The number of passenger cars in use in the GCC region is expected to grow at 5 percent annually from an estimated 10.3 million in 2015 to 13.2 million in 2020, according to Alpen Capital.
Its report said new passenger car sales are projected at 1.4 million in 2020, compared to 1.2 million in 2015. Although new sales declined in 2016 and will be under pressure in 2017, Alpen said it expects to see steady growth starting 2018 as the economic environment stabilizes and creates pent-up demand.
The anticipated growth is slower compared to that during last five years as consumers tighten discretionary spending and delay buying new cars, the report said.
It added that Saudi Arabia, the UAE, and Kuwait collectively are expected to continue holding more than 75 percent of the region’s passenger car fleet in 2020.
New car sales in the UAE are projected to grow at an annualized rate of 4.5 percent to over 267,000 in 2020 from an estimated 214,000 in 2015 while sales of new cars in Saudi Arabia is likely to reach nearly 743,000 in 2020.
Alpen said the cost of vehicle ownership in the GCC is lower compared to other countries globally, due to a favorable tax structure.
Additionally, attractive insurance and financing options makes it easier to own a car in the GCC, it added.
It said one of the key drivers of the automotive industry in the GCC is availability of low-cost fuel. Although oil-based economies have recently resorted to raising energy prices in a bid to reduce subsidies, the cost of fuel is still much below the global average.
Alpen added that the presence of several dealers makes the GCC automobile market highly competitive, resulting in price sensitivity and low brand loyalty among consumers.
It said authorized car dealers in the UAE are facing the heat from grey imports, which in certain cases affects the dealer’s volumes by around 20 percent.
While Japanese car brands remain popular in the GCC and the high-end market continues to be dominated by European makes, Chinese brands are fast closing the gap with low pricing and less maintenance cost, Alpen said, adding that Chinese vehicle sales in the UAE are forecast to rise by 100 percent annually to capture a double-digit market share by 2020.
The report also said that the recent entry of taxi-hailing service providers in the region could slow vehicle sales as they expand across key cities in the Gulf.
Sameena Ahmad, managing director, Alpen Capital (ME) Limited, said: “The GCC automobile sector is dynamic and one of the faster growing sectors in the world, primarily owing to the growing population and high disposable income coupled with significant infrastructure developments in the region.
"The sector however is currently facing a slowdown amid a weak economic environment and low oil prices as consumers scale back new car purchases. Passenger car sales will remain under pressure in 2017 but are likely to rebound in 2018."