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CHAPTER 4

UAE AUTOMOBILE MARKET

4.1 UAE – THE COUNTRY

The United Arab Emirates (UAE) is a federation of seven emirates situated in the

Southwest Asia on the Persian Gulf, bordering Oman and Saudi Arabia and sharing sea

borders with Iraq, Kuwait, Bahrain, Qatar and Iran. The UAE consists of seven states,

termed emirates, which are Abu Dhabi, Dubai, Sharjah, Ajman, Umm al-Quwain, Ras al-

Khaimah and Fujairah. The capital and second largest city of the United Arab Emirates is

Abu Dhabi which is also the country's center of political, industrial, and cultural activities.

The political system of the United Arab Emirates, based on the 1971 Constitution,

is composed of several intricately connected governing bodies. Islam is the official

religion, and Arabic is the official language.

In 2011, the UAE's population was estimated at 4.8 million, of which just 11%

were UAE nationals or Emiratis, while the majority of the population consisted of the

expatriates. 23% of the population is non-Emirati Arabs and Persians and the majority of

the population, about 50%, is from South Asia. Approximately 1.75 million Indian

nationals reside in the UAE, making them the single largest expatriate community in the

country. The most populated city is Dubai, with approximately 1.6 million people. Other

major cities include Abu Dhabi, Al-Ain, Sharjah, and Fujairah. About 88% of the

population of the United Arab Emirates is urban.

The United Arab Emirates has the world's seventh largest oil reserves and possesses

one of the most developed economies in West Asia. The UAE has an open economy with a

high per capita income and a sizable annual trade surplus. In 2011, it‘s nominal GDP, as

indicated by UAE Central Bank, stood at US$337 billion. The GDP per capita is currently

the 14th in the world and 3rd in the Middle East, after Qatar and Kuwait as measured by

the CIA World Factbook, or the 17th in the world as measured by the International

Monetary Fund. It is currently the thirty-sixth largest economy at market exchange rates,

and has a high per capita gross domestic product, with a nominal per capita GDP of

$70,164 as per the IMF. The country has a relatively high Human Development Index for

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the Asian continent, ranking 35th globally. The United Arab Emirates is classified as a

high income developing economy by the IMF.

Figure 4.1

Map of UAE

Source: Google Maps

The form of government used in UAE is a constitutional monarchy with a

presidential system of government. It is a founding member of the Cooperation Council for

the Arab States of the Gulf, and a member state of the Arab League. It is also a member of

the United Nations, Organisation of the Islamic Conference, the OPEC, and the World

Trade Organization.

The United Arab Emirates is divided into seven emirates, with Abu Dhabi the

largest of all seven emirates with an area of 67,340 square kilometers, equivalent to 86.7

per cent of the country‘s total area. The Emirate of Dubai extends along the Persian Gulf

coast of the UAE for approximately 72 kilometers. Dubai has an area of 3,885 square

kilometers, which is equivalent to 5 per cent of the country‘s total area. The Emirate of

Sharjah extends along approximately 16 kilometers of the UAE‘s Persian Gulf coastline

and for more than 80 kilometers into the interior. The northern emirates which include

Fujairah, Ajman, Ras al-Khaimah, and Umm al-Swain all have a total area of 3,881 square

kilometers.

Petroleum and natural gas exports play an important role in the economy,

especially in Abu Dhabi. A massive construction boom, an expanding manufacturing base,

and a thriving services sector are helping the UAE diversify its economy. Major increases

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in imports occurred in manufactured goods, machinery, and transportation equipment,

which together accounted for 80% of total imports. Another important foreign exchange

earner, the Abu Dhabi Investment Authority - which controls the investments of Abu

Dhabi, the wealthiest emirate - manages an estimated $360 billion in overseas investments

& an estimated $900 billion in assets. More than 200 factories operate at the Jebel Ali

complex in Dubai, which includes a deep-water port and a free trade zone for

manufacturing and distribution in which all goods for re-export or transshipment enjoy a

100% duty exemption. The currency of the United Arab Emirates is the Emirati Dirham.

As a member of the Gulf Cooperation Council (GCC), the UAE participates in the

wide range of GCC activities that focus on economic issues. These include regular

consultations and development of common policies covering trade, investment, banking

and finance, transportation, telecommunications, and other technical areas, including

protection of intellectual property rights.

4.2 UAE AUTOMOBILE INDUSTRY – A SNAPSHOT

The UAE‘s automotive market was trimmed by the global economic crisis, which

had a particularly strong impact on Dubai, where real estate values fell and major

government-backed corporations were unable to meet their debt obligations. In UAE, the

market is divided between 80% for passenger cars and 20% for trucks and buses. The total

auto sale was 355,117 units in 2008 and fell to 325,274 units in 2009 as financing was

tightened and the economy tipped into recession. However, a rebound in the oil price to a

high of around US$ 75-80 per barrel has helped haul the economy back into growth.

Nonetheless, credit remains somewhat tight, and caution is the watchword for many

investors.

The table 4.1 gives the UAE historical data and estimated figures by Business

Monitoring international till the year 2014.

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Table 4.1

UAE Automobile Sales

2008 2009 2010 2011 2012 2013 2014

Total Auto Sales 355,117 325,274 352,913 403,296 466,277 505,832 564,043

( Units)

Total Auto Sales 10.38 9.7 11.56 12.84 14.02 14.7 15.45

( US$ bn)

Total Auto Re-

Export 78,876 75,685 80,452 86,498 93,941 99,895 107,041

( Units)

Total Auto Re-

Export Sales 2.02 1.79 1.94 2.03 2.16 2.24 2.34

( US$ bn)

Source: Business Monitor International UAE Report, 2011.

Automotive finance in the UAE is easing after the financial crisis, but is not

flowing as freely as the positive economic outlook and banking results might suggest. The

subsequent tightness of lending may mean the auto market‘s recovery is not as strong as it

might have been. This is despite an array of moves by the central bank and government to

boost liquidity and encourage lending.

