year were down about 25 per cent compared with 2008, with the launch of new models helping to slow the decline. The company sold about 750 cars here last year, compared with about 1,000 in 2008. "If you look at the absolute number of cars sold, it's below expectations. It's a very poor performance," says Tomas Ernberg, the managing director of Volvo Cars Middle East.

One consolation for dealers is that motorists do not seem to be switching from larger, more profitable vehicles to smaller cars, where margins are tighter. "There's no sign people are coming out of Land Cruisers and buying Yarises. Each segment is holding its own," Mr Dickerson says. "A lot of people buy the cars they buy because of a physical need. If you have a family of six, you don't buy a Yaris."

In the region as a whole, BMW has seen heavy sales growth of its largest saloon, the 7 Series, with numbers from January to October last year up 89 per cent compared with the same period in 2008, no doubt helped by the introduction of a new generation. This increase came despite an overall 9 per cent drop in sales for the company regionally. Overall, the luxury sector in the UAE is thought to be down slightly less than the market as a whole.

However, Phil Horton, the managing director of BMW Group Middle East, says there has been a trend towards more affordable vehicles. "There's no doubt there has been a reduction in purchases of luxury goods," he says. Dealers have introduced an array of incentives to boost sales, including in the case of Volvo a five-year warranty, five years of roadside assistance and five years of free servicing. Toyota is among the car makers to have offered free insurance.

Also, dealers have made greater efforts to help customers arrange financing for purchases as banks have become more cautious. "When the crunch came, the banks' doors slammed firmly shut," Mr Dickerson says. "A lot of customers have the desire and need to buy cars, but not everyone has the cash available. "We've worked closely with our panel of banks to ensure finance keeps flowing and we're not getting [customers] to pay adverse interest rates."

The Mitsubishi dealership Al Habtoor Motors, for example, advertises finance from 3.9 per cent, with monthly payments on a 1.3-litre Lancer from Dh760. One step dealers have tried to avoid is slashing prices because, aside from the effect this has on their bottom lines, it also hits residual values and alienates loyal customers who paid full price. "The one thing people want is value, not necessarily what's cheapest," Mr Dickerson says. "We don't look at reducing prices; we look at increasing value.

"I think we've been reasonably responsible in what we're doing [with prices]. And so we've not seen a massive drop-off in used-car values. We've done everything to maintain residual values." For this year, the ambitions of car makers seem modest; many seem keen simply for the number of units sold to stabilise after last year's haemorrhaging. "The volatile market conditions and uncertainty about how the economy will develop makes it difficult to forecast, but we expect early 2010 to remain challenging for the automotive industry as a whole," Mr Horton says.

Likewise, Mr Dickerson says he does not think the industry will return to its pre-slowdown sales levels "that quickly". "Like anyone in the industry, we're hoping for recovery, but I think the recovery will be modest. I like to think it will be a sustainable recovery." Mr Ernberg says he is "optimistic" that there will be some improvement this year. He believes sales will not pick up in the first half but could show some growth in the third and fourth quarters.

"We're fighting like hell for every single car," he says. "We're pushing and speaking to every single customer. It's a real fight out there. There are a lot of offers." In the longer term, demographics could work in favour of the manufacturers and lead to a return to the sustained growth enjoyed up until late 2008. Toyota's predictions, at least early last year, were that the GCC's population would grow by close to a third by 2020, reaching 50 million. Factor in the relative youth of the population and it adds up to large numbers of adults of car-buying age heading into the showrooms in the years to come.

In the short term, though, it is a question of hunkering down and trying to get through what remain difficult market conditions. "Most people have attempted to weather the storm," says Mr Dickerson, who adds there are no signs of any manufacturers pulling out of the GCC. "We car boys are a resilient bunch." @Email:[e-mail]