| 14 November, 2017

UAE car dealers hope for a fresh start in 2018

After two horrid years of falling sales, they are not letting thoughts of VAT overwhelm them

People walk past a Rolls-Royce "Phantom Coupe" model at a Rolls-Royce showroom in Dubai January 9, 2012.
Image used for illustrative purpose.

People walk past a Rolls-Royce "Phantom Coupe" model at a Rolls-Royce showroom in Dubai January 9, 2012. Image used for illustrative purpose.

REUTERS/Jumana El-Heloueh
December 31, 2017 can’t come soon enough for UAE car dealerships. The first nine months recorded a further tumbling in industry-wide sales and that on top of what was an exceptionally difficult 2016. Even if a fourth quarter sales upturn happens ahead of the VAT roll-out, it won’t be enough to salvage 2017.

The numbers make for stark reading — Between January to end August, new car sales in the UAE were estimated at 181,366 units, which is 19 per cent down from the corresponding 2016 volumes. And for full-year 2016, new car sales came to 324,524 units, based on industry projections.

“Even that’s off from the 419,799 units that moved out of UAE showrooms all through 2015,” said Michel Ayat, CEO of AWR Automotive. “I feel that 2017 tally will be at about 270,000 units.

“But I still have reasons for some satisfaction — when overall sales were doing 400,000 units and more, a sizeable percentage of that ended up as re-exports from here. But when the entire region’s market is down, what got affected the most were the car exports from here.

“So, whatever is being sold these days is going to domestic buyers, whether individual owners or fleets. That means some sort of domestic demand is still there and that’s not declined as much as re-export demand did.”

No category has been exempt from the market decline. It was thought that sales of premium/luxury models would hold their own even in difficult circumstances. But that was not to be. Fleet sales too have tailed off.

According to market sources, most dealerships have not been hit with massive levels of unsold cars. Even from the first quarter itself, they in tandem with manufacturers had a firm grip on the shipment orders they should place. And where possible, they brought down their intake, at times significantly so.

More challenges await in the coming months. The imposition of 5 per cent VAT could, many fear, have a telling effect on future purchase decisions.

But Ayat does not subscribe to this view. “The industry saw the same hysteria when UAE Central Bank issued its order on 20 per cent down payment on all vehicle purchases (from mid-2011),” he said. “Everyone was asking “Who will pay the 20 per cent if the car is Dh100,000 or more? It set off outright panic in the industry. And after a few months, everyone forgot about this.

“I think much the same will happen on VAT and after. You see VAT in 99 per cent of countries. This is something of a must these days for economies.

“The drop in car sales witnessed in 2016 and 2017 is related to the economy in general, and not just in the Middle East.

“The drop was not just on quantity but on dealerships’ gross profit margins. For the auto industry, it’s less than 10 per cent on average now. That pressure is not going to go away.”

Is there a chance that dealerships might absorb the VAT charges to smoothen the ride for buyers, at least initially? Ayat does not hold out much hope on that.

“The structure of the industry is changing. In retail, the customer has to pay that 5 per cent.”
Reporting by Manoj Nair

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