There are a number of automotive firms representing various brands in UAE. The

below table gives details about them

Dubai and Northern Emirates Dealers

AGMC - BMW

AI-Futtaim -Toyota Motor

AI Ghandi Auto - Fiat, Proton, Chevrolet, General Motors

Al Habtoor Motors- Mitsubishi Motors

AI Khoory Automobiles - Subaru

Al Majid Motors- Kia Motors

Al Nabooda Automobiles- Volkswagen, Porsche, Audi

Al Rostamani Trading- Suzuki

Al Tayer Motors- Ferrari, Maserati, Ford, Range Rover, Jaguar

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Al Yusuf Motors- GM

Arabian Automobiles -Nissan Motor, Renault

Bin Dhahir Motors- SEAT

Galadari Automobiles-Mazda Motor, Mahindra & Mahindra, Bajaj Tempo

Gargash Motors- Mercedes-Benz

Genavco- Isuzu Motors

Al Jazira Motors- Lamborghini

Juma AI Majid Est - Hyundai

Liberty Automobiles- Cadillac, Hummer, Opel, Chevrolet

National Auto General Motors- SsangYong Motor

Swaidan Trading- Peugeot

Trading Enterprises- Jeep, Honda Motor, Chrysler, Volvo Cars, Dodge

Abu Dhabi- Dealers

Abu Dhabi Motors-BMW

Al Masaood Automobiles- Nissan Motor

Ali and Sons Motors- Porsche, Volkswagen, Audi

Bin Hamoodah Autos- Opel, General Motors

Emirates Motor Company- Mercedes Benz

Omeir Bin Yousuf- Peugeot

Western Motors- Fiat, Jeep

The table below gives the car ownership as percentage of population in the UAE

Table 4.2

UAE Car Ownership as Percentage of Population

2008 2009 2010 2011 2012 2013 2014

Car Ownership As % of

Population 54.81

55.3

6

55.8

5

56.0

0

56.3

1

56.6

1 56.93

Source: Business Monitor International UAE Report, 2011.

From the above table it can be inferred that car ownership is growing and one of

the important factors is the easier access to auto financing.

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4.2.1 Automobile Market Distribution in Various Emirates

Dubai

According to figures published by the Dubai Chamber of Commerce and industry

(DCCI), companies operating in Dubai‘s automotive sector, including retail, maintenance,

repair, pans, and accessories, have an average annual turnover of AED4.5mn (US$1,23mn)

and employ an average of seven people. According to DCCI data, these sub sectors are

dominated by small sized companies, those with fewer than 10 employees, and 84% of

motor traders fall into this category. However, 61% of total turnover in the motor trade

sector is generated by medium-sized companies employing 10-99 people. The DCC1‘s

database shows that around 365 companies are actively involved in the trading of motor

vehicles and related items, 2,018 companies are involved in trading of motor vehicle parts

and accessories, 204 companies are involved in the maintenance and repair of motor

vehicles, and 73 companies are involved in other activities (trading, maintenance, and

repair of motorcycles and related parts and accessories). These companies collectively

employ about 14,400 people. Together they have invested paid-up capital ofAED3.1bn and

have an annual turnover of AED8.6bn, The number of traders in spare parts and

maintenance represents about 83.5% of the automotive market, with vehicle trade

accounting for 13.7%, Vehicle trading companies employ over 4,100 people, have a paid

up capital of AED1.3bn, and an annual turnover of AED5.5bn.

The growth of the automotive market in the UAE has led to the creation of the

Dubai Autos Zone (DAZ) to act as a centre for the industry. DAZ will offer a free zone to

attract foreign investment to the local industry, a special economic zone for trade with the

GCC markets, and a retail zone for the domestic market. The plot will accommodate

businesses from all areas of the industry from dealers, to light manufacturers, suppliers and

service providers. The UAE‘s strong re-export trade is expected to account for around 55%

of total sales.

In January 2005, the state-owned Dubai Holding acquired a stake valued at US$1bn

in US-German autos giant DaimlerChrysler (now Daimler). The UAE-based group, which

was initiated by Crown Prince Sheikh Mohammed bin Rashed al Maktoum in order to

pursue large projects in several sectors, is now the carmaker‘s third largest shareholder.

The aim of Dubai Holding and its subsidiaries (the DaimlerChrysler stake is held within its

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international investment arm Dubai International Capital) is to diversify the economic base

of the country away from oil and gas. Accordingly, the purchase of a stake in

DaimlerChrysler is likely to be the first of several significant foreign investments in the

manufacturing sectors and could lead to the creation of a commercial vehicle

manufacturing plant in Dubai. Swedish automaker Scania‘s JAFZA plant opened in April

2009. With this new factory, the automaker will become the first vehicle assembler in the

UAE. It will provide completed vehicles to all states in the GCC. The plant is modest with

a capacity for 1,400 vehicles a year, initially for construction haulage, such as tipper and

concrete trucks, but is to be adapted for bus chassis assembly in the future. It will assemble

vehicles from semi knocked down kits (SKDs), adding locally sourced components. The

first military vehicle to be produced in the UAE has been unveiled at the International

Defence Conference and Exhibition (IDEX 2011), in Dubai.

The passenger car market is likely to grow in the coming years, but not at the pace

it has in the past, due to saturation and the increasing options for public transport,

particularly the Dubai Metro. Authorities hope that 30% of the population will use the

metro by 2020, so there is unlikely to be a large impact on the market in the near future,

however. Meanwhile, Dubai Motor Show is increasingly the venue at which it will launch

new models onto the Middle East market, boosting consumer interest in the Emirate and

beyond.

