A new report claims that first-quarter new-car sales in the GCC for 2017 are down by 30% compared to the same period in 2016. And new-car sales in 2016 overall were already down by around 27% compared to 2015.
The Autodata Middle East report mentions cost-cutting and job losses at automotive distributors due to lower sales. By the end of Q1 this year, the report says the GCC experienced a 30% drop in new car sales year-on-year, with Bahrain alone at 41%, followed by KSA at 38% and UAE at 28%.
The report says “this decline in activity resulted in dealers and distributors holding too much stock of both new and used cars. By the end of Q1, we saw the increase in consumer offers as the industry tried to generate showroom traffic. The manufacturers increased their financial support on new cars which then put pressure on their certified pre-owned car pricing which made them uncompetitive.”
“By the end of April, industry insiders were already pinning their hopes on a good Ramadan period for car sales. The offers were launched prior to the start of the Holy month and were even more generous than previous years….The elephant in the room was the fact that in real terms, new cars became cheaper. This had the effect of making Certified Pre-Owned cars look even more expensive and so sales of these slowed. As long as the manufacturers continue to push new cars into a shrunken market their residual values will fall.”
“While it is still too early for any firm numbers the feedback we have received from our contacts indicates that the Ramadan/EID period did see some increase in showroom traffic but sales levels were just classed as normal. As expected, those with the “biggest” consumer offers reigned supreme is the indication so far.”
With VAT due to be introduced at the start of 2018, Autodata believes this will create demand for a typical CPO (Certified Pre-Owned) car. “The VAT treatment of a used car is considerably different to a new car; the nearly new item will be seen as a more affordable option. This should be a great opportunity for the more professional operator to drive sales and rationalise the inventory levels”, said Ian Batey, General Manager at Autodata Middle East.
“We know some analysts are stating that there will be a rush to buy new cars before VAT is introduced. Our view is somewhat different in that most new car sales are already discounted to more than the 5% rate of VAT and so the consumer offers will be realigned to “we pay the VAT” so that the end result for the consumer is the same.”
Autodata claims this is not a “downturn” but a market correction for the last 6 months. “This correction has been 18 months in the making and we believe that this is the new normal”, said Ian Batey. “The market has now stabilised. We do not forecast any market growth until 2019 and then only a modest 5%.”
Their message to industry is to concentrate on maximising market share and promote CPO rather than chasing non-existent growth. Stating the obvious, their advice to the consumer is there has never been a better time to buy.