What s steering the UAE s automotive aftermarket?

Transcription

1 7 9 May 2017 Dubai World Trade Centre What s steering the UAE s automotive aftermarket?

2 The factors that matter As part of a series of reports provided by Automechanika Dubai on the automotive aftermarket in the Middle East region, the team explores the opportunities that exist in the UAE s automotive aftermarket, the growth drivers and restraints affecting the market and how the services sector will continue to drive demand in the industry. This report draws on market research provided by Automechanika Dubai s knowledge partner Frost & Sullivan as well as Retail Insights partner providers GfK as well as other sources. Despite the implications of the crude oil scenario in the region, the UAE s automotive market remains robust recording positive growth figures. While there has been a perceived slow down in the number of vehicle sales in 2016, this is expected to improve again in 2017, which is in turn expected to lead to future growth potential across the automotive aftermarket. According to GFK, automotive trade in the UAE reached USD 22.6 bn in 2015, a 22 per cent increase from the previous year. It is the largest automotive market in the Gulf Cooperation Council (GCC) after Saudi Arabia, commanding 22.5 per cent of its total new car and light commercial vehicle sales. The aftermarket is also enjoying a period of continued growth with figures from Frost & Sullivan revealing that total spare part demand in the GCC was expected to reach USD 9.84 bn by 2020, growing at a compound annual growth rate (CAGR) of 6.5 per cent. Saudi Arabia and the UAE dominate this market, together making up 72.5 per cent of demand.

3 UAE: A regional hub for the spare parts trade The UAE is the GCC s largest automotive market after Saudi Arabia. Experts expect that strong economic growth in the UAE, increased household spending and easier access to vehicle financing will help to drive growth in the automotive industry in the coming years. The country s growing population and rising GDP per capita point towards a ready market for increased expenditure in the automotive sector. High disposable incomes comparative to other markets mean consumers are more conducive to upgrading to newer car models on a more regular basis and are also a ready market for high specifications such as electric windows, locks and mirrors, enhanced engine power, cruise control and other such luxury additions. This propensity for luxury additions is one of the factors that helps to bolster trade in the country s aftermarket. UAE s modern road infrastructure and low fuel costs also make it an attractive market for the automotive sector. Global giants are looking towards the UAE to establish regional hubs, driving increased growth and development in the UAE s automotive aftermarket. These companies are acknowledging the advantages of maintaining a base in the region, giving them better access to their regional customers. That is why production plants for cars, light vehicles and trucks, as well as assembly lines for the manufacturing and remanufacturing of spare parts and accessories, are being introduced by some of the global automotive companies. International players such as Scania and Ashok Leyland are demonstrating confidence in this promising market in which they are eager to build market share.

4 Exporting and re-exporting UAE has certainly become a hub for vehicle parts across the MENA region, representing huge export and re-export trade. It is estimated that about 65 per cent of UAE s imported parts are being re-exported to other GCC, Middle Eastern and African countries. In Dubai alone, according to data provided by the Statistics Section at Dubai Customs, auto parts total trade (Dubai Direct Trade + Free Zone Trade + Customs Warehouse Trade) in 2015 reached USD 11 billion and 41 per cent of this (USD 4.5 bn) was attributed to export and re-export trade. The most popular re-export destinations were Saudi Arabia (14%), Iraq (5%), Oman (4%), Kuwait (3%) and Germany (3%), giving some insight into Dubai s expansive reexport reach. The majority of imports came from Asia Japan (23%), South Korea (14%) and China (12%). Dubai also imports much of its automotive parts from the United States (11%) and South America (10%). Japanese brands dominate the UAE s spare parts market, but competition from South Korean brands is increasing thanks to better pricing, improving brand image and increasing investment by South Korean companies in servicing support to OEMs. It is expected that the European brands will continue to dominate in the luxury segment.

