Life & Style | Motoring
Dubai's car sales could take a hit
One of the things that amazed me in my first few months in Dubai was how easy it was to borrow cash from the banks.
- By Cleofe Maceda, Staff Reporter
- Published: 23:30 November 21, 2008
One of the things that amazed me in my first few months in Dubai was how easy it was to borrow cash from the banks.
Oddly enough, some people who had a good bank record would gripe about unwanted calls from telemarketers enticing them with very attractive loan packages.
"They're giving away hard cash," said one friend, who in two years' time had amassed Dh100,000 in personal loans although she could barely stay afloat with her Dh7,000 monthly pay.
But gone are those days when money flowed like water from a faucet. Banks have tightened their cash flow. They've curtailed generous lending practices, demanded higher rates and imposed tougher requirements.
I called up a couple of banks to check if the so-called credit squeeze has spread to auto financing as well.
True enough, a customer service representative from HSBC said their customers in the UAE need to earn at least Dh10,000 a month to be eligible for an auto loan. Only last month, the bank's minimum salary requirement was Dh5,000. At Emir-ates NBD, the pay requirement has also doubled from Dh3,000 only a few weeks ago to Dh6,000.
Industry sources say the credit squeeze could be as bad for the car dealing business as it already is for the real estate trade. As potential buyers may struggle to get auto loans, sales of new cars could easily be dented.
Carmakers from Japan to Italy to the US have reported that car sales in October were the weakest in about two decades. Car dealers in the UAE, however, have maintained that their businesses remain robust.
That may well be true. The UAE is still enjoying the lingering effects of the construction euphoria that had erupted before growth started fading in the Western economies last year.
Growth
The real estate boom had triggered a high influx of migrant population and inflated people's disposable incomes. As a result, the car population in Dubai had grown almost insanely for years, and there was certainly enough evidence of that on the roads.
Based on recent estimates, there are 541 cars for every 1,000 residents - so, somewhat more than one car for every two residents. Dubai's vehicle-to-population ratio is higher than that of New York (444), London (345) and Singapore (111).
But as the credit crunch deepens, the auto sector might begin to see signs of the global gloom next year. "If you take into account the congestion in Dubai, as well as RTA's strict rules on driving licences, aside from the global slowdown, the growth in the auto sector could drop a little bit next year," says Mohammad Akel, brand manager for an auto dealer in the UAE.
It's been tried and tested that more people with more disposable income can push the economy forward. More consumers with more money mean economic growth.
But, as money trickles in more slowly for the working class, the automobile sector might just lose some market in the low-income bracket. The challenge to dealers, then, is how to tap even more into the affluence of those who still enjoy high disposable incomes, and who are not dependent on bank finance.
Industry sources say the credit squeeze could be as bad for the car dealing business as italready is for the real estate trade.
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