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Viewing report
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United Arab Emirates Autos Report Q4 2011
Business Monitor International, Oct 2011, Pages: 67
Although hit by a central bank overhaul of auto finance in May, car sales in the UAE are expected to rebound significantly in 2011 as the country’s economy demonstrates a fuller recovery from the 2009 Dubai debt crisis and experiences the benefit of higher oil revenue.
However, BMI's view that credit restrictions will create opportunities for vehicle financing units in the Middle East is playing out, as dealers in the UAE launch finance programmes in response to new credit regulations. The new rules state that banks cannot lend more than 80% of the vehicle's value.
Coupled with that is a restriction on the amount of credit an individual can undertake in relation to their monthly income. Anecdotal evidence shows that vehicle sales in the UAE fell by between 20% and 40% year-onyear (y-o-y) as soon as the new rules came into effect, as many consumers predictably brought purchases forward to March and April when 100% financing was still available.
However, some carmakers and dealers are taking a pro-active approach to boosting sales with their own financing packages. There is clearly a response to the new banking regulations in some of the schemes, which cut down the monthly instalments. Under the new regulations, loan repayments should not account for more than 50% of a person's monthly income.
BMI believes there is already a precedent for the growth of carmaker and dealer-backed financing in the UAE, and evidence that it can encourage growth in sales. Following the global financial crisis, dealers began offering more finance packages, which led to a gradual uptick in sales from late 2009.
Providing some form of financing is vital to an autos market such as the UAE, which is very credit oriented. Dubai's car imports rose 33% in 2010. Car re-imports grew 8%, making them equal to the pre-crisis 2008 level of US$2.45bn. In 2005-2010, Dubai imported most vehicles from Japan (44%) and re-exported vehicles to Libya, Iraq, Iran and Saudi Arabia.
Iraq, Iran, Libya and Saudi Arabia were the primary markets for re-exports in 2010. However, following political unrest and UN sanctions in two of the countries, re-exports are expected to decline in 2011, according to industry sources. Import of vehicles in Dubai was up 33% y-o-y, to AED20bn (US$5.45bn), in 2010.
Over the medium term, BMI expects to see sales growth to be sustained at above 1% y-o-y over 2012- 2013, before slipping to 0.88% and 0.95% in 2014 and 2015.
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