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Thu 10 Nov 2016 02:55 PM

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Saudi wage cuts 'to dampen car sales' – research

Passenger car market to contract as household income weakened

Saudi wage cuts 'to dampen car sales' – research
Kingdom Tower in Saudi Arabia

Cuts to civil servants’ pay and vehicle allowances in Saudi Arabia will lead to a contraction of the consumer car market, new research claims.

Total car sales across the kingdom are expected to fall a further 3 percent in 2017, following an estimated 20 percent decline in 2016, according to a paper by BMI Research. 

The market will return to positive growth in the second half of the year, it said, in anticipation of the introduction of VAT in 2018, but a weak first half of 2017 will keep sales growth for the year negative.

The report said: “The Saudi government’s austerity drive, which will include pay cuts for civil servants, as well as a drop in their car allowance, will see the new vehicle market’s recovery become more prolonged.

“While we had initially expected the introduction of VAT in 2018 to create a spike in sales in 2017, our forecast for passenger car sales growth of 5 percent now looks unattainable as household income is weakened further by the latest cuts.

"Within the passenger segment, we have seen little evidence so far that the ban on expatriate families with less than five members buying SUVs or vehicles."

Dealers reported that car rental companies are returning additional fleets that had been acquired to accommodate workers on government projects that  have now been scaled back or put on hold, the research said.

This removes another vital source of new sales for dealers and leaves them with excess inventories that could hit their bottom line.

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