Abu Dhabi

Abu Dhabi has ridden out the global economic crisis significantly more strongly

than Dubai, largely due to its lower levels of leverage and the fact that the emirate has the

vast majority of the UAE‘s oil resources. It has not suffered a debt rollover like that of

Dubai World, though its sovereign wealth funds have incurred losses on their international

portfolios. Should oil prices remain relatively stable, Abu Dhabi‘s growth outlook will

remain rosy for many years to come. Although Dubai has dominated autos retail activities

in the UAE, Abu Dhabi is attempting to compete with Dubai in the retail sector. Prospects

for the automotive retail sector were boosted by a decision to allow 100% foreign

ownership of operations in the Industrial City of Abu Dhabi (ICAD) and other sector—

specific clusters, phased in over the next three to four years. The Higher Corporation for

Specialized Industrial Zones (HCSEZ) is planning a number of economic zones, including

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one dedicated to automotive industries. The Al Fahim Group‘s Emirates Motor Company

(EMC) opened the world‘s largest Mercedes-Benz showroom. The new AED200mn

facility includes a 4,382 square meter showroom, as well as a service centre and more than

250 work bays. The ambitious project shows the growing importance of the UAE market

in global premium car sales. Abu Dhabi is seeking to gain a foothold in the international

auto sector by buying stakes in leading car companies. Aabar Investments, an Abu Dhabi

investment fund, bought 40% of Daimler‘s share in electric-ear company Tesla Motors.

Tesla is a major player in the rapidly developing electric car market.

Strategic investments in European auto firms could pave the way for building up

the UAE's domestic auto industry. In March 2009, Abu Dhabi state-owned group

International Petroleum Investment Company (IPIC) completed its purchase of a majority

stake (70%) in MAN Ferrostaal, a unit of German industrial group MAN. The EUR490mn

deal will provide greater market access to countries where Ferrostaal is active, according to

IPIC managing director, Abdulla al-Qubaisi.

Northern Emirates

The Northern Emirates comprise Sharjah (population: 636,000), Ajman (235,000),

Ras al-Khaimah (RAK, 195,000), Fujairah (118,000), and Umm al-Qwain (62,000). Their

proximity to Dubai and their small size mean that they share the same exclusive

dealerships as the larger emirate. Of the five Northern Emirates, Sharjah is the most

populous, has the largest economy and is the only oil producer. Sharjah is also the most

important of the Northern Emirates in terms of the automotive sector. With more than 600

showrooms, the used car market that the Sharjah government operates is the largest in the

Middle East. However, the Sharjah market has been hit hard by the used car crisis.

According to Emirates Business, the market, which covers 1,465 square meters, used to

handle about 186,000 transactions annually, but Saudi Arabia‘s decision to ban imports of

old cars, along with a drop in demand by local customers, has significantly hurt business at

the market. Lack of public transport options in the Northern Emirates makes car ownership

a necessity for many residents.

On the production side, Ashok Leyland is developing a plant in RAK in partnership

with RAK Investment Authority (RAKIA), the government investment agency. RAKIA

hopes that this will be the first step in building an automotive industry in the emirate. The

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organization asserts that RAK can take advantage of its location and industrial free zones

to develop a thriving components segment.

4.2.2 Automobile Market by Segment

Small Cars

Although the UAE is regarded as a major destination for premium cars, the budget

car sector is also growing, as many more buyers are becoming cost conscious amid the

global economic downturn. The increasing popularity of budget cars also suggests that the

effects of congestion are taking their toll and consumers are turning to smaller cars. Small

cars contribute to 48% of the total passenger car market in UAE. Almost all the brands

have cars available in this segment like Toyota Yaris, Honda Jazz, Hyundai I20, Kia

Piccanto, Chevrolet Spark, Nissan Tida and Mazda 2.

Medium Cars

Medium cars contribute to approximately 28% of the UAE car market. The popular

brands in this segment are Toyota corolla, Nissan Sunny, Honda Civic, Kia Optima,

Hyundai Elantra , Ford Focus and Mazda3.

Large Cars

Large cars contribute to 20% of the total UAE car market. The most popular brands

in this segment are Toyota Camry, Honda Accord, Nissan Maxima, Kia Cadenza, Mazda

6, Ford Taurus, Chevrolet caprice and Hyundai Azera.

Luxury Cars

Luxury cars contribute to 4% of the total UAE car market. The Middle East‘s

luxury car segment shrank by around 25% in 2009, with Mercedes-Benz and Lexus among

the high-end automakers worst affected. Sales for ultra-luxury marques such as Rolls

Royce and Lamborghini seem to have held up better than those of more mainstream firms.

Sales of luxury vehicles are often used as a barometer of affluence in the region. The

proportion of prime and luxury car sales is directly correlated with per capita income.

BMW, Mercedes Benz, and Audi are traditionally regarded as premium brand car

manufacturers, but from the early 1990s Japanese luxury cars the Toyota Lexus and Nissan

lnfiniti have gained a strong foothold in the Middle East‘s luxury market. In the ultra-

luxury niche, Rolls-Royce, Maybach, and Bentley Cars dominate. High income economics

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such as the UAE tend to have strong demand across the sub-segments of the luxury

market. While Mercedes-Benz, Lexus, and BMW make up just below 60% of luxury car

sales, other groups are seeking to challenge their dominance.

