As consultancy Frost & Sullivan notes, 2016 was difficult for sellers across virtually all countries in the Gulf Cooperation Council as double-digit declines in new vehicle sales, overstocking of parts by distributors and a lack of clarity for the near future all weighed on the market.
“Unfortunately, the market has not yet reached the point of balance. Even though we expected the market to start recovering only by the end of 2017, continuing sales drops seem to be following a pessimistic scenario in H1 2017,” says Vitali Bielski, senior consultant, mobility practice – MENA at consultancy Frost & Sullivan.
Most markets were down more than 20 per cent in the first four months of the year, according to Bielski, with other sources painting an even worse picture for automotive companies operating in the region.
In a recent report, Autodata Middle East said GCC new car sales were down 30 per cent in the first quarter of 2017 compared to the same period last year with the heaviest losses seen in Bahrain (41 per cent), Saudi Arabia (38 per cent) and the UAE (28 per cent).
The first quarter decline followed a 27 per cent dip in new car sales in 2016, according to the firm.
“We have already seen job cuts across the industry at all levels,” says Ian Batey, general manager at Autodata Middle East.
“There is a limit on how far those cuts go because if they go too deep you end up bleeding customers due to lack of service. This then compounds the problems and the business ends up in a downward spiral.”
Batey believes that showroom closures are “unlikely”, however the tougher environment is putting some expansion plans on hold and could see small independent dealers “fall be the wayside” if they fail to adjust.
In the meantime, economic uncertainty will remain the main challenge for the industry as consumers postpone purchasing decisions, forcing firms to up their marketing and promotional budgets to increase showroom traffic.
“That, in return, reduces profitability and forces dealers to focus on aftersales. Excess inventory and underutilised assets are also among the main challenges,” says Bielski.
Another side effect of the tougher environment has been that consumers are increasingly researching cars online before going to a dealership, according to Rahul Kulshreshtha, founder and editor-in-chief of Car Insight Solutions FZE, which has recently seen its site traffic grow to 300,000 visitors a month.
He says excess inventory due to higher supply than demand has placed retail prices under pressure and led dealers to carry out “heavy promotional activities” and “innovative financing schemes” like monthly payment personal contract plans (PCPs) to attract car buyers.
“If someone is looking to buy a new car, then this is the right time,” he adds.
Indeed, customers who took the plunge into the market around the traditional Ramadan sales period were met with some of the most generous offers to hit the market in recent years including ‘buy now, pay next Ramadan’, 0 per cent finance, zero deposit, extended warranty and three-to-five-year service contracts, according to Autodata.
But outside of these marketing actions and an optimisation of their asset base most dealers are “simply waiting for the situation to improve”, according to Bielski, and Batey argues more dramatic change will be needed to weather the current slump.
“As we have been stressing throughout the first half of this year, this is the new normal. The industry needs to adjust its operating methods to suit the new market,” the Autodata general manager says.
And as we move into 2018 it will be up to GCC market leaders Toyota, Nissan, Hyundai, Mitsubishi, Ford, Chevrolet and Kia to maintain their appeal for motorists.
“The current market standings are being driven by the strength of the consumer offer and it will be interesting to see if anyone can challenge this group to gain market share,” Batey adds.