“You want good news.... We promise you three” was a slogan used by the Ford Motor Company in its latest campaign to promote the launch of three new car models in Dubai in October - three months before the implementation of a new 5 percent value-added tax (VAT) that is expected to hike the prices of almost all consumer products, including cars, when introduced from January 1.

At Ford’s press event announcing the new models, three senior executives from the American car manufacturing giant drove the three new models - the 2018 Ford Expedition, 2018 Ford Mustang and 2018 F-150 - into the room, putting on a show for the media representatives present.

Flashy launches are part and parcel of the new car market in the UAE, a sector which may be lucrative for manufacturers but has proved increasingly tough for car dealers in recent years. Analysts say that campaigns that will be launched close to the end of this year are also meant to abate the impact the introduction of VAT could have on the sales of new cars in 2018.

“I think one of the things that will probably happen is they (car companies) will try to generate additional sales before the end of the year, before VAT comes in as that saves people 5 percent,” Brian Conn, VAT partner at BDO consultancy firm in Dubai told Zawya in a phone interview last month.

“After the New Year, I can imagine that some businesses will come up with marketing campaigns which help sales and make special discounts,” he added.

In September, Arabian Automobiles Company, the exclusive dealer for Nissan and Infiniti in Dubai and Sharjah, launched a competition offering an all-expenses paid trip for two to Paris as its grand prize, in a bid to entice buyers. That offer expired on October 15.

Sales down
Although the UAE car industry attracts manufacturers from all parts of the market, from small, entry-level vehicles to the most prestigious supercars, the trading environment has proved to be difficult over the past couple of years. New car sales in the UAE were down 27 percent in 2016 and are expected to drop by 15.58 percent this year, according to estimates made by Autodata Middle East and sent to Zawya by email.

Autodata Middle East provides regional automotive information, including yearly statistics, on new car sales across the Gulf Cooperation Council (GCC).

Things are about to get even tougher from 7am on January 1, 2018, when VAT will be imposed at the standard rate of 5 percent on all types and sizes of cars, Saeda Al Qayoumi, a consultant working for the UAE’s Federal Tax Authority, confirmed during a press conference in Dubai last month.

“We expect that new car sales will be hit by the introduction of VAT in Q1 2018,” Bill Carter, Autodata’s chief systems and innovation officer told Zawya in an email interview last week.

“This should mean a greater interest in nearly new or CPO (Certified Pre-owned Cars), as the gap between the price of a new car and that of a used car will widen due to the way VAT is applied. However, like most forms of taxation, we expect the effect to wash through by Q2-Q3 2018,” he added.

Carter said new car sales are expected to decline across all six GCC countries in 2017.

“The old days, or year-on-year sale growth, have gone and will not return in the foreseeable future,” he said. Overall business activity in the GCC has slowed in the past few years, following the steep decline in oil prices that began in 2014 which subsequently impacted GCC economies whose governments rely on oil for revenue.

GCC New Car Sales Full Year 2016 v 2017


  
 

2015



2016



Variance



2017 Estimate



 Variance



Bahrain



60,993



49,669



-19%



31,000



-37.59%



KSA



884,174



677,248



-23%



500,000



-26.17%



Kuwait



152,747



115,898



-24%



103,000



-11.13%



Oman



196,608



195,375



-1%



170,000



-12.99%



Qatar



95,679



72,260



-24%



51,000



-29.42%



UAE



419,799



308,000



-27%



260,000



-15.58%



GCC



1,810,000



1,418,450



-22%



1,115,000



-21.39%



Source: Autodata Middle East



   


Evaluating impact
The managing director of Ford Motor in the Middle East said his company is still “evaluating” the impact that VAT will have on new car sales.

“We are currently evaluating what impact it will have, it will definitely have an impact, same as it happened in any part of the world,” Thierry Sabbagh, Ford’s managing director in the Middle East told Zawya in an interview on the sidelines of the launch event for Ford’s new models in October.

“We are making sure to work with our dealer partners to ensure that we have the smoothest transition possible… We are confident that we will get through this in a very positive way,” he added.

According to VAT consultant Conn, car companies will continue offering promotional campaigns to reduce, or even mitigate, the impact of VAT in the early months by applying discounts of up to 5 percent on cars.

“I think there will be some impact,” Conn said. “Obviously, five percent is (a) fairly low percentage but of course this is a high value item. So, I don’t think it will be disastrous.”

“People will obviously still buy cars but they may not opt for extras (such as accessories or advanced models) as they would have done (before) or go for a cheaper model,” he added.

According to Sabbagh, eventually the market will adjust prices as it evolves.

“We are still gauging what is the impact. But what is sure is we will make sure that the customers always get the right added-value for these great products,” he said.

(Reporting by Yasmine Saleh; Editing by Michael Fahy and Shane McGinley)

(yasmine.saleh@thomsonreuters.com)

© ZAWYA 2017