Here's why UAE new car sales need time to recover from 2020 crash
Banks are not helping as they used to and that too is hurting demand
Dubai: Increased demand for used cars and rentals are partially compensating for the more than 30 per cent drop in UAE’s new vehicle sales during 2020. And it is likely that this will remain the case until the COVID-19 vaccination drive is completed and consumers start feeling more confident about their job chances.
In other words, they will want to put in as much distance between themselves and all the disruptions they experienced in 2020 from the pandemic attack.
For now, “Many are questioning why they should buy a new car,” said Michel Ayat, CEO of Arabian Automobiles Co., the Nissan, Renault and Infiniti dealership. “There’s a shift from thinking about car ownership to user-ship - that’s a fact.
“Now, that’s the reason why they are moving towards car rentals or making do with buying used cars. Because of the pandemic, there were buyers who shifted from using public transport to renting a car… or buying a used one. It’s a sign of the times and the auto industry will just have to accept it.”
Sales crash
For 2020, new car sales in the UAE would have been about 165,000 units, based on industry estimates, and quite the drop from the 230,000 units plus of 2019. It was the April to June quarter of 2020 that hit the industry particularly hard, which coincided with the ceasing of commercial activity to tackle the COVID-19 spread. During those three months, overall sales dropped by more than 50 per cent from 2019 levels.
In the subsequent six months of last year, there was a slight recovery in demand, but still more than 30 per cent lower than in 2019.
As for used cars, they probably ended 2020 with a 10 per cent increase in overall numbers. Now, in a pandemic year, that's good going by any measure.
“Banks aren’t accepting all the applications for car finance, and that’s hurting businesses,” said Ayat. “We will also need them to drop rates – there are still too many restrictions banks are imposing.”
Pump up numbers
This is why the ongoing DSF 2021 is of such significance for dealerships. It offers them a gauge of how far demand has recovered, among individuals as well as fleet operators. Extended warranties and free insurance for the first year – and even longer – are a regular feature. (Apart from the regular offers, Arabian Automobiles is running a ‘Win a Nissan a Day’ raffle for all new car buyers.)
Market sources talk about slight improvement in demand from mid-December, and with the premium end of the auto market in a far better place.
“It’s no exaggeration to say that selling a Dh300,000 plus vehicle is far easier these days than a Dh30,000 one,” said the general manager at a leading dealership. “Some are even charging a premium for instant delivery of in-demand models.”
No quick turnaround
According to Ayat, this is probably the first time in years where the latest models introduced into the market at prices on par with the previous.
“The usual practice is to raise prices by a few percentage points for new model year launches – this year’s been different,” said Ayat, who also heads the Car Dealers Business Group under Dubai Chamber. “The prices have been kept low because everyone realises they need to do their bit to bring back buyers for new cars.
“Prices of B and C segment vehicles (which are the mid-market models) are the same from last year. Even SUVs are at the same levels as in 2020.”
Even after DSF run ends, dealerships will keep the promotions and offers flowing… all the way until they are reasonably assured that sustained demand is there.
But on other levels, whatever 2020 had to offer will need to be absorbed and permanent changes made. “Dealerships will realise they can’t retain the same manpower levels, they can’t rely on past marketing methods and there will need to be a lot of consolidation,” said Ayat. “From 2021, everything will be completely different.”