Arab Spring car sales rise as regimes spread money

State handouts by GCC states seeking social stability help kickstart car-buying frenzy
The Lexus LF-LC Hybrid concept vehicle (Getty Images)
By Bloomberg
Wed 01 Feb 2012 08:25 AM

In the midst of rebellion and turmoil, automakers led by
Volkswagen and Ford Motor Co are investing more heavily in the Middle East.

VW plans to introduce the Polo subcompact and the US-built
Passat sedan in the region this year. VW’s Lamborghini projects growth of 50
percent.

“With the new models, we have new segments that we conquer,”
said Stefan Mecha, managing director of Volkswagen’s operations in the Middle
East. “Last year, we didn’t have the Passat at all, so I would say we have huge
opportunities with this car.” He said VW may increase sales 40 percent this
year in the region, which includes Iraq, Israel and the Gulf states.

Car sales are growing because oil prices are high and
several countries are pumping money into their economies to seek social
stability amid the Arab Spring uprisings. The price of crude has gained 6.7
percent over the past 12 months.

“The rest of the world is struggling, so you think, ‘Why are
sales in the Gulf going up?’” said Pierluigi Bellini, a Milan-based IHS
Automotive analyst who oversees the Middle East market. “You have oil prices
that are not going down, and governments spending more because they want to
reassure people.”

Abdullah Saeed, who works at a Saudi investment firm, was
browsing for an Audi sedan at a Riyadh showroom this week.

“Most people, when an increase in their income happens, they
spend it on buying cars,” he said, adding that unrest in nearby Bahrain and
Syria didn’t make him think twice about making a major purchase to replace his
Audi Q7 sport-utility vehicle.

Sales of cars and light commercial vehicles in the six-
nation Gulf Arab region are expected to grow 6.6 percent this year to 1.28
million vehicles, according to IHS.

Deliveries in Western Europe are projected to drop 5.7
percent to 13.6 million autos, which would mark the fifth consecutive annual
decline.

Saudi Arabia, the No. 1 oil exporter and the Arab world’s
largest economy, is the automakers’ biggest regional market, representing 50
percent of sales. King Abdullah pledged 66,000 jobs in teaching and health
care, as part of $130 billion of extra spending.

In the United Arab Emirates, the second-biggest Arab economy
and home of Dubai, the region’s trade and business hub, the government plans to
allocate AED7bn ($1.9bn) of its budget for housing loans for citizens to
maintain “social stability.” In March, it announced a AED5.7bn package to fund
water and infrastructure projects in northern emirates.

Qatar raised salaries of government employees 60 percent,
while army and police received a 120 percent raise.

“A stable political situation, of course, is a substantial
driver for any economy, and the same is true for the Middle East,” said
Bernhard Maier, head of sales at Porsche SE’s car- making business, which plans
to start setting up a site in Qatar this year to test new materials. “We really
experienced a very strong 12-year period here in the region and are very confident
looking forward to 2012.”

Volkswagen, Ford and Renault SA said they plan to invest in
showrooms and offer new vehicles to tap the region’s mainstream buyers.

“The middle class are more and more empowered now,” Hussein
Murad, director of sales for Ford in the Middle East, said in a Jan. 22
interview in Dubai.

Ford plans to open six sales outlets as well as a $53m parts
center in Saudi Arabia this year. Eight new models will be brought to the
region this year including the Focus, Taurus and Escape.

Toyota Motor Corp. recently introduced the Yaris and Camry
to the UAE and plans to roll out more models and open two showrooms this year,
said Simon Frith, managing director at Al- Futtaim Motors, the carmaker’s
distributor in the country.

Renault increased showrooms in the Gulf last year to 30 from
22 and plans to expand sales outlets by as much as 15 percent this year as it
targets a 30 percent increase in deliveries, Mustansir Lakdawala, managing
director for the French carmaker in the Gulf, said in a Jan. 30 interview.

VW’s Lamborghini expects sales to be boosted by demand for
the V12-powered Aventador, which has a two-year waiting list, said Stephan
Winkelmann, the brand’s chief executive officer.

“There is a change, a slow change but a steady change, an
opening, which is good for us, which is good for everybody,” said Winkelmann.

The Gulf region’s appetite for cars stands in stark contrast
to countries in North Africa and Syria, where thousands have died in clashes
with President Bashar al-Assad’s government since March. In North Africa, where
the Arab Spring movement began, sales fell 28 percent last year to 274,200 cars
and will probably be little changed this year, according to IHS.

The situation in Syria has been more dramatic as residents
worry about survival. Abdul Hafiz Attasi, 31, who drives a Land Rover in the
capital of Damascus, where he owns a food distribution company, was considering
buying a new car a year ago. He’s now keeping an eye on shrinking supplies.

“Everything’s changed,” said Attasi. “No one’s buying cars
anymore, unless you’re into money laundering.”

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