The UAE’s automotive retailers would only be too willing to write-off what has been an exceptionally difficult first five months.
They have run some of the most attractive promotions, offered one incentive after the other, and were even willing to push back the payment plans - all to get those elusive car owners buying again. But not enough of them are doing so, with market sources suggesting a decline in volumes of 20 per cent and more from a year ago.
But industry sources are now starting to openly question whether these promotions-fuelled sales strategy needs a rethink.
“Many dealers are moving stock with substantial losses on certain models... and some importers even seem to have been on a permanent sale over the last two years,” said Arno Husselmann, General Manager of Abu Dhabi Motors, which represents Rolls-Royce and BMW. “Customers do not benefit from such trading practices over the lifespan of the ownership of the car.
“This is because when you buy at a cheaper price you will get much less for the car at the time of reselling or trading it in; only stable market prices can protect the future value of cars. Dealers who have focussed on price only as the motivation for buyers will be experiencing a tough future.
“You must be able to offer much more than a lower price today if you want to attract customers and maintain a stable business.”
Some sceptics would say that since Abu Dhabi Motors represents two marque names, it is easier for it to have a handle on margins - or how much it is prepared to sacrifice to boost sales. Husselmann, however, crushes such sentiments instantly.
“We must acknowledge the UAE has a relatively small customer base by international norms,” Husselmann added. “There will come a time when the market will reach saturation and annual growth beyond that will be very small.
“In this market, we are already there and it seems growth from here on may only be achieved by taking more business away from competitors. What is also aggravating the market is surplus cars flooding into the UAE from areas with political difficulties.
“An oversupply of cars in the market will lead to price wars. Although some buyers may think this is beneficial, the reality is different.”
The equation then is quite straight-forward. The cost of ownership takes into account purchase price, add all expenses during the period of usage, and the value realized when the car is sold.
“A lower purchase price will lower used market values,” said Husselmann. “With a surplus of cars to be sold, it is extremely important that importers/dealers in the UAE are professional and know how to manage their brands and customer responsibilities.
“Appreciating the value of stable car prices allows dealers to be able to offer their customers a better resale value and ownership experience.”
In Husselmann’s reckoning - and it’s one widely shared in the industry - new car prices in the UAE are already at their “lowest points”, factoring away inflationary gains, currency fluctuations, import costs, etc.
“This has been going on for the past year and even longer for some,” said Husselmann. “During these times, dealers are not able to give any more, as many cars are sold at losses. Prices are not likely to drop further and this situation will last only until the current stock has been sold.
“New-model year cars always arrive at a higher manufacturer cost and there will be stock corrections made by the professional importers. The most important aspect of this situation is that new, cheaper cars will result in heavy depreciation on the used cars. What is gained today will be lost tomorrow.”
For the auto industry, that is as good a reason as any to start changing course... right now. And avoid a collision.
Even worse than in 2009
Up until end 2016, automotive dealers in the UAE were unanimous that 2009 was the most difficult year they had to endure. Not any longer.
“It does feel as though the market is tougher than in 2009,” said Arno Husselmann of Abu Dhabi Motors. “For the period of January-March 2017, the entire Middle East premium segment was down 19 per cent and it could remain at this level until the last quarter when the VAT (value-added tax) surge is expected to lead to increased demand. Provided no other unforeseen factors impact on today’s realities.
“There will surely be a year-end rush and we will be prepared for it. Our business always accelerates in the second-half of each year and this year, we will have the added incentive of a 5 per cent VAT saving.”
Abu Dhabi Motors sold 14,450 new BMWs last year and it is hoping a sustained second-half upturn could see it go all the way to 15,000 units this year.