Racing ahead: The Gulf's luxury car market boom

Car manufacturers are witnessing a boom in the luxury-loving Gulf
Racing ahead: The Gulf's luxury car market boom
By Elizabeth Broomhall
Tue 10 Apr 2012 11:23 AM

Drive down virtually any city road in the Gulf, from Sheikh Zayed Road in Dubai to King Fahd Road in Riyadh, and you may be surprised to see mostly new and luxury cars. From Ferarris and Porsches to Land Rovers and Lamborghinis, the mix of latest models and shiny bonnets can be more dazzling than the towers they whiz past.

Reaping the rewards of this trend are the carmakers. After suffering a dip in sales during the worst recession years, manufacturers have quickly noticed a positive turnaround as consumers began to increase their spending again in 2010. In the UAE, the automotive industry was valued at $11.1bn for the year, a 19.7 percent increase from the $9.2bn figure recorded in 2009, according to government figures.

Even last year, in the wake of the Arab Spring, sales continued to surge as oil prices remained high and government handouts post the unrest boosted personal incomes. In August, Porsche in Dubai recorded its best-ever performance for any showroom globally with 211 new cars sold, and in November, luxury brand Rolls Royce said it was up almost 60 percent in Saudi Arabia. And irrespective of the political instability, tighter lending conditions in the UAE and supply disruptions after Japan’s earthquake and tsunami, all of which were seen to be hampering industry growth, the overall figures for the region’s car market still showed a rise of 4.5 percent.

What this data shows is that the Gulf’s automotive industry resembles the region’s retail sector, in some respects. Whilst it is not immune to the effects of an economic crisis or a far–off natural disaster, it is certainly quick to recover from the hit, and in most cases, will often buck the trends of other industries and countries. Certainly, the dealers remain positive.

“We had an exceptional year in 2011,” said James Crichton, the regional director for Rolls Royce in the MENA region, which recorded 23 percent growth in the region in 2011 compared with 2010. “Commemorating that success is the new regional office in Dubai’s Emirates Towers, which allows us to dedicate substantial resource to the region.”

Analysts at IHS Automotive agree, forecasting sales of cars and light vehicles to grow by 6.6 percent in 2012 to 1.28 million vehicles, while figures in Europe are likely to decline for the fifth year running. Many car brands are also now preparing to roll out a range of new models, and in some cases, set up additional offices or manufacturing sites in the region, in a bid to try and tap the market further.

Among these companies are VW, Ford, Renault and Toyota. Whilst VW plans to introduce the Polo subcompact and the American-built Passat sedan, Ford is preparing to open six regional sales outlets, launch a $53m parts centre in Saudi Arabia, and offer eight new models including the Focus, Taurus and Escape.

Meanwhile, French brand Renault, which boosted the number of showrooms in the Gulf from 22 to 30 during 2011, hopes to increase points of sale by 15 percent and is targeting a surge in deliveries by almost a third.

VW’s Lamborghini believes sales will saw soar 50 percent with the launch of its new V12-powered Aventador, and Toyota said it will open two new showrooms and roll out several new models through its local partner Al Futtaim. Porsche is also confident of a strong year ahead, and is planning a testing site in Qatar in the coming 12 months.

It is worth remembering, of course, that these results are not the same across the entire region. Whilst in the Gulf region, manufacturers are smiling, in areas such as North Africa and the Levant, the picture is not so rosy. According to IHS, North Africa witnessed a sales slump of 28 percent last year, and is likely to continue to take a hit in 2012. In Syria, where thousands have died following clashes between the government and protesters, the automotive industry is also being negatively affected. Residents say no-one is buying cars anymore as the country focuses on bigger problems such as shrinking food supplies and street fighting.

But back in the Gulf, carmakers are already seeing strong growth this year. According to reports, General Motors dealers in the Middle East reported total sales of 10,815 vehicles during February, up 9 percent compared with last year and representing the company’s highest February sales month ever due to growing demand for its line up of new passenger cars and crossover vehicles. Models such as the new Chevrolet Spark, Sonic and Cruze increased more than threefold in February compared with the same period last year, whilst crossover vehicles including the Chevrolet Capita, Traverse, the GMC Terrain and the Cadillac SRX, saw a 115 percent rise in sales. To maintain the growth, the company’s regional president said it would launch a further six vehicles in the next 12 months.

Germany’s Volkswagen, in which Qatar Holding owns a 17 percent stake, says the Middle East is one of its “core markets” for 2012. “Sales for all models rose by 21 percent [in the Middle East], which is a huge increase… Volkswagen increased sales globally by 13 percent,” says Karsten Jankowski, marketing director of Volkswagen Middle East. The local Qatari market has also shown faith in the carmaker, with sales growing 113 percent last year, making it the number one market in the region. As a result, Jankowski says Volkswagen also has plans to expand its number of showrooms in the region this year, although he declines to divulge any specific details at present.

German manufacturer Audi Middle East also posted its best-ever sales for February, selling a total of 701 vehicles, up 17 percent on the same period in 2011. This again followed a record-breaking month in January, where sales rose 8 percent, and the Audi A8 L and Audi A6 emerged as the most popular models. Executives said cumulative 2012 sales for the A6 sedan were up 104 percent on last year, and the full-size luxury A8 saw a 66 percent increase.

“With two record months in a row the combined figures represent our best-ever start to a year and a 12 percent increase over the same period last year,” said the firm’s regional managing director Jeff Mannering. “Naturally we are delighted by these results and we are determined to keep up the momentum.”

At this point in time, it is obviously difficult to know the exact direction of the market, but certainly all indications are that sales of luxury models will be particularly strong. Already this year, UK-based carmaker Bentley Motors has said it will invest up to $9m on upgrading its Middle East operations, after selling around 7,000 units in the region in 2011. The MENA region accounted for around eight percent of global revenues.

“Whilst it is not the biggest market in the world it has been very consistent. Bigger markets like the US and Europe have dipped but here it was very consistent,” Chris Buxton, regional director for the Middle East, Africa & India, told CEO Middle East at the Qatar Motor Show. “There is a lot of investment going on… Over the next four or five months it is probably five or six million pounds ($9.3m) worth of investment.”

Also important going forward will be the development of an automotive industry zone in Abu Dhabi, and any regulation in Saudi Arabia which opens up the cars market to women. Certainly the Abu Dhabi cluster, which will represent phase 5 of the Industrial City of Abu Dhabi and is planned over an 11 sq km industrial area in Mussafah, could turn the UAE capital into a hub for vehicle assembly, especially given the emirate’s ties with global carmakers.

As it stands, investors from Abu Dhabi own stakes in firms such as the German giant Daimler and the Italian sports car manufacturer Ferrari. Indeed, the decision to build the zone comes as the country seeks to diversify its economy away from oil and focus more on manufacturing and industry.

At the same time, any changes to female driving laws could boost sales in Saudi Arabia dramatically, industry experts say. According to manufacturer Maserati, women in the oil-rich state currently make up around 20 percent of their total customers, and are only increasing with time. Should the kingdom allow women to drive, dealers see potential for huge growth in the future.

In the meantime, the high oil price and the resulting boost to regional coffers is likely to keep luxury car sales flying high.

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