Saudi driving decree expected to unlock profits far beyond cars

Decision expected to unlock a whole world of new products and services affiliated with car sales that the Saudi female will be interested in
A Saudi woman drives her car along a street in the Saudi coastal city of Jeddah on September 27 2017 Photo: REEM BAESHEN/AFP/Getty Images
By Bloomberg
Sat 30 Sep 2017 01:08 PM

When an estimated 9 million Saudi Arabian women get behind the wheel starting next year, automakers aren’t the only companies poised to profit.

All those new drivers will also need insurance and car loans, fuzzy dice and floor mats.

“There will be a whole world of new products and services affiliated with car sales that the Saudi female will be interested in,” said Evangelos Moustakas, head of the Centre of Innovation and Excellence at Middlesex University in Dubai.

There will be showrooms, service centres and car washes expressly for women, predicted Ahmad Beck, the executive creative director at advertising agency Drive Dentsu in Jeddah.

 
Ford Middle East's tweet following the announcement on September 26 went viral.

While a growing number of Saudi women are entering the workforce, many women still prefer to work in segregated settings and to deal with female salespeople.

Saudi women, who graduate from college at about twice the rate as men and who often study abroad, will be discerning customers.  They’ll look for cars that may be more compact and stylish, easier to park, and will research features such as safety ratings and environmental impact on social media and the Internet, said Moustakas.

"Even the type of petrol or oil is something women would be conscious of," he said. That could be a boon for European refiners, as Saudi Arabia is a net gasoline importer. Even a 10 percent increase in driving would add about 60,000 barrels a day of gasoline demand, Facts Global Energy said in a research note.

All those novice drivers will also need insurance, an expectation that sent shares of Saudi auto insurers up as much as 7 percent.

Shadi Salman, vice president for research at Shuaa Capital in Dubai, told Bloomberg News that new cars typically come with comprehensive coverage, which has higher profit margins for the industry. He said Walaa, Tawuniya, and Al Rajhi would be key beneficiaries.

 
Nissan Middle East's reaction to the driving decree announcement

When it comes to cars themselves, automakers from Porsche to Chevrolet are hoping to get a boost. One out of every three cars Porsches sold in the Middle East, Africa and India is a Macan, the company’s smaller, sporty SUV.

Regional Chief Executive Officer Deesch Papke says that the cars are particularly popular with women, though it markets them focused on their performance rather than to a specific gender.

The decision "will unlock significant potential for the automotive sector," Mario Spangenberg, president of GM Africa and Middle East, said in an emailed statement.

GM gets about half of its Middle Eastern car sales in Saudi Arabia, and even though women haven’t been able to drive, they "have long been an influential force behind car purchases," he said.

The September 26 decision to allow the kingdom’s women to drive is part of an effort to modernise the economy and social norms in a nation where most people are under 30.

 

The programme also aims to have women make up 30 percent of the labour force by 2030.

Increased mobility means that more women will be able to seek jobs - as of now, if they want to work, they need a driver, an expense that can eat up any earnings.

More women in the workforce means discretionary income overall and less money spent on drivers. That could lead to a shot in the arm for the Saudi Arabian advertising market, which faced declining revenue for the past two years.

"With women having a greater opportunity to get themselves to work and contribute to the economy, more money will be allocated by brands to promote their products." said Tarek Miknas, CEO for the Middle East and North Africa at advertising agency FP7, a unit of McCann Worldgroup.

 

Gross spending on TV, print, radio and outdoor ads in Saudi Arabia last year was about $1.13 billion, according to McCann data, down from $1.37 billion in 2015, and the company estimates that it continued to decline this year.

Mohammad Al Khuraiji, the CEO of Al Arabia outdoor advertising, expects sales of billboard ads - which currently are prohibited from depicting women - to surge as automakers, insurers and banks increase spending.

"The target audience will be wider," he said, "there will be new products that target women drivers for sure."

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