The Saudi automotive market has tended to grow at a far slower rate than neighbouring
Gulf states, as Saudi consumers have not taken the same opportunities in terms of borrowing for new car purchases. As a result, the market has a larger proportion of lower cost cars than the UAE and the country imports a large number of used cars from neighbouring countries. This tendency to favour cash purchases will help partly insulate the market from the effects of the credit crunch, with cash transactions set to remain the majority of purchases over the near-term, compared with less than a third of purchases in the UAE. Even consumers who take out loans are unlikely to be adversely affected by the global financial crisis. The Saudi banking sector, like others in the Gulf, remains solidly capitalised – with around US$286bn worth of assets – and there was no significant downturn in lending in Q408.
The main risk factor comes from the Saudi stock market, where many consumers have invested money.
Having lost more than 57% in 2008, the Saudi bourse was the second-worst performing Gulf Cooperation Council (GCC) market behind Dubai. BMI has observed that slumps in the stock market have a significant impact on consumer confidence, with Saudi nationals delaying purchases of big ticket items such as cars. However, it is our long-held view that it will be the first of the region’s markets to recover.
Consequently, consumer confidence will return quickly as soon as the market regains value.
The Saudi currency peg to the US dollar will mean that, in the near term, cars manufactured in Europe will become cheaper as the US dollar appreciates. Even before the decline of the euro’s value, European producers had strengthened their position on the Saudi market. This trend is likely to continue due to the downward pressure on the euro. It will also reduce inflation throughout the economy, helping to keep the cost of living down and shoring up consumer spending.
BMI estimates that the Saudi automotive market grew 13.5% y-o-y to over 590,000 units, which is lower than the 14.1% forecast in our previous quarterly report, with sales growth negatively impacted by the falls in the stock market. Growth is set to decline to 3.5% in 2009 as the market comes under pressure as a result of a lower economic growth rate and a slowdown in spending. Nevertheless, the rest of the forecast period is set to see annual growth rates averaging 9.6%, reaching over 880,000 units by 2013, a rise of almost 50% over 2008.
Saudi Arabia scores 54.3 points (out of a theoretical maximum of 100) in the BMI Automotive Business Environment Ratings this quarter, down 3.1 points since the previous quarter due to the expected downturn in the automotive market. This puts it 0.3 points ahead of Kuwait and 2.3 points behind South Africa. As a result of the decline in its score, Saudi Arabia’s rank has fallen from third to fourth place.
Aside from the forecast decline in the market, a lack of automotive production and stringent foreignownership laws weigh down Saudi Arabia’s score. On the upside, despite being the largest automotive market in the Gulf, it has the best penetration potential due to a low per-capita rate of vehicle ownership, partly due to the ban on women driving; the introduction of pending legislation allowing women to drive would help raise vehicle ownership significantly. Saudi Arabia’s score will also benefit if it establishes large-scale automotive production facilities.
The main risk factor comes from the Saudi stock market, where many consumers have invested money.
Having lost more than 57% in 2008, the Saudi bourse was the second-worst performing Gulf Cooperation Council (GCC) market behind Dubai. BMI has observed that slumps in the stock market have a significant impact on consumer confidence, with Saudi nationals delaying purchases of big ticket items such as cars. However, it is our long-held view that it will be the first of the region’s markets to recover.
Consequently, consumer confidence will return quickly as soon as the market regains value.
The Saudi currency peg to the US dollar will mean that, in the near term, cars manufactured in Europe will become cheaper as the US dollar appreciates. Even before the decline of the euro’s value, European producers had strengthened their position on the Saudi market. This trend is likely to continue due to the downward pressure on the euro. It will also reduce inflation throughout the economy, helping to keep the cost of living down and shoring up consumer spending.
BMI estimates that the Saudi automotive market grew 13.5% y-o-y to over 590,000 units, which is lower than the 14.1% forecast in our previous quarterly report, with sales growth negatively impacted by the falls in the stock market. Growth is set to decline to 3.5% in 2009 as the market comes under pressure as a result of a lower economic growth rate and a slowdown in spending. Nevertheless, the rest of the forecast period is set to see annual growth rates averaging 9.6%, reaching over 880,000 units by 2013, a rise of almost 50% over 2008.
Saudi Arabia scores 54.3 points (out of a theoretical maximum of 100) in the BMI Automotive Business Environment Ratings this quarter, down 3.1 points since the previous quarter due to the expected downturn in the automotive market. This puts it 0.3 points ahead of Kuwait and 2.3 points behind South Africa. As a result of the decline in its score, Saudi Arabia’s rank has fallen from third to fourth place.
Aside from the forecast decline in the market, a lack of automotive production and stringent foreignownership laws weigh down Saudi Arabia’s score. On the upside, despite being the largest automotive market in the Gulf, it has the best penetration potential due to a low per-capita rate of vehicle ownership, partly due to the ban on women driving; the introduction of pending legislation allowing women to drive would help raise vehicle ownership significantly. Saudi Arabia’s score will also benefit if it establishes large-scale automotive production facilities.
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