The introduction of a value-added tax (VAT) in the United Arab Emirates and Saudi Arabia this year had a “significant impact” on car industry sales, a top official in the Ford Motor company said.
“For the first half (of 2018), there has been a pretty significant impact,” Crystal Worthem, marketing director at Ford for the Middle East and Africa told Zawya in a response to a question on VAT in phone interview on Tuesday.
Saudi Arabia and the UAE have both introduced a 5 percent VAT on an array of goods and services that included food, cars and jewellery starting from January this year. The new tax is aimed at helping to diversify the two Arab nations’ sources of revenue.
Worthem said the impact, which included lower consumer appetite to purchase new cars in Saudi Arabia and the UAE, resulted from the introduction of VAT, along with other aspects such as the rise of fuel prices in Saudi Arabia.
“I believe that at the end of last year, we were anticipating a bit of an impact but not as significant because we anticipated a much deeper curve of when oil prices would go up in the first quarter,” Worthem said.
“So when… oil prices did not rise at the same time when VAT came on and also in Saudi, fuel prices went up significantly… consumer confidence I think really slowed down as far as (saying) okay, let me take a step back and see what kind of value I can get when I am purchasing anything at that time. And especially cars, because now they are more expensive because of VAT and the cost of ownership is up because of the fuel prices as well,” she added.
Saudi Arabia has hiked gasoline prices by 80 percent since November last year, while the UAE has announced four fuel price this year in January, February, May and June. Prices for Unleaded Gasoline 95 have increased by 36 percent year-on-year in June, to 2.51 dirhams per litre.
Source: United Arab Emirates Ministry of Energy & Industry.
Worthem said she was not authorised to give details on the sales of Ford cars in the UAE and Saudi Arabia during the first half of the year. But she said her company has this year introduced some added value to its car deals to boost sales, such as special service packages or lower instalment payments on credit deals.
According to Worthem, the GCC economies - most of which are highly dependent on oil revenues – are directly affected by any major fluctuation in oil prices.
“The overall economic environment gets depressed when the oil prices go down and that might affect all of the different industries in the GCC,” Worthem said.
Oil prices fell on Monday after members of the Organization of the Petroleum Exporting Countries (OPEC) and other non-member producers agreed to raise production at a ministerial meeting in Vienna last week.
Moving forward, Worthem believes the market will become accustomed to VAT. “I think the initial shock was tough but now I believe it is going to begin to stabilise and become the new norm because people now adjusted their budget, adjusted the way they live, the way they travel according to what they need to spend on a variety of different consumer goods.”
“I believe we are going to see it (VAT impact) stabilised in the second half of the year.”
As for Ford plans for the year, Worthem said the company plans to introduce hybrid and electric technologies to its vehicles in the GCC in the second half of the year.
“The vehicles that people already know and love, we will be adding hybrid technology to those vehicles. So top sellers like the Ford 154 for example, not only you will get the utilities that you get… But you will also have the opportunity to be able to save from a petro perspective as well as the environment with the hybrid offer.”
“We are looking forward to a really positive year next year and hopefully a nice uptick in the economy,” Worthem said.
For Zawya’s special coverage on VAT in the GCC, click here.
(Reporting by Yasmine Saleh; Editing by Michael Fahy)
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