Dubai: The UAE's automobile dealerships, at least the bigger ones, are looking to new highways in distant lands. This is in line with a business strategy that no longer binds them exclusively to a home market where they are already so well established.
In reaching out into new territories, the AW Rostamani Group is giving itself a head start. Agreements have already been entered into for brand new dealerships in Saudi Arabia and Iraq as well as in India, which is being handled through a dedicated entity, AWR Trading.
None of this means that the group is taking its eye off the road in the UAE. Its flagship company, Arabian Automobiles, holds the rights to Nissan and Renault and is looking for further growth possibilities for both.
But there are challenges; the recent Central Bank guidelines on auto financing have had an impact and there's also the uncertainly over short-term imports of Japanese models following the March tsunami. Michel Ayat, CEO of AWR Automotives and a member of the group's executive committee, outlines the company's plans to take up these challenges.
GULF NEWS: Have you finally got a handle on your future supplies from Japan?
Michel Ayat: If we were to say there were no problems arising from the destruction in Japan, we wouldn't be facing up to the reality. It has impacted negatively on the manufacturing scene in Japan and particularly among the hundreds of suppliers specialised in providing automobile components.
Having said that, Nissan has not been affected by the crisis to the extent others were. They are saying that in June things should be back in full force.
As for us, there were disruptions on some model deliveries by an average of 25 to 30 per cent. But we took counter-measures and were quite successful in doing so.
Arabian Automobiles was able to place orders on these models from distributors in other markets who were not in a position to finance them.
I managed to get those units here. Yes, we were lucky that way and we were also quick to take a decision to seek out these distributors. There was no shortage whatsoever for Arabian Automobiles.
Having said that, 60 per cent of Nissan models are coming outside of Japan. As to the future, I strongly believe Japan will get out of this crisis by the fourth quarter.
What of the situation on spare parts supplies? What of your inventory strategy?
On parts, we never faced any issues. There was only a delay on shipments, but never any cancellations.
Another thing we did was prioritise our responsibility to the domestic market. It's no secret that part of our sales comes from exports.
But after the situation in Japan, we pulled back on that and ensured enough supplies for the local market. This was despite the high demand from some of the distributors in Africa.
As for our inventory policy, we maintain a level of between two and three months — anything above that ties up capital and costs you money. We are very comfortable with the inventory level because we are not accepting orders from outside.
And there are no plans to go beyond the current inventory strategy.
The UAE Central Bank regulations have tightened up the auto financing market considerably by mandating a 20 per cent down payment. How will you cope?
The regulations are not only limited to the down payment. There is a second condition, which is beyond the control of dealerships, that requires an individual's debt-burden ratio to not exceed 50 per cent of his or her monthly salary.
We are not against the Central Bank regulations. I believe there are two pains in our business — the pain of discipline and the pain of regret.
If we don't regulate the market, all of us will come to regret it. I hate to see a customer defaulting because it's affecting everyone and not just him or us.
It's not in our benefit to see the customer defaulting. We understand the Central Bank concerns and we support them.
Our research shows 80 per cent of retail customers already pay between 5 and 10 per cent. And there is no concern about the luxury car buyers, because our research records they pay a minimum 15 per cent. He can easily add the 5 per cent.
But when you are paying for a car costing Dh70,000-Dh80,000, it's not easy to make available the 20 per cent as down payment. More so as they were so used to paying nothing before.
The impact from the regulations could up to 30 per cent of the retail sales. We have already seen this since May 1.
Many enquiries were sent to the bank for financing and were not being accepted. We don't know the customers' exposure on personal loans, credit payments and these are beyond our control.
Any chance that you will consider getting directly into auto financing?
We have launched Nissan Freedom with the objective to lower the monthly instalments for the car owner. This way I am giving the owner an opportunity to avoid the impact of the 50 per cent debt-burden ratio.
It's a car leasing programme, where you can save 50 per cent of the car's value by taking a loan for three years and 36 installments. After three years, you can either bring the car back or you can say I am retaining the car and want to continue with the finance.
It's a very common practice in the mature markets. Here, vehicle owners like to own a car from Day 1. It's not easy for people to feel that they don't own.
But I think people will start to appreciate what we have on offer, but it needs time.
Then again, the pain of discipline is better than the pain of regret.
You are making a big push into new territories. What's the rationale?
The base of this group is the 50 years of experience in the automobile business. We are one of the leading distributors in the region.
With a group, you can have more than one company. Arabian Automobiles is committed to the Nissan-Renault alliance and will never handle any other brand except these two.
Our expansion philosophy is done through another group company — AWR Trading — with exclusive stock and exclusive facilities. It is AWR Trading that is handling the ZNA dealership, which deals mainly in light commercial vehicles, SUVs and MPVs.
It is also the exclusive dealer for MG, the British marque now owned by the Shanghai Automotive Industry Corp, which is the number one auto manufacturer in China.
You have to be in the emerging markets and that's the rationale for AWR Trading. We are in Saudi Arabia and Iraq with ZNA and have the rights for MG in the UAE and Saudi Arabia.
These are niche brands, but this the future.
As for India, we've acquired the Honda dealership in Delhi. There could be more such opportunities in the future, but that's for feasibility studies to tell and lead us. We are keeping an open mind.