4.3 COMPETITIVE LANDSCAPE

In the UAE, Japanese brands have the biggest slice of the market, accounting for

about two-thirds of all passenger vehicles. European brands follow with about a 15%

share. Korean and US car brands account for nearly 8% and 4% of the market respectively

as per the Automobile sector study by RAK investment authority. In the highly

competitive UAE automobile market, the Regional Transport Authority (RTA) has stated

that it would like the people to car ratio to be increased to around 2.5 from the current level

of 1.7. This would further add to the competitive race within the automobile brands

available within UAE. Some of the major brands in UAE automotive market are as

mentioned below

Toyota has traditionally been a market leader in the Middle East, even in the more

affluent Gulf countries, where it makes around 6.5% of its global sales. In UAE it is

represented by Al- Futtaim Motors. Toyota significantly strengthened its market leading

position in 2010 by achieving highest ever market share of 36 per cent. The 2010 total year

sales increased 33 per cent against 2009 demonstrating outstanding performance across the

market leading range of passenger vehicles and Sports Utility Vehicles (SUV). ―The future

for Al-Futtaim Toyota looks very exciting with new models arriving late this year and

throughout 2012 and 2013,‖ Andrew Squires, manager — sales planning and distribution,

at Al-Futtaim Motors, told Khaleej Times on the sidelines of a recent event. He also added

that Al-Futtaim Motors Toyota enjoyed considerably healthy sales during the first half of

the year despite the Japan calamity. Sales were up by 15 per cent during the year 2011.

Simon Frith, Managing Director, Al-Futtaim Motors, said, ―key performers within

the passenger car market saw the Camry maintain its leadership in the large car segment while

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the Toyota Corolla displayed significant growth, proving it remains the popular car of choice in

the medium car segment‖. Within the small car segment the Toyota Yaris hatchback grew

substantially. Toyota‘s four wheel drive range continued its legendary performance with the

FJ Cruiser, Landcruiser, Fortuner and Prado, dominating the medium 4x4 segment.

Ford Middle East achieved a 50 per cent sales growth in 2011 in its Ford and

Lincoln brands, top officials of the company said at a news conference in Dubai. UAE

sales posted a 35 per cent growth for last year, they said, adding that the same level of

growth is expected to be maintained in 2012. Sales in the country crossed the 9,000-

vehicle mark last year while GCC sales were around 67,000 vehicles, Ford Middle East

managing director Larry Prein told Khaleej Times. ―Consumers‘ perceptions about Ford

continue to strengthen, thanks to our ongoing introduction of new products that are leading

in quality, fuel efficiency, safety, smart design and value, and this is evidenced by the

outstanding achievements we registered in 2011,‖ he said. Ford in UAE is represented by

Al Tayer Motors and Premier Automobiles. Ford Middle East director of sales Hussein

Murad said that the company continued to witness increasing consumer preference

throughout the region and that confidence in its products was on an unprecedented high as

shown by the increasing share of retail sales over fleet, with nearly 65 per cent of total

sales. In the UAE, Ford and Lincoln sales posted a growth of 35 per cent in 2011 in which

passenger cars recorded a 50 per cent growth. Best-sellers included the Taurus, Mustang,

Fusion and Ford‘s all-new small car, the Figo. Meanwhile, trucks and SUVs registered a 20

per cent increase, driven by increased demand from the Edge, Escape, the new Explorer,

Expedition and F-Series trucks. Lincoln‘s new-gen crossovers, the MKX and MKT, were

also among the well-performing models in the UAE having achieved a double-digit

growth. Ford Middle East had earlier registered a 28% sales growth in the GCC markets in

2010 over 2009. In 2010, the Ford market share in UAE grew to 5% with Ford Explorer as

the best-selling car.

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The price war is providing a boost to South Korean automakers like Hyundai

Motor, whose prices have become more competitive compared to their Japanese and US

counterparts because of a depreciation of the won. Hyundai in UAE is represented by Juma

Al Majid Establishment. Isam Abu Nabah, the President of Juma Al Majid Est. for

Hyundai maintained that in 2010 , 10 percent growth was achieved over the year 2009.

"This year we have definitely seen the highest growth in sales since the recession," said

Kamal Al Shakhkshir, sales manager at Hyundai in the UAE. According to Al Shakhshir,

Hyundai in the UAE witnessed a 40 per cent growth in sales in 2011 for the first seven

months of the year compared with the same period last year. For Hyundai, the strong sales

came from the new models that were introduced.

Arabian Automobiles, the distributor of Nissan, Renault and Infinity in Dubai and

Northern Emirates and the flagship company of UAE based conglomerate AW Rostamani

Group, launched two new car brands in the UAE in 2010. In terms of sales, the dealer sold

25,204 units, up 18% y-o-y, which generated record turnover of AED2.5bn (US$

6S.06mn) in 2009. In 2010, the distributor achieved a sales growth of 20% over 2009.

Arabian Automobiles recorded an 18 per cent growth in sales during the year 2011

compared to the last year, according to a spokesperson for the company. Meanwhile, Al

Masood Automobile, the exclusive dealer for Nissan Motor in Abu Dhabi, returned to

positive sales growth in 2010, after a 25% y-0-y decline in 2009. The company‘s assistant

general manager, Humayun Alam, said that new model launched during the year, coupled

with the opening of a new regional auto complex, contributed to growth of around 10% in

the year 2010. The company‘s sales growth for 2011 was also in line with outlook for the

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industry as a whole, a growth of 8.-10%. The company is expecting a positive reception for

its new model launches, spearheaded by the new Nissan Patrol SUV, which has accounted

for 25% of its revenues over the last five years.

South Korean carmaker Kia Motors is looking to improve on its poor sales in the

UAE through investment by its local distributor in new and upgraded facilities. Kia will

invest almost AEDl50mn (US$40.84mn) together with Al Majid Motors (AMMC), the

sole distributor for Kia vehicles in the UAE. AMMC is a member of Juma Al Majid

Group, one of the most reputed business groups in the Arabian Gulf. AMMC currently

sells Kia vehicles in UAE through a network of 8 showrooms, 2 dealers and 3 more new

showrooms expected to be added soon. Kia currently has 5.8% market share in the UAE.

