The UAE (United Arab Emirates) is the 2nd largest automotive market in the Gulf Cooperation Council (GCC). According to Athanasios Tsetsonis, the sector economist in Emirates NBD, in 2014, commercial vehicles and passenger cars accounted for 20% and 80% of the UAE market respectively. The UAE has positioned itself as the main re-export center and has become a key strategic player in the auto parts trade within the GCC region.
Availability of low-cost fuel, lower cost of vehicle ownership, attractive financing and insurance options, growing consumer base and increasing population are some of the key factors contributing to the growth in the sales of new vehicles in this region. However, factors like removal of subsidies for petrol, demanding macro economic environment, costlier imports, stringent government norms and a booming used-car market are likely to pose stern challenges to the automotive industry.
Profitability centers are transforming from conventional areas like new vehicle sales to used vehicles, accessories, parts, service, finance and insurance. Changing market conditions have put additional pressure on the profitability of Middle Eastern car dealers. Due to this, dealers have started putting further emphasis on more profitable business segments.
Opportunities in automotive aftermarket industry –
Certain factors are favorable to the after sales market.
• UAE’s automotive aftermarket industry holds great potential worth billions of dirham and is primed for enduring opportunities.
• As stated by a trusted news source Zawaya, factors like a slight plunge in the automotive sales in the last few years, an aging vehicle population and people hanging onto their cars longer are pushing the after sales sector’s growth. This is certainly creating a great opportunity of out-of-warranty vehicles that need repair and replacement parts.
• Furthermore, rapid growth in population over the last year has spelled a rise in the number of vehicles on the road. According to BMI research, the Middle East is ranked as one of the world’s fastest-growing markets for automotive products.
• Abu Dhabi government has initiated Auto City in Mussafah that is aimed at developing service centers and advanced workshops. This will act as a magnet for investments in spare part logistics and automobile manufacturing.
However, at the same time, there are a few challenges that need to be handled to explore the opportunities.
• Rising competition and growth of independent aftermarket solutions pose several challenges, making it slightly difficult for automotive car dealers to retain existing customer base and future customers.
• Quick turnaround is imperative for auto parts dealers, which makes it essential to be connected to speed up the ordering and replenishing of parts. Effective management of parts availability and quick fulfillment is prime aspect here.
• Furthermore, dealers need to bring transformation in their focus. Paying more attention to service instead of the product is essential for dealers to stay ahead in highly competitive and demanding environment. Several state-of-the-art tools are available to car dealers, which can help manage dealerships effectively and increase retention rates of their customers by offering service excellence.
Overall, UAE automotive after sales sector has a promising growth potential with an expected growth of around 13 % of annually between 2013 and 2017 in the car parts, according to recent Frost & Sullivan report.