Dubai: Automotive dealers in the UAE are not going to cut showroom prices as a knee-jerk response to the heightened exchange rate volatility which has seen the euro and the yen weaken against the dollar. This, in the natural scheme of things, would immediately make European and Japanese made vehicles cheaper to bring into the UAE, given the dirham’s peg to the dollar.
But passing on currency induced benefits is not how dealers, and the manufacturers, want to respond. They believe that a slash-and-sell tactic will only hurt the brand and inherent pricing value.
Instead what some of the leading dealerships have gone for is to add on benefits/incentives to a prospective buyer turning up at their showrooms today. For instance, Abu Dhabi Motors, the BMW dealership in Abu Dhabi, last month extended its standard “5 year/100,000 km” BMW International “Service Inclusive Plus Repair” package to “6 years and/or 120,000 km”.
“On some models we have also increased our ‘options’ without increasing the sales prices,” said Arno Husselmann, General Manager at Abu Dhabi Motors, which also represents Rolls-Royce. “As a premium brand we have to add value… and not drop prices, however little, at the first sight of a lower euro.
“There are two reasons — any price drop on new cars negatively impacts resale of all cars sold and this is discovered at the time of trade-in. The situation may also change quickly and the euro may go up, resulting in an increase in prices and really confusing the market with the fluctuations. Customers will not know when it is safe to buy a car.
“We need to keep our prices stable as a protection for the brand and thereby offer stable trade-in values. There is no benefit if new car prices drop and used car prices drop as well. The one benefit is cancelled by another negative.”
Even if ex-showroom prices are not exactly yo-yoing in response to currency fluctuations, local dealerships have been coming out with offers to ease a buyer’s cost of ownership.
Extended warranties
Volkswagen’s “Volkfest” campaign promises Dh24,000 in savings, a “profit rate of 0 per cent up to 5 years” and a year’s free insurance. Others too have been quite generous with free insurance schemes and extended warranties. For a car owner in the UAE — which has sold more than 300,000 units for the last two years — the going is good.
Local dealerships too have become quite good at hedging their bets in a volatile currency environment. Where they can, dealerships have multi-sourcing arrangements with manufacturers, thus spreading their bets when it comes to vehicle shipments.
“Toyota is a global company with manufacturing plants all over the world [and] with only a minority of our vehicles being yen-based,” said a spokesperson at Al-Futtaim Motors, the importer for the make. “Our focus is on delivering great value for money to customers combined with best-in-class running costs throughout the life of the vehicle.”
The same sourcing formula applies to spare parts — “Toyota genuine parts are manufactured all over the world, so the yen rate does not directly affect our pricing. The key is quality.”
Rather than sales to retail customers, what the currency situation does — especially when the dollar is strong — is give more flexibility for dealerships to aggressively go after corporate and fleet sales. Major fleet orders were seen in the local market in the first-half and looks set to continue this quarter and well into next year.
But Husselmann sounds a note of caution on how far dealerships can go in incentivising buyers. “Given the actions taken to add value to the cars, it would for example be totally senseless to offer free, inferior TVs and other nonsense with our cars. Premium products are not sold in this manner.”