Saudi Arabia could see first drop in car imports in 10 years

Saudi Arabia, one of the Middle East's biggest car markets, could see the first drop in car imports in 10 years in 2009 as the financial crisis hits the oil-based economy, said analysts and traders.

The industry, whose 2008 sales accounted for about three per cent of the biggest Arab economy's gross domestic product, is cutting costs by freezing new recruitment, while banks are making access to financing harder, said industry experts.

Global auto manufacturers hope Gulf states will show relative resilience to the global downturn hitting the industry. The Saudi Government has boosted spending to counter the effects of the crisis, but the private sector is widely expected to suffer, mainly from greater caution by banks towards lending.

"Worries on the 2009 direction of the Saudi economy have started weighing on the weakening Saudi auto market," state-run National Commercial Bank (NCB) said in a research note.

John Sfakianakis, Chief Economist at HSBC's Saudi affiliate, said matching the 2008 car sales performance will not be easy. "The year 2008 was the best year for the car industry in Saudi Arabia. We have not seen a drop since 1998," he added.

Saudi imports of new cars could fall 22 per cent to 350,000 units in 2009, said Ali Reza, Chief Executive, Haji Husein Alireza, that sells vehicles made by Mazda, Ford, Aston Martin and MAN trucks. "Demand from the private sector has cut sales but not the state sector or contractors on state projects," he said.

News about gluts in the United States and European markets leading to hefty discounts there have turned many Saudis off buying, in the hope of seeing similar promotions hitting the showrooms at home.

Sultan Al Mubarak, head of a European car showroom in Riyadh, said most visitors ask about upcoming promotions, but only 15 per cent of them end up buying. "A year ago we sealed deals with 45 per cent of visitors. We use to pressure management about dates of new arrivals," he added, noting that sales of industrial vehicles fell 25 per cent in the first quarter.

NCB estimated at SR42 billion (Dh41.18bn) the total value of some 620,000 new cars sold by major agents in 2008. "It is one of the largest trading sectors, accounting for about three per cent of total GDP," the bank said.

Banks may lose revenue from an import cut. "Private sector imports of vehicles financed by local banks are one of the banks' major business segments of lending and profit," NCB said.

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