30 Apr 2012 (44 Pages)
Includes 3 FREE Quarterly Updates.
Overall, growth over the course of 2011 was strong – running at around 6.99%, and bringing the total number of new vehicles sold to 688,883. This number is set to rise steadily, with BMI believing that over 1mn vehicles will be sold by the end of the forecast period in 2016. We expect growth of new vehicle sales to rise to 7.18% over the course of 2012, and then to remain between 8.2% and 9.3% for the rest of the period. Confidence in the sector remains strong – with both a growing passenger market, partially helped by growth in benefits from the central government and a burgeoning commercial vehicles market, which we believe is running about 2% faster per year than the passenger segment.
This said, several downside risks present themselves. The first is the effect that military conflict in the gulf region could have on consumer confidence – however, this is bound to be balanced with an increase in the price of oil, which would inevitably swell the coffers of the Saudi state. However, we do not see the vehicle penetration rate (measured in cars per 1,000 citizens) increasing much beyond the current level in the forecast period – with the metric in 2011 resting at 432.71, and in 2016, at 435.66. When compared to the overall population of the country, which we see growing from 26.52mn in 2011 to 29.13mn in 2016, it is clear that there must be more of a concentration on lower price vehicles in order to take advantage of this burgeoning population.
While this appears to be happening, to a large part supported by the development of a strong auto finance system throughout the country, it is aided, to a large part, by favourable macroeconomic developments – most notably predicted 3.3% GDP growth over 2012, following on from real GDP growth of 6.8% in 2011. Added to this, the government budget surplus is expected to be in the SAR439bn range – allowing it to easily maintain its current fiscal course. We also expect inflation to remain stable and marginally subdued over 2012, based on moderate oil price increases and continuation of government subsidies of oil and food. However, if oil prices move beyond their predicted range for 2012, Saudi Arabia stands only to gain from this. This will be reflected in both stronger GDP growth and a larger surplus. It seems probable that this will allow auto dealers and other finance institutions to offer attractive auto financing rates.
However, if economic growth remains robust for extended periods, it is possible that the monetary policies that the kingdom has been following could push up prices, with a commensurate effect on demand.
The advent of the Arab Spring has heralded more heavy investment in the region by international automakers, in particular Volkswagen and Ford, as reports Bloomberg. To an extent, this is premised on the fact that as the governments of the Gulf Cooperation Council distribute money to their citizens, as well as oil prices being particularly high. Other regional factors that may have affected vehicle sales, such as turmoil in both Bahrain and, to a lesser extent, Syria, appear not to have significantly dented the increase in new car sales in the kingdom. Beyond this, those who have not necessarily had the funds to invest in a new car in the recent past will appear likely to invest in family cars as well as more conventional models – highlighted by the decision by VW to release the Passat into the region over the course of 2012.
The Middle East has been labelled a ‘very consistent’ luxury car market by Chris Buxton, the regional director of Bentley. Whilst the company does not always publish a breakdown of sales by country, Saudi Arabia is likely to hold a significant number of the 7,000 cars sold in the region in 2011. This demonstrates the region’s ability to maintain very high luxury spending during economic downturns and other uncertainties – in particular, the effect of the Arab spring. The company plans to invest around US$9mn in the region over the first half of 2012 – which will include the launch of a new showroom in Jeddah. Also, the UAE and Saudi Arabia came in as Rolls Royce’s fourth and fifth biggest markets; the overall increase in sales in the Middle East over the course of the year was 23%, with the UAE coming in at 32%.