Automobile Sector in UAE displays refreshing signs of recovery from COVID-19 slowdown

By Rahul Vaimal, Associate Editor
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After the significant drop in sales due to enforced regulations to curb COVID-19 pandemic, UAE’s auto sector is showing encouraging signs of recovery. Though a return back to 2019 volumes is still expected to happen only by 2021.

The pre-owned vehicle’s market has also provided increased opposition to new cars as residents become more price-sensitive due to ongoing economic situation.

Dr Julia E. Saini
Associate Partner – Mobility Frost & Sullivan

“Vehicle brands have seen a drop in sales of new and pre-owned cars between 50 to 80 percent in March 2020 and zero sales in April owing to the lockdown. Overall, we expect 10 to 15 percent of consumers will defer vehicle purchases by six to 12 months. Among the consumers who continue to pursue vehicle purchase, we expect the average spend to drop by 10 to 15 percent due to the job loss as well as negative sentiment and uncertainty. Overall, we expect a drop in sales of 24 percent in 2020.”

Axel Dreyer, CEO of the automotive division at Galadari Brothers, the distributor of Mazda vehicles in the UAE, says there is an increase in demand over the last one week after the lockdown, which is very positive.

Axel Dreyer
CEO – Automotive Galadari Brothers

“Although the current economic impact is heavy, the people in the UAE have faith in government leadership to steer the UAE economy towards stable waters. Due to fear of infection, people are avoiding public transport and considering car sharing or cheaper used car option to serve their transportation requirements. This will also give a stimulus to the automotive industry. Many residents might also not travel this summer season so instead, they might look for a new or used car.”

Starting from late March, Dubai and other emirates persisted under strict lockdown during most of April as part of the 24-hour sterilization program. UAE residents were permitted to step out only to buy essentials – such as food and medicines or visit hospitals. In addition, commercial outlets continued to be closed during the sterilization period, which continued most of the last month. As a result of a decline in sales, dealers are trying to spur demand with offers on insurance, registration and maintenance contract, fuel, cashback offers and down payment support, which typically translated to Dh 3,000 worth of savings.

While replying to a comment on recovery, Dreyer said: “That depends on the interpretation of recovery. If recovery means back to 2019 level, I’m not expecting that this will happen before the fourth quarter of 2021. But there are so many variables that are uncertain for the moment. It is difficult to provide a prediction but for sure the coming 12 months will be tough for the automotive market.”

Dr. Saini presumes the market will have a relatively short-term impact on new vehicle sales and moderate growth is expected already in 2021. “We expect to see a growth of 4 percent in 2021.” She expects that the used car market to be less impacted by the Covid-19 slowdown than new car sales in 2020 as customers will remain price-sensitive. “We expect used car sales to drop by 14 percent in 2020. Around eight out of 10 consumers who are considering a car purchase are eyeing used cars. Accelerating growth in online platforms and increased transparency of used car dealers’ offers [valuation and vehicle history] are driving customers’ shift to the organised used car market in the UAE,” Dr. Saini added.