Kia's sales in the UAE fell by 35% y-o-y to around 8,000 cars in 2009, taking its revenues

down by 40% y-o-y. Kia Motors launched four new models in 2010, which is really

exceptional in global auto industry. All these new models were applauded with great

appreciation by the market, for its design, and advanced technology. Kia motors closed the

year 2010 with a growth of 26 per cent. Earlier in the year 2010 it rolled out the new

Sorento SUV and in March it launched the higher end Cadenza sedan. Both are aimed at

particularly strong vehicle segments for the UAE, as the SUV and premium markets are

traditionally strong and usually avoid the issue of credit by targeting more affluent

consumers. Sales across the UAE of Kia cars for the first seven months of the year 2011

increased 20 per cent in the UAE, compared with the same period last year, taking market

share from industry heavyweights Toyota and Nissan. There's no way we can compete

with them in terms of volumes yet, but we can take a slice of the market," said Ramesh

Amei, the product manager at Al Majid Motors, the exclusive distributor of Kia across the

Emirates. Sales of Sportage cars grew 26 per cent in the Emirates in the first six months of

2011 compared with the same period last year, and the model now makes up more than

half of Kia's sales in the UAE. Mr. Amei believes the Sportage is the leader with 40 per

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cent of the market in its segment, which includes the Hyundai Tuscon, the Toyota Rav4,

the Ford Escape and the Nissan Qashqai. The Korean car maker aimed to sell 10,000 units

in the year 2011 across the Emirates.

UAE was one of the few markets in the Middle East where General Motors

witnessed a drop in sales in 2010. Sales in the UAE fell from 13,915 units in 2009 to

11,156 in 2010. But the majority of this fall was attributed to the discontinuation of the

Hummer brand, which was very popular in the UAE. In the UAE, General Motors has

three dealers, Bin Hamoodah in Abu Dhabi, Al Ghandi Auto and Liberty Automobiles in

Dubai. Top selling models in the UAE are the Chevrolet Tahoe, followed by the GMC

Yukon, the Chevrolet Caprice, GMC Sierra and Chevrolet Cruze. After posting the best

sales month of the year in December, GM‘s dealers in the Middle East reported total sales

of 139,431 vehicles for 2011 - up 13 percent compared to 2010. ―The impressive

performance was the result of robust sales throughout the region for the company‘s line-

up of passenger cars, crossovers, sport utility vehicles (SUVs) and pickups across the

Chevrolet, GMC and Cadillac brands‖, said John Stadwick, President and Managing

Director of GM Middle East.

Gargash Enterprises, the official distributor of Mercedes-Benz in Dubai and

Northern Emirates region, revealed a 10 percent increase in new car sales for the year 2010

compared with 2009. This rise was spurred on primarily by sales of the new E-Class and

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face lifted S-Class. The exclusive distributor for Mercedes-Benz in Abu Dhabi and Al Ain,

Emirates Motor Company is one of the Middle East's leading distributors for Mercedes-

Benz and owns the largest Mercedes-Benz facility in the world. Mercedes sales for the year

2011 was almost as impressive as the sales for 2008, the best year yet. MB revealed the

results to media at a press conference held at the Omega Dubai Desert Classic where they

claimed that both SUVs and AMG vehicles will drive their brand forward. The new

models launched in 2011- including SLK Roadster, C-Coupe, CLS and C-Class Facelift –

contributed to the improved sales, with nearly 17,000 units sold overall in the region.

Dubai and Abu Dhabi retained their market position delivering a 10% increase in sales and

accounting for 39% of Middle East sales overall.

German carmaker BMW recorded an 18 per cent sales increase in 2010 in the

Middle East, selling a record 17,119 cars in the region. BMW Middle East said last year

was the most successful year in the Group‘s history in terms of regional sales as the

German automobile company sales jumped by nine per cent in the region. The company

reported record sales for both new and pre-used BMW cars in the region for 2011 and said

the UAE contributed 47 per cent of the regional sales across 14 markets in the Middle East.

Three new models will be launched in the first half of 2012, Dr Joerg Breuer, managing

director, BMW Group Middle East, told reporters. With a total of 18,657 BMW and MINI

vehicles delivered to customers across 14 Middle East markets, the company‘s year-end

results clearly demonstrate the continued strength of both brands in the region - with most

of its importers reporting an increase in sales in 2011 and a number of markets recording a

double-digit growth. The UAE remained the biggest market, accounting for 47 per cent of

BMW Group Middle East‘s 2011 sales. Abu Dhabi was the highest volume selling market,

with a 23 per cent growth and 4,436 cars sold while Dubai also witnessed an increase of 23

per cent with 4,395 cars sold. BMW is represented by AGMC motors in Dubai and by Abu

Dhabi Motors in Abu Dhabi.

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The last two years have been a critical test period for the automobile sector in the

UAE. And to survive the harsh conditions, automobile dealers have had to reinvent the

way they marketed their vehicle brands. Every brand worth its name has taken a jolt and

only the tough have survived. Mitsubishi continues to carve a niche for itself during these

trying times and Al Habtoor Motors the official dealer of the brand in the UAE has

achieved an impressive growth rate. Mitsubishi‘s market share grew by an impressive 25%

in 2009 and was the only Japanese manufacturer that achieved such a growth rate. Over

the last two years, Al Habtoor Motors has moved from third to second position in the UAE

for achieving substantial growth in vehicle sales. Al Habtoor Motors continues to build on

its established success by being the ‗Number One Dealer for Mitsubishi in the Middle

East‘ for the seventh year in a row. Al Habtoor Motors sells an average of 45,000

Mitsubishi cars annually. In 2008, when the market was at its peak, the company sold

around 55,000 cars.

Honda is a very strong brand in UAE. It is represented by Trading enterprises in

entire UAE. The all new Honda civic was launched in 2010. Al-Futtaim Honda announced

the opening of its new state-of-the-art showroom in Abu Dhabi. The showroom in

Musaffah is its second in the capital. The opening of the new showroom is part of the Al-

Futtaim Group company's continued expansion rollout and further reiterates the Group's

leadership position in the automotive sector in the UAE. With the opening of the new

showroom, Al-Futtaim Honda now has 10 showrooms in the UAE.

