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29 March 2024

Auction firms benefit at used car dealers' expense

(AFP)

Published
By VM Sathish

The UAE's used car market may be reeling under the economic slowdown, with dealers finding it hard to dispose of fast-piling inventory, but the car auction business never had it so good.

Used car dealers in Dubai and Sharjah are sitting on huge stocks as exports to Africa and Saudi Arabia have almost stoped, industry sources have revealed. Saudi Arabia's decision to ban imports of cars more than five years old has badly affected UAE traders, who have embarked on a price war in an attempt to shift some of the vehicles flooding the market.

On the other hand, increasing defaults in payments by customers have led to auto leasing companies, banks, financial institutions and insurance firms using the services of car auctioneers to sell off vehicles seized from defaulting customers.

In fact, the growth of the auction business has been to the further detriment of used car sales. Auctioneers that Emirates Business spoke to said car buyers were increasingly turning up at used car auctions, as prices there were even lower than at used car dealerships.

And for the used car sector in the UAE, the worsening international economic situation, especially in its hitherto traditional markets such as Africa, has come as a double whammy.

"The used car market continues to go from bad to worse because banks are not funding purchases of used cars as they did before and many re-export clients in Africa are facing currency and liquidity problems," said TV Krishnan, Sales Director at Green Valley Used Cars, which operates at Dubai's Al Aweer auto market.

"Many African countries, including Sudan, are not releasing foreign exchange to used car importers because their currencies are under severe pressure. Our Ethiopian clients have Ethiopian currency but cannot get US dollars.

"The major Suzuki car dealer in Sudan has no stock now because the government is not releasing dollars for imports. They have only the local currency."

Many African countries are vulnerable to exchange rate risks as their currencies are linked to either the euro or the dollar. Exchange rate movements have affected customers in other export markets.

The Saudi Customs Department banned the import of cars more than five years old last month. The kingdom imported 140,000 used cars worth $4.6 billion (Dh16.9bn) from all over the world in 2008. The Saudi ban also covers heavy vehicles older than 10 years, and according to reports 80 per cent of people employed in the Saudi used car market will be unemployed due to the ban.

A spokesman for another dealer, Al Nadeem Cars, said: "The export market situation is very bad and nowadays. We have only a few customers in Yemen. Export of used cars to Pakistan has almost stopped due to the heavy customs duty imposed there. Saudi Arabia was a good market for used car exports from Dubai but the ban has hit exporters."

Mohammed Amir of Abdul Khalik Used Cars said: "Business is almost 95 per cent down. Saudi Arabia was a major market for models dating from 1992 to 2008. Now only cars built from 2004 onwards can be exported there. Older models meant for the Saudi market are now lying idle with local traders."

Russia, another major re-export market for UAE used car dealers, has also been affected by the global financial crisis. One dealer said: "Used car exports to the Russian market are down to a trickle."

Amir said used car prices had crashed by nearly 40 per cent, and added: "I have not seen such a situation in my entire life. The slow market is putting pressure on the limited amount of parking space at the used car markets. The parking space at all the used car markets is full as there is no movement of stock."

Krishnan added: "Exporters are not willing to buy and local buyers are reluctant to spend money. At the same time many expatriates who are leaving the country want to sell their vehicles. Used and new car dealers are fighting back by reducing prices and people with cash are being treated as kings in the market."

The number of people, especially expatriates, who are defaulting on their car loans, has also increased. While some are unable to service their auto loans because they have lost their jobs, others who are leaving the country find that the price their used car fetches in the present market is way below the outstanding loan amounts for the vehicle.

Car auction companies, however, are making good money from the financial distress. Auto leasing companies, banks, financial institutions and insurance companies are all using their services to sell off vehicles seized from defaulting customers.

Used car industry sources revealed that the number of car auction firms is increasing and these new players are making good money through car auctions. For cutomers these companies hold the promise of cars that suit their budgets as prices can fall depending on the response to bid.

Abdul Rahman, owner of Al Ithihad Auctions Organising, said he formed the company just four months ago with 15 cars, and his last auction saw hundreds of cars lined up for sale. "When I started this new car auction company four months ago, there were only 15 vehicles, mostly owned by private individuals. Now I am getting cars for auctioning from leading establishments like CitiBank, RAK Bank, Al Futtaim Motors and car rental companies such as Hertz Middle East," Rahman said.

Vehicles auctioned by the company are leased and repossessed and include rental and fleet vehicles, as well as over-aged dealer inventory and unwanted trade-ins.

He said the auctions business had grown very fast and the young company was looking for new space to expand. Banks, car leasing companies and taxi companies were now using the auction route to dispose of their old vehicles.

