UAE car sales to accelerate further

Business Monitor International has revised up its forecasts for 2013 new vehicle sales in the UAE from 14.1 per cent to a rise of 16.7 per cent growth. This would see new vehicle sales total 362,013 units.

The most recent data – first 7 months of 2013 - show that new vehicle sales were reportedly up by 16 per cent year-on-year (y-o-y), at 201,122 units. Looking forward, it retains an optimistic outlook on new vehicle sales, forecasting further growth of nearly 20 per cent over the 2014-17 period.

At the end of November 2013, BMI revised up forecasts for Dubai's economy on the back of the emirate winning the nomination to host the World Expo 2020. “We now forecast Dubai's real GDP growth to average 4.3% over the period to 2017, up from our previous estimate of 4.1%. For the UAE as a whole, we are targeting 3.4% GDP growth in 2014 and we expect economic activity across the country to remain relatively robust over the coming quarters,” it said

Encouragingly for the auto sector, consumer sentiment is picking up, with prices across real estate and equity markets having started to head sharply higher in recent months, which bodes well for the prospects for a positive wealth effect. One final encouraging factor for the autos market is the increase in migration from neighbouring states following the Arab Spring. With public transport still inadequate in Dubai, car purchases are being seen as immediate priorities for new residents, it said.

“One potential downside risk to our forecasts is posed by rising inflation, which BMI forecasts to average 2.2% across 2014. According to latest data from the National Bureau of Statistics (NBS), CPI across the country stood at 1.3% in August. This could potentially see the Central Bank of the UAE look to move rates up from their current record low of 1% which, in turn, could impact on those UAE residents requiring loans to make vehicle purchases,” BMI said.

However, BMI's base case is for further continued steady growth over the forecast period. This stance has been given further support by the news in October 2013 that the Ministry of Economy has asked local auto dealerships to cut car prices in order to close the price disparity between their cars and those imported directly from other countries in the Gulf region through unofficial channels.

Local media reported that the government has set up a committee dedicated to determining how UAE car dealers can reduce prices. The ministry says the price gap can be as large as $8,000 (Dh29,000) for some vehicles, leading to a competitive advantage for unauthorised vehicle import agencies. Should the government manage to persuade local dealers to cut their prices, this would likely lead to greater numbers of official new car sales, which would provide further upside to BMI forecasts.

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