Up to 95,000 vehicles are likely to be sold on the grey market in the UAE this year, with some right-hand drive cars being converted to left-hand drive models, according to UAE-based dealers.
The influx is expected to create “a huge problem” for the country’s car dealers, they said.
“[The grey market] is one of the biggest challenges we have today... It is not less than 20 percent to 25 percent of each brand,” Michel Ayat, CEO of AW Rostamani Automobiles, which sells Nissan, Renault and Infiniti brands, said at a media roundtable on the automobile industry organised by HSBC on Tuesday.
With industry forecasts predicting the number of sales this year will rise to 380,000, if Ayat’s estimate proves accurate, it will put the number of vehicles sold in the country this year on the grey market as high as 95,000.
“We have a huge problem with the grey market,” said K Rajaram, CEO of Al Nabooda Automobiles, which holds the UAE dealerships for Volkswagen, Porsche and Audi.
“Especially when you launch a new product and there is a time lag between the launch in Europe and the launch of the product in the UAE, everybody wants to be the first person to own that car and that’s where the grey market comes in,” he said.
“The first Audi R8 which was sold in the UAE was sold for AED1.9m ($517,288), the cost of the car is AED500,000 ($136,128), that is the difference. It was flown in from Germany overnight and sold the same day it landed in Al Ain.”
Rajaram also claimed some illegal dealers were bringing in right-hand drive cars from Japan and converting them to left-hand drive models for use in the UAE. “They have changed the car from right-hand drive to left-hand drive but they could do the dashboard so all the instruments are facing the wrong way... but it is AED40,000 cheaper [than official models],” he claimed.
“I think it is one of the biggest challenges we have got,” agreed Karl Hamer, managing director of Al Habtoor Motors, which sells Bentley, Bugatti, McLaren and Mitsubishi. “The government needs to control it,” he added.
“In the 90s we used to go to the Dubai Municipality to get the people to close the showroom displaying [grey market cars],” Ayat said. “Now the manufacturers turn a blind eye and are not interested and don’t protect you and the regulations don’t protect you.
“This is something big... We have discussed it plenty of times with the Ministry of Economy. It is affecting us and the only response that we have in the absence of protection is to improve our system and processes and services and customer engagement,” he said.
Despite the impact of the grey market, car sales are strong in the UAE. Middle East Automotive Council (MEAC) figures have estimated sales this year will be as high as 380,000, up 23 percent on 2012 and 40,000 more than in 2008.
Sales in the first four months of the year were around 118,000, up from 96,000 in the same period in 2012. Ayat predicted sales will “sell more than the peak in 2008”. On the back of this increased momentum, all the dealerships have reported a surge in sales.
Rajaram reported Al Nabooda Automobiles has seen a 45 percent year-on-year rise in first quarter sales during 2013, with up half of sales coming from new residents arriving to live in the country.
Hamer said Al Habtoor Motors was on target to sell 450 Bentleys this year, compared to just 86 in 201o. He estimated it would achieve 1,000 Bentley sales by 2015.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.