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Mazda in UAE is represented by Galadari Automobiles. Galadari Group over the

past four decades has grown to become one of the most respected business organizations in

the U.A.E. Commenting on the launch of Mazda 2 in UAE, Mr. Kenji Sato, Sales &

Marketing Manager, Mazda Middle East, said: "Launch of 2011 Mazda2 in the UAE

represents a strategically important step for Mazda, signaling the brand's entry into the

small car segment. The UAE market continues to remain a core focus in our regional

expansion strategy‖. The Japanese manufacturer has increased its market share in 2011.

"We are also looking to increase it by a further 15 to 20 per cent in 2012. We have an

aggressive plan, including the opening of our new showroom on Shaikh Zayed Road in

April 2012," said Axel Dreyer, General manager of Galadari Automobiles, sole distributor

of Mazda.

4.4 INDUSTRY FORECAST SCENARIO

The UAE‘s automotive market is showed strong signs of recovery in 2010, after a

substantial dip in sales in 2009. A previously burgeoning market was trimmed by the

global economic crisis, which had a particularly strong impact on Dubai, where real estate

values fell and major government backed corporations were unable to meet their debt

obligations.

Vehicle sales fell to 325,274 units in 2009 from 355,177 the previous year as

financing was tightened and the economy tipped into recession. However, a rebound in the

oil price to a historic high or around US$75-80 per barrel has helped haul the economy

back into growth. Nonetheless, credit remains somewhat tight, and caution is the

watchword for many investors. The UAE has become one of the favorite markets for

automobile companies around the world, primarily as the Middle East has been one of the

more resilient regional markets for automobile manufacturers compared with North

America and Europe. Before the global economic crisis, vehicle numbers were easily

outpacing the rate of population growth. The number of vehicles on the road rose 49% to

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583,015 units in 2008, from 392,546 units in 2006, according to the Abu Dhabi Traffic

Department. The growth in the number of vehicles was attributed to the increase in

residents and new companies entering the city. In Dubai, the number of registered vehicles

rose to 1.045mn in 2008, up from 853,827 in 2007.

But the economic downturn took its toll on this robust growth. Dealers reported

high levels of unsold stock and dwindling profit margins for 2009. The automotive market

in the Middle East and Africa (MEA) benefited from a boom in consumer credit in 2005-

2007. With a higher proportion of premium brands than most developed markets, the value

of the automotive finance market in the Gulf Cooperation Council (GCC) was worth up to

US$30bn. In the UAE, up to 80% of new car sales depend on financing, and consequently

the global credit crunch has put the brakes on rapid growth in auto sales. The growth of the

automotive market in the UAE has led to the creation of the Dubai Auto Zone (DAZ) to act

as a centre for the industry, accommodating all areas of industry including dealers.

Although, UAE is regarded as a major destination for premium cars, the Budget car

sector is also growing, as many more buyers are becoming cost conscious amid the global

economic downturn. Many dealers are trying to appeal to price savvy consumers, offering

plans that let them spread their payments out over longer periods. The ultra-premium

segment has been least affected, as residents with high net worth will remained relatively

untouched by the credit crunch.

An unexpected fillip to some firms in the industry may come from tightening

environmental legislation in the UAE, where such regulation has traditionally been loose.

Promoting biodiesel as a viable alternative fuel and the use of hybrid vehicles goes well

with the latest vehicle emission standards introduced in the UAE. The maximum permitted

carbon monoxide levels in exhaust emissions have been cut to 2.5% in 2010. The

regulations sit alongside a rule to phase out the use of cars over 20 years old to further cut

back on emissions.

A more accurate picture of the UAE's economy has emerged following the release

of 2009 and 2010 GDP Data. According to the National Bureau of Statistics, real GDP

contracted to 1.7% in 2009, before rebounding to expand 1.4% in 2010. Although the

outlook for the UAE has certainly improved over the past couple months, it is important to

keep in mind that the economy entered 2011 with some fundamental structural

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weaknesses. Given Dubai's still faltering real estate market and large debt repayment

schedule this year, growth momentum was constrained in 2011 regardless of the higher

push in oil prices and the improved outlook for the tourism sector. Still it is estimated that

2012 GDP growth rate will be at 3%.Opinion remains divided on how strong UAE‘s

comeback will be.

By 2014, sales should reach 564,043 units according to an estimate by Business

Monitoring International. Over the period, some consolidation within dealerships is

expected, with smaller firms at risk of going out of business and larger dealerships taking

on their sole distribution rights. There is also scope for the emergence of more cross-

Emirates distributors. At present, sole distribution rights differ between emirates.

4.4.1 The Outlook Ahead

With Dubai's economy likely to remain stagnant at best during 2011, Abu Dhabi

will take over as the engine of UAE growth. The post-2003 boom was driven mainly in

Dubai and the neighbouring emirates, such as Sharjah, benefited from their own booms as

property buyers moved east in search of lower house prices. The coming years will bring

about a shift in the balance of population and GDP in Abu Dhabi‘s favour. The latest

confirmed figures for Dubai put its GDP at AED302bn in 2008, which is 32.3% of the total

UAE GDP, down from 34.9% in 2007.Dubai‘s economy will continue to contract in 2012,

as only Abu Dhabi sponsored enterprises are able to get finance. As most of the economic

activity will remain in Abu Dhabi, so will most of the jobs, and the population balance is

expected to shift similarly.

Abu Dhabi will be the motor of UAE growth, fuelled by oil. Despite the surge in

real estate, tourism and other service sectors over the past five years, oil still accounts for

around a quarter of the UAE economy. This wealth is concentrated in Abu Dhabi, although

the revenues that it generates flow into local banks, which in turn fund activity across other

sectors. The outlook for the oil market remains positive. For the year as a whole, an

average price of US$ 102 per barrel is forecasted.