"Business is good and the buyers get good deals, as auction prices are lower than those offered by used car dealers. We are getting some near-zero kilometre brand new cars from agents, who buy them from leading automobile agents at cheap prices and make a minimum margin of five per cent."

He said there were six auction companies specialised in conducting car auctions. The auctions are usually held on Saturdays and with a list of about 70 vehicles, but more are available on the auction day. A minimum refundable deposit of Dh3,000 is taken from the participants. Used car dealers are also placing bidding options through the Internet.

Golden Bell Auction, the auction company that manages weekly car auctions at the Al Aweer used car complex, get cars from Standard Chartered Bank, HSBC Middle East, Mashreq Bank, Osool Finance, Al Yousuf — a leading car leasing company, other leading automobile dealers, car rental companies, showrooms and individuals. According to Golden Bell, the number of cars sold through weekly auctions has gone up and their prices have come down substantially. While the company's officials refused to divulge details, the official website said at a recent auction, a 2006 Nissan Tida 1.6L was sold for Dh16,500 and a 2001 Volksvagen Polo went for Dh5,000. Latest models of Toyota Yaris were also sold for less than Dh20,000 per vehicle. A company source said it sold a few hundred cars in recent auctions.

A number of vehicle auction companies have come up recently. Even established used car dealers, such as Al Futtaim Automall, are conducting wholesale used car auctions. A source said: "We are offering cars of different models and the customers are free to bid a price. There are many saloon cars of all major brands such as Toyota, Lexus, Honda, Hyundai, and even German luxury marqus. Business has been good, as many car dealers and individuals grab the opportunity."

He said prices at such car auctions are less than the official Automall prices because "there is no guarantee".

The situation is no different in Sharjah, which is the largest used car market in the Middle East. "Dealers at Sharjah's used car market could be jailed because a drastic slowdown in business means they are unable to pay rent or salaries," a trader warned.

The market, which is run by Sharjah Municipality, is the largest in the Arabian Peninsula.

"There are more than 600 showrooms at the Sharjah used car market and each has stocks of between 20 and 1,000 cars," Abdo Ismail Hassan, Managing Partner of Aliyah Cars Trading, said.

"Monthly sales for us are just one or two cars and many traders will end up in jail if the situation continues. During normal business periods the Sharjah used car market recorded 186,000 transactions per year. The poor market conditions caused by the global economic crisis have been worsened by Saudi Arabia's decision to ban imports of older cars."

He said exports used to account for 60 per cent business of business, with the remainder made up of sales to local customers.

"Now the foreign and domestic markets have disappeared. Local customers used to buy used cars with bank loans, but banks are not funding used cars any more. Thirty per cent export of our export orders used to come from the Saudi market but the ban has halted our exports there.

"Fortunately the UAE Government has abandoned a similar plan to phase out old cars. The rule is not being implemented in the UAE because the President His Highness Sheikh Khalifa bin Zayed Al Nahyan, Ruler of Abu Dhabi, did not want it."

Before the downturn car traders from all the Gulf countries, other Middle East states and Africa used to visit the Sharjah market every day. The market at Abu Shaghara covers 10,465 sq m and includes 21 computerised workshops for checking vehicles and 194 workshops for polishing them. There is a weekly car auction called Haraj.

The Abu Shagara has always been congested as car companies and showrooms encroached on residential parking space. Now, with thousands of unsold cars lying idle for months, the situation has worsened. The decline in sales has also affected car registration agencies, brokers, workshops and the computerised checking centres.

Other dealers declined to commen when contacted on phone as they feared the calls were from their bankers who were trying to determine their business volumes.

Many traders rely on bank finance to run their businesses and fund their inventories.

The market is due to move to a new Dh1 billion Auto Zone Market at Riqa Al Hamra, near Sharjah International Airport, within two years. The new site will have more than 1,200 showrooms, each with room for an average of 15 to 20 cars.

Many employees have been laid off from a number of sectors, in particular construction, and as a result it has become common to find cars with "for sale" signs on parking lots. Some used car companies have opened their own rental companies and are offering discounted leasing rates to customers who are unable to obtain bank loans.


The plunging prices

The increase in the value of the yen would have pushed up the prices of Japanese cars by 20 per cent in the UAE in normal circumstances.

Instead prices have fallen by 10 per cent ?— an effective drop of 30 per cent, according to TV Krishnan.

"Due to the sluggish market conditions traders are not increasing prices," he said. And American cars are being sold at "liquidation prices", added Krishnan.

"The price of a Ford Ranger has come down by 20 per cent and a cash customer can negotiate further discounts," he said. "There is no space to park used cars in the UAE and dealers are selling at liquidation prices to clear unsold stock and save on rent for parking areas. As the prices of new cars have come down there has been corresponding pressure on old cars."

 

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