The UAE automotive sector is one of the fast-growing sectors in the world. Significant infrastructure development, high disposable income, and growing population are some of the key factors driving the growth in the region. However, this sector faced a slowdown in 2016 owing to the weak economic environment.
Factors like availability of attractive financing options in the country and possibilities of M&A transactions are likely to fuel the growth. High urbanization rate, government initiatives and investments to perk up domestic manufacturing, growing, and well-heeled consumer base and significant tourism developments are expected to bolster demand for vehicles in the region over a long term.
Major challenges faced by the automotive industry in UAE are -
• The slowdown in the economy - The sluggish macroeconomic environment along with the constant softness in oil prices has broadened the economic deficits to a record high. Subsidy cuts on fuels as a part of GCC Government fuel price restructuring are influencing petrol prices. These factors are likely to impact the demand for vehicles adversely.
• Intense competition - GCC automobile market is highly competitive with several dealers. This results in low brand loyalty and price sensitivity among consumers.
• The threat from used car industry - The booming used-car market is an additional challenge to already competitive automobile industry in the region.
• Expensive imports - Increasing appreciation of the Japanese Yen, Euro or the Korean Won against the US Dollar since the last year has influenced the GCC market making imports costlier.
• Government regulations - Government norms like the law of one dealer per automobile manufacturer in the UAE are posing a challenge to entrants. Moreover, steps taken to deal with increasing environmental concerns over global warming like a strict oversight on emissions are posing a challenge for manufacturers. Manufacturers need to pay additional compliance and technology costs which ultimately increase vehicle costs. In addition to this, factors like growing emphasis on nationalization of jobs and limited local talent pool are creating a challenge for the GCC automobile industry.
• New challenges from the customers - In addition to this, high mobility and connectivity, growing consumer expectations and a wide array of choices are posing challenges for manufacturers and dealers.
Strategies that can come handy:
Though, the overall scenario poses a grim picture, it has a silver lining. With strategic planning and implementation, automotive manufacturers and dealers can turn this scenario into a pool of opportunities.
• Growing economy with the healthy banking sector, high GDP and increase in public spends along with the willingness of global auto manufacturers for setting up and expand new production facilities and distribution networks can boost the demand for LVs.
• Government incentives, availability of raw material and regional demand can further be the driving factors for new set-ups of assembly/manufacturing facilities.
• There will be demand for small cars from expatriates and youth, luxury cars from wealthy families whereas SUVs are preferred due to rugged terrain and large family size.
• Fleet sales growth and increasing demand for used vehicles are creating more opportunities for the dealers.
• Dealers and manufacturers can work together for optimization of parts distribution and expansion of maintenance and service network.
Thus, the takeaways for OEMs and Dealers are -
• Focus on the enormous potential of vehicle customization, used car business and captive finance offerings.
• Ensure fair pricing across dealerships.
• Provide enhanced connectivity solutions within the vehicle.
• Invest in training dealers and upgrade skills.
• Focus on introducing small, fuel-efficient vehicles.
• Think of setting up assembly and manufacturing facilities.
• Focus on expanding network coverage to serve the budding demand centers.
• Address issues in supply/value chain.
• Focus on used car business and vehicle aftermarket.
• Assess manufacturing and assembly facilities.
• Embrace technology and use state-of-the-art IT systems.
• Prepare for innovative market dynamics.
• Focus on online presence to support servicing and sales, and share product information.
• Synchronize showroom and online experiences.
• Offer customizable financing and leasing alternatives.
Embracing technologies to manage dealerships effectively, work collaboratively to build the service network and offer transparency throughout the distribution network and sales channel to enhance overall customer experience seems to be a smart move for OEMs and dealers.