Dubai still has excellent transport infrastructure and was ranked the world‘s sixth

busiest container port in 2008 (in terms of volume of goods transported) and by far the

largest in the Middle East, handling more than three times as much cargo as its nearest

regional rival (Jeddah in Saudi Arabia). Much of this business is driven by demand

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elsewhere in the Middle East, as well as Asia, North America and Europe. As a result, it

will make a positive Even if the population does grow, the loss of wealth due to lower

house prices, coupled with the ongoing precariousness of employment, mean that the shift

towards more cautious spending patterns is likely to persist well into 2012.

Abu Dhabi continues to expand its overseas portfolio, in order to balance its

reliance on the oil sector and generate new income streams. The government owned

entities (including The Abu Dhabi Investment Authority, The Emirate‘s Sovereign Wealth

Fund) were linked to a string of overseas deals, ranging from a Bangladeshi mobile phone

operator to a US entertainment company. The emirate has plenty of funds in reserve to

sustain its spending in the short-to-medium term.

4.5 SCENERIO OF AUTOMOTIVE RELATED BUSINESSES IN UAE

4.5.1 Parts and Components Trade

The parts trade in the UAE alone has been growing by around 20% annually,

although the slowdown in car sales last year is likely to impact the components sector. The

figures show that a regional drive throughout the Gulf states to encourage the use of

genuine spare parts is proving successful. Around 65% of imported spare parts and

accessories are re-exported to other countries in the Middle East, to Africa (where new

destinations such as Libya and Sudan are increasing their share of the UAE re-export

trade), and to former Soviet Union states. In Dubai alone, trading in auto spare parts

exceeded AED29bn in 2009, according to data from the DP World Statistics Department.

According to figures published by the Dubai Chamber of Commerce and Industry

(DCCI), companies operating in Dubai‘s automotive sector – including retail, maintenance,

repair, parts, and accessories – have an average annual turnover of AED4.5mn

(US$1.23mn) and employ an average of seven people. According to DCCI data, these sub-

sectors are dominated by small-sized companies, those with fewer than 10 employees, and

84% of motor traders fall into this category. However, 61% of total turnover in the motor

trade sector is generated by medium-sized companies employing 10-99 people. The trade

data from Dubai World‘s statistics department shows that Japan remained the leading

exporter of autos spare parts to Dubai. The leading destinations for re-exports were Iran,

Iraq and Russia, the report said.

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Analysts have pointed out that the UAE has considerable potential as a vehicle

components manufacturing centre. Its competitive advantages include a favourable tax

regime, a range of industrial free zones (with few export and import limitations), Dubai‘s

world-class Jebel Ali port, relatively low labour costs and the country‘s location between

many major vehicle manufacturing nations, including Turkey, Egypt, Iran and India.

4.5.2 Manufacturing

Despite the size and potential of the UAE market, the emirates still have no

significant passenger car assembly operations, although this is set to change in coming

years. The UAE has also been making strategic investments in European auto firms, which

could pave the way for building up a domestic industry. Leading the investment has been

Abu Dhabi‘s Aabar Investment, which acquired a stake in Daimler in March 2009 and

which made an investment in electric car maker Tesla Motors. Such investments should

eventually encourage technology transfer. Swedish automaker Scania`s JAFZA plant

opened in April 2009. With this new factory, the automaker will become the first vehicle

assembler in the UAE. It will provide completed vehicles to all states in the GCC. The

plant is modest with a capacity for 1,400 vehicles a year, initially for construction haulage,

such as tipper and concrete trucks, but is to be adapted for bus chassis assembly in the

future. It will assemble vehicles from semi knocked down kits (SKDS), adding locally

sourced components.

Founded in 2003, Trans Continental Industries is the UAE`s first facility for

manufacturing buses and other additional components and began operations in 2006. The

company‘s assembly operations are based in the Mussaffah Industrial Complex in Abu

Dhabi. The facility, the first of its kind in the UAE, is planning to expand its

manufacturing base, targeting production of mini buses, school buses, public transport

buses, luxury coaches and built-to-order buses. At present, it manufactures bus bodies and

components, including the base structure for chassis, doors and seats.

Ashok-Leyland is developing a plant in Ras Al Khaimah in partnership with RAK

Investment Authority (RAKIA), the government investment agency. RAKIA hopes this

will be the first step in building an automotive industry in the emirate. It asserts that RAK

can take advantage of its location and industrial free zones to develop a thriving

components segment.

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4.5.3 Fleet and Rental Contracts

The UAE‘s rental sector is becoming more competitive, with firms reducing

charges to encourage drivers to rent cars instead of buying them. More competitors are also

entering the rental market, looking to take advantage of the increasing tourist inflow in the

UAE. Car rental is also a cheaper option to buying a car at a time when car loan rejections

are rising in the UAE and expatriates in particular tend to hire vehicles rather than take on

more debt. Tourism is a key pillar in the growth strategies of the individual emirates, Abu

Dhabi, for example, plans to increase the number of tourist visitors from 1.8mn in 2007 to

3.3mn in 2013. UAE based rental company Hertz UAE announced investment plans for

upgrading its 600 vehicle fleet of Toyota Land Cruiser Prado in December 2009. UAE

based car rental company Fast Rent A Car announced that it will invest AED45mn

(US$l2.25mn) in its specialized bus leasing division. Car rental company Budget Rent A

Car said that it was expanding its business in Abu Dhabi by opening two new city offices.

The company has a total of 16 offices in the UAE, including offices at the Abu Dhabi,

Dubai and Sharjah international airports. Thrifty Car Rental and Dollar Rent a Car,

revealed its plan to open three new outlets in the UAE. The move increases its locations

served to 21 and its workforce to 135. Dollar also expanded its dealership network with

new centers at the Abu Dhabi and Sharjah airports, Fujairah and Ras al-Khaimah. Other

players in the market include Global Car and truck rental organization, National Car

Rental, Go Rent a Car which are International licensee in the UAE, which offer short and

medium-term vehicle hire to corporate accounts and individuals, as well as offering leasing

and chauffeur-driven services.

