Wheels of fortune

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Carlos Ghosn, CEO, Nissan.

"We are certainly not expecting to see the year-on-year 20 to 25 percent growth for Land Rover, and in Jaguar's case the 35 percent increase, that we saw in 2008 and 2007," he says. "Do I think the market will remain stable and that we'll achieve our 2008 number again? I doubt that we will to be honest.

"We are certainly looking at a lower number than 2008 and the reason for that is the US has probably had a good nine to 12 months of slowdown for them to work out a [car sales] run rate. Europe has had around six months and we have had eight weeks."

While fewer sales are expected this year, the company is still in good shape after reporting a $847.3m profit between January 2007 and July 2008­. "All car manufacturers should expect to see their sales performance in some way linked to the property market in the UAE," Colgan claims.

"As there is a slowdown and correction in the property market, I think it's reasonable to expect to see a slowdown in car sales.

But we had a strong business before the downturn started, we have a strong business now and we will have a strong business when we come out the other end."

Japanese car manufacturer Toyota recently said it expects "moderate" growth in Middle Eastern car sales during this year's opening half. But that was before the company forecast $3.8bn net losses for the year to March 2009 - its first drop since 1950. During last year's fourth quarter, Toyota sold 443,000 fewer vehicles globally than the same period in 2007. The sales slump was attributed to the global automotive industry downturn.

Elsewhere, US automotive giant General Motors announced last week it will axe 10,000 workers globally and reduce wages by three to 10 percent for an undisclosed number of white collar workers.

Meanwhile, Ford Middle East has shrugged off its US parent company's financial woes - which include a $14.6bn loss for 2008, the company's worst figures in its 105-year history - claiming it is strong enough to withstand the challenging environment.

The automaker's Middle East arm insists the business has the right plan and products for continued success in 2009, following a 23 percent growth in sales last year. The coming months will show whether Ford's bullish attitude is well founded. But Frost & Sullivan's Paul says tighter credit lines among Gulf banks is a worrying trend for the local car industry.

"It's exceptionally difficult right now to get financing and banks have increased the basic salary levels required to apply for a loan," he stresses. "They are also not giving 100 percent loans with a 20 to 30 percent down payment required. It's going to be very difficult for some companies to sell their cars through finance this year."

BMW's Horton also fears that more cautious bank lending will affect car manufacturers in the Middle East.

"They [banks] are sitting on reasonable reserves but they just seem scared to lend. If you're not going to lend on property, which they seem extremely reluctant to do, then if they want to do some business they have to lend on something," Horton says. "The single biggest short-term issue is customers not getting credit."

While tighter credit lines are expected to hit lower-end manufacturers, Paul believes sales of class-A cars will not suffer too badly in 2009.

"If you look at the large markets like Saudi Arabia there are people that have to rely on finance to buy cars, but there are a lot that don't have to," he states. "In that sense, the impact of the slowdown is going to be lesser in the Middle East, but it will face it. It is going to have a significant impact, but not on the luxury car segment."

Despite the negative outlook, Paul does foresee a glimmer of hope for local car manufacturers. He expects most operators to hit a few bumps on the road to recovery this year. But following a difficult opening half, Paul predicts the sector will start showing signs of an upturn by the end of the summer, bolstered by state-backed liquidity injections in other industries.

"The industry will be looking up by the third quarter of this year, but it is going to be more temperate growth and people will be very cautious in terms of their investments and plans," he says.

"In terms of a catalyst, we are talking about infrastructure, finance and bailout packages for specific companies. For those to have an effect it's going to take time and you'll see signs of the economy recovering about eight months down the line."

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