5 UAE s commercial vehicles sector In the commercial vehicles sector, increased expenditure on infrastructure development as the country prepares to host Dubai Expo 2020 is expected to boost demand, particularly in the heavy trucks category. According to Frost & Sullivan, commercial vehicles spare parts demand in the UAE was USD 0.8 billion in 2014, but bolstered by increased project developments, this is expected to grow by 30 per cent to reach USD 1 bn by While the development of Etihad Rail could negatively impact the demand for long haulage vehicles in the long term, the oil sector could counteract this as it will continue to drive demand for heavy trucks for a wide range of activities in the oil fields. ADNOC and GASCO are the biggest end users of heavy trucks in Abu Dhabi and this trend is likely to continue for the foreseeable future. The introduction of Dubai metro and improving public transport across the country in general, could impact vehicle sales as more and more people opt to use these services. However, this has positively impacted demand for bus fleets in the country s transportation sector as there is still a requirement to transport passengers between stations to popular destinations. The country s increasing focus on tourism has also bolstered demand for bus fleets.

6 Opportunities in UAE s automotive aftermarket Dubai has considerable more cars per person than other major cities such as London or New York. It is expected that Dubai alone could have upwards of 2.2 million registered vehicles by 2020, more than double the 2010 figure. According to international research analysts GFK, the UAE is home to more than 4089 outlets representing the automotive aftermarket, from spare parts handlers to battery and engine oil handlers to name but a few categories. The opportunities that exist in the UAE s automotive aftermarket are manifold, such as: High demand for tyres and batteries driven by the country s harsh climate which leads to a relatively short lifespan for such parts Increasing popularity for global players to make it their regional hub due to ease of doing business and strong infrastructure development It is a major re-export hub with easy access to Middle Eastern and African markets The accessories market, which is a key revenue driver in Europe and the Americas, remains relatively untapped in the UAE. Leveraging this untapped potential could reap huge rewards for players in the UAE s automotive aftermarket A relatively straight forward aftermarket channel structure comparative to that in the US or Europe Cars require 5,000 km service intervals as part of their warranty guarantee; in Europe it is every 10,000 to 15,000 kms creating opportunities for the country s service workshops Untapped potential in e-commerce within the automotive sector while it now plays a large role in the European and US markets, it is not established in the UAE, pointing to a potential area of opportunity for development Rapid population growth, high GDP per capita and high disposable incomes means consumers change car ownership regularly, often trading up to newer models and demanding high specifications with advanced add-on features Profit margins in the automotive market are much higher in the GCC than in Europe or the U.S.

7 Market challenges Vehicle age in UAE is relatively low comparative to more mature markets. This can have a negative impact on demand for replacement parts The 5,000 km service requirement can have a negative impact on maintenance requirements. However, the region s harsh climate can help counteract this as many parts need more regular replacement and/or servicing Regional diversity means automakers must satisfy unique local requirements; while this is more of a regional rather than a UAE challenge in particular, it is a consideration that cannot be ignored. For example, the sales cycle in UAE can be different to that in Saudi Arabia, requiring increased marketing and business development resources to attract market share The proliferation of counterfeit products is a constant battle and OEMs need to deploy increased resources as they fight to eradicate non-genuine or sub standard products from the market Improving transport infrastructure; Dubai s metro carries circa 400,000 passengers per day, many of whom prior to its 2009 opening would have relied on cars or buses to reach their destination The proposed Gulf Railway, a 2,177 km long rail connecting the six GCC countries could have a negative impact on demand for heavy commercial vehicles

8 Where opportunity overcomes challenge Despite these market challenges, it is clear that there is also a myriad of opportunities that exists in the UAE s automotive aftermarket. Trade figures remain robust with the country acting as a regional hub for the sector with excellent export and re-export opportunities. The UAE s growing population and infrastructure development on the run up to hosting Expo 2020 will further strengthen demand in the automotive sector, which in turn is sure to lead to increased growth and development for the aftermarket.