GCC auto sector to grow in 2010

Following a substantial slowdown in 2009, the automotive market in the Gulf Co-operation Council (GCC) region is expected to drive higher this year – thanks to recovery in economies, improvement in confidence and ease of credit, according to studies by Business Monitor International.

The UAE automotive market is showing 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.

Vehicle sales fell to 325,274 units in 2009 from 255,177 the previous year as financing was tightened and the economy tipped into recession. However, a rebound in the oil price to a high of around $75-$80 per barrel has helped haul the economy back into growth, with BMI forecasting a 2.8 per cent expansion in GDP.

Nonetheless, credit remains somewhat tight, and caution is the watchword for many investors. BMI projected vehicle sales grow by 8.5 per cent to reach 352,913 units in 2010, slightly below 2008 levels, but representing a good recovery from 2009.

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.

Many banks have tightened their lending terms to avoid non-performing loans, which means the auto market's recovery is not as strong as it might have been.

The UAE market as a whole sees increasing competition. Toyota Motor has traditionally been a market leader in the Middle East, even in the more affluent Gulf countries, where it makes around 6.5 per cent of its global sales. However, the firm has apparently been losing its competitive edge in recent years, with rivals gaining on its world-leading market position.

Arabian Automobiles Company, which is the exclusive dealer for Nissan Motor, Infiniti and Renault, sold 25,204 units, up 18 per cent year-on-year, and generated record turnover of Dh2.5bn. By 2010, the distributor is aiming to claim a 25 per cent share of the UAE vehicle market, which would put its annual sales at over 80,000 units per annum.

BMI said the rebounding Bahraini economy is likely to drive new vehicle sales growth by about 2.5 per cent to 45,724 units this year.

"The solid performance we are forecasting comes on the heels of the auto market's resilience in 2009, when sales only posted a marginal decline. A range of factors, including tighter lending, inventory shortage and lower consumer demand contributed to last year's slight decline. But vehicle sales have been in recovery mode since they bottomed out in Q2 2009, and economic conditions have been steadily improving since then," BMI added.

Car ownership in Bahrain has been steadily rising. Currently at 56 per cent, it is expected to reach about 61 per cent over the next few years as the vehicle sales are expected to show a 15 per cent rise from 2009 levels.

Kuwait's auto market is growing slowly but steadily in 2010, as economic recovery and renewed confidence gain momentum. Sales took a small dip in 2009 as the impact of the global financial crisis was felt, particularly in lower crude oil prices. With incomes and banking liquidity tightening, sales fell slightly to 119,133 units, from 122,632 in 2008.

While growth has returned to the economy, there are still factors holding back the auto sector, which remains, fundamentally, a small market. Recovery will therefore be gradual. BMI forecasts vehicle sales rising to 121,861, still below 2008 levels. By 2014, annual sales in Kuwait should reach 140,361 units.

BMI forecasts real economic growth of 1.7 per cent for 2010, accelerating to 4.2 per cent by 2014. This assessment balances both the upside factors and the downside risk associated with the Kuwaiti economy, which apply more or less directly to the auto sector.

Given its geography and wealth, Kuwait will continue to be an appealing destination for many automakers, particularly in niche businesses.

Source: www.business24-7.ae