Car dealerships in the Gulf need to steer carefully through the upcoming VAT (value-added tax) environment. If not, they are likely to hit a wall of customer resistance.
According to a new survey by Publicis Media, UAE consumers cutting across demographics have identified automobile purchases as being “negatively impacted by VAT”, with 44 per cent of UAE nationals sharing this sentiment with Arab expatriates.
In comparison, 37 per cent of Asian respondents believe they will put in a lot more thought behind their future car buys. (On the flip side, 22 per cent of nationals and 21 per cent of Arab expats “strongly disagreed” with the notion that VAT would cut into their decisions. Among Asian expats, 14 per cent held this point of view.)
All of which will add to the concerns of car dealerships, who are currently dealing with a 20 per cent drop in volume sales compared with the same period last year. Just about everyone of them is pinning hopes for a fourth quarter upturn as new car buyers pile in before VAT goes live. But any such spike would last only for those three months.
How the retail sector — and consumers — in the Gulf square up to the roll-out of VAT is for the future to define. But current sentiments have been shaped to a great extent by soft economies and a quite uncertain job environment. As such, the Publicis Media survey identifies a good deal of trepidation among consumers.
But for retailers, there are also opportunities to tap into. Consumers are going to get more attentive towards online offers and which would allow them to access a product or a service at a cost they are comfortable with.
Nearly 50 per cent of Asian and Arab expats polled by the survey said they are willing to go online and do price and offer comparisons, while a similar percentage reckoned they would scout around for offers on groceries. (Among UAE nationals, the percentage of those willing to be prudent and patient was 37 per cent.)
Their counterparts in Saudi Arabia tended to have similar perceptions about how they might shop and spend in a post-VAT situation. And they were just as likely to be impacted by circumstances leading up to the roll-out.
“Separately from the VAT implementation, Saudi consumers have halted unnecessary purchases and leisure spending,” the report says. “However, they still consider themselves to be more spenders than savers and are on the lookout for quality as much as for special offers.
“While they believe the VAT will negatively impact purchases across most categories — particularly cars, electronics and entertainment — Saudi consumers are not as concerned about this impact on luxury, fashion and accessories, soft- and energy-drinks purchases.” (As a case in point, on what their attitude might be towards luxury watches and jewellery purchases, 20 per cent of Saudi respondents expressed hardly any concern.)