4.5.4 Automotive Finance

Automotive finance in the UAE is easing after the financial crisis, but is not

flowing as freely as the positive economic outlook and banking results might suggest.

While the Emirates lnterbank Offered Rate (EIBOR) has remained low for over a year, at

around or below 2%, actual market lending has generally been at a much higher rate, as

banks have looked to shore up their capital during and after the downturn. Many have also

tightened their lending terms to avoid nonperforming loans. In the UAE, up to 80% of new

car sales depend on financing. Lending has picked up the second half of2009 and early

2010 as the economy started to recover. However, it seems that banks are still keeping a

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relatively tight rein on credit, which is likely to have some effect on the automotive sector.

Many financial firms and auto dealers have partnered up in a bid to tackle the credit

problem. For instance, Islamic bank Ajman Bank and Al Futtaim Group entered a strategic

partnership in June 2010 to offer commercial vehicle finance with flexible options to

customers. UAE-based bank Emirates NBD signed a strategic agreement with Arabian

Automobiles in June 2011, the exclusive dealer for Japanese automaker Nissan Motor in

Dubai and the northern Emirates, to launch the 'Nissan Freedom' buy-back programme.

Arabian Automobiles will provide an option to buyers of Nissan cars to upgrade their

vehicles after every three years. It says monthly installments will be lower for buyers

taking loans from Emirates NBD, with the options to upgrade, pay back or carry on with

the loans.

Despite such moves, the dearth of financing was still being cited as a problem

holding back sales. Gulf News reported that approval rates on auto loans for Kia customers

in Dubai and the northern emirates was as low as 25%. By comparison, pre-crisis approval

rates were around 80%, the publication said, citing the general manager of Al Majid

Motors, which operates Kia sales in the UAE.

The central bank‘s tightening of auto finance to 80% of vehicle value prompted Al

Futtaim Motors to offer a payment plan for Toyota models in May 2011. The move, in line

with similar offers made by carmakers and distributors, allows customers to pay for

deposits over a 24-month period. The structured 20% payment is also interest free, in an

attempt to cushion an overnight slide in sales.

The automotive market in the Middle East and Africa (MEA) region benefited from

a boom in consumer credit over 2005-2007. According to Emirates Business, the UAE

auto finance market is now worth AED8bn-10bn annually. With 70-80% of UAE vehicle

sales financed through credit, restrictions on lending pose a challenge to the growth of new

car sales.

4.5.5 Used Cars

The UAE has positioned itself as a regional exporter of used cars in the Middle.

According to BMW Middle East, importers have invested heavily in the manufacturer‘s

used car programme. The BMW Premium Selection programme is currently offered in

Abu Dhabi and Dubai. Arabian Automobiles, as the exclusive distributor of Japanese

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brands Nissan and Infiniti and French brand Renault in Dubai and the Northern Emirates,

launched a promotion campaign to target the pre-owned vehicle market. Dubai‘s Used Car

Complex hosts nearly 200 showrooms, offering a single place for customers to purchase

vehicles. Elsewhere, in the used car premium segment, Mercedes distributor Gargash

Enterprises opened a new showroom for used cars in June 2008. Other UAE dealerships

are following Gargash's example. In June 2008, Western Motors, sole distributor of Jeep in

Abu Dhabi and Al Ain and a member of Alfahim Group, expanded its facilities with the

opening of a pre-owned Jeep Car showroom in Umm Al Nar in Abu Dhabi.

4.5.6 After-Sales Business

Despite the lack of a significant vehicle production industry in the UAE, the after-

sales business is a healthy one, with average annual growth of 20%, according to the Autos

Parts Merchant Group (APMG), which represents automotive and spare parts dealers in the

UAE. There are reportedly 4mn passenger vehicles in the Gulf region, with about l.3mn of

them in the UAE. This large number of vehicles offers much opportunity for the after-sales

industry, which is valued at around US$5bn. Now, as competition increases, dealers are

increasing their focus on improving after sales businesses. Toyota and Lexus dealer Al

Futtaim Motors has upped its spending on alter-sales service by 35%. Emirates Motor

Company (EMC), the exclusive Mercedes-Benz distributor in Abu Dhabi and Al Ain, is

focusing on its commercial vehicle after-sales services, with new maintenance contracts

which aim to provide clients with more benefits. UAE-based Arabian Automobiles, the

exclusive dealer for Nissan, its premium brand Infiniti and French automaker Renault in

Dubai and the northern Emirates, has started the country's first 24/7 service centre. The

centre is expected to service 300 cars daily. The company is continuously investing to

improve its facilities in an effort to cater to the increasing demand of retail and corporate

customers, according to CEO Michel Ayat.

From the above it can be concluded that Automobile market in UAE accounts for

an important economic activity in the region. Sustenance of this industry in the long term

is important since it adds to the economic activity through so many associated industries as

well. Therefore, It would be important to study the elements of automobile industry

structure in UAE.

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REFERENCES

"Arab versus Asian migrant workers in the GCC countries", UN Department of

Economic and Social Affairs.

Business Monitor International – UAE Auto Report.

CIA –The World Factbook – United Arab Emirates from

https://www.cia.gov/library/publications/the-world-factbook/geos/ae.html.

CIA – The World Factbook – Country Comparison: Oil – proved reserves from

https://www.cia.gov/library/publications/the-world factbook/rankorder/2178rank.html.

Dubai Chamber of Commerce- The economic bulletin volume 7, Issue 80, page 6.

The Economist Intelligence Unit from

http://www.eiu.com/index.

IMF Data Mapper from

http://www.imf.org/external/datamapper/index.php.

Statistics-Human Development Reports (HDR)-United Nations Development

Programme (UNDP) from

http://hdr.undp.org/en/statistics.

Wikipedia – UAE from

http://en.wikipedia.org/wiki/United_Arab_Emirates