Saudi Arabia is fast emerging as a regional hub for the automobile industry. The signs are clear. Big and well-known players like Jaguar Land Rover have come to manufacture cars in the Kingdom. Jaguar Land Rover is a subsidiary of India's Tata Group, which also manufactures passenger cars.
This comes on the heels of news that the Ministry of Transportation will need 60,000 passenger buses for teachers and girls within five years. In 2011, 3,000 units of Ankai school buses made their way from China to Saudi Arabia, industry sources told Arab News.
The deal between Jaguar Land Rover Company will attract an initial estimated investment of $ 1.2 billion.
The proposed manufacturing plant is expected to produce 50,000 Land Rovers by 2017.
Local car demand and the investment of foreign car manufacturers in the Kingdom clearly indicate the need to start a Saudi car industry, industry captains told Arab News. "This means that the Kingdom starts its own industry using local spare parts and manpower," one of them said.
Others said that while this is possible, it will be difficult. Aside from the capital, the Kingdom does not also have the local manpower. At least SR 4.5 billion in investment is needed, but this will not be so much of a problem since it can easily raise the amount. "However, it does not have the manpower," one of them said.
They suggested that the Kingdom enter into an agreement with foreign car makers to start the project. "The latter will manufacture and supply the spare parts. Once the technology has been transferred, the Kingdom could sever ties with them and manufacture the spare parts itself," said Samer Al-Ajjan, general manager of Rashed Al-Thunayan Cars, a Malaysian-made Proton car dealer.
The Kingdom could also initially hire foreign manpower while at the same time training Saudi staff. They could be hired as on-the-job trainees and take over from the foreign workers later on.
If and when Saudi-made cars roll out from the assembly line, it will be a dream-come-true. The Kingdom will no longer be merely a producer and exporter of oil as fuel for cars. It will itself be a car producer and eventually an exporter, instead of being merely an importer as it is now, the sources claimed.
If and when this happens, the Kingdom could solidify its position as a regional economic power as well as a peace broker.
Not only that. Aside from the glory of building its own cars joining the elite few that include the United States, Europe, Japan, South Korea, China and Malaysia it will also open up opportunities for investment for the private sector.
Private companies can open factories to manufacture car spare parts and this will pave the way for the formation of new business ventures. In addition to existing ones, non-life insurance firms will be established to underwrite claims due to vehicular accidents. Additional car workshops will also be opened to repair insured cars damaged due to road accidents.
Moreover, these private firms and car workshops will hire the necessary staff. In other words, they will generate job opportunities and help tackle the problem of unemployment.
Early this year, the Central Department of Statistics of the Ministry of Planning and Economy published its report for 2011-2012. The statistics showed that unemployment reached 12 percent in the second half of 2012. The number of unemployed Saudis reached 603,000, up from 34 percent in 2009.
For these local manpower to be absorbed in the local car industry, they will have to undergo training, assuming that they have not worked in car companies before. They could be initially hired as on-the-job trainees. For specialized jobs, they could be sent overseas for the necessary know-how.
Due to the Kingdom's potential as market, global auto firms have targeted Saudi Arabia as their production base in the region. They will not only cash in from the local market with many Saudis having big disposable incomes but also able to export to equally oil-rich neighboring countries.
Aside from Jaguar Land Rover, other foreign players have also come to the Kingdom. Isuzu Motors Ltd. is building trucks in an assembly plant in Dammam. It is expected to deliver 25,000 vehicles annually to Asian countries.
King Saud University (KSU) has already reached an accord with Digm Automotive Technology of South Korea to develop a car that would carry a price tag of around $ 10,000. Tanaqol, a Saudi company, will also partner with the Egyptian firm Eagles Auto, according to the Riyadh-based manager of GRG Group, a representative for the Scania Middle East factory.
This will certainly pay off dividends as far as the Kingdom is concerned. It will benefit from exposure to foreign technology and hope to learn from it. This will engender a healthy competition since the Kingdom will strive hard to make its cars stronger and competitive in quality like the foreign manufacturers of branded cars.
"It will also have the edge because it could sell more for less, unlike the manufacturers of branded cars whose products are more expensive," said a marketing executive of a leading car dealer in Riyadh.
Industry players said that once locally-made cars become saleable and popular, the Kingdom could start exporting to other countries. "But for the purpose of exporting, a warehouse near the seashore is needed, which is costly. It's better to bring the cars directly from the factory's assembly line to the seashore for shipment to the country of destination," said Alaa Abo Merhi, marketing and PR manager of Wallan Trading Co.
Car dealers said that the Kingdom could tap the markets in the GCC and other countries in the Middle East as well as the African countries.
At present, the car industry in the Kingdom is doing well. Industry sources said 650,000 units are entering the Kingdom annually and the number is growing by 10 percent. Sales are expected to reach SR 94 billion this year.
Last year, the local industry posted a memorable year, hitting the third all-time record in a row and growing 18.5 percent from the previous year. Toyota confirmed leadership with a share of 40 percent, more than double than its challenger, Hyundai. Last year, the Kingdom's light passenger vehicle market hit a new record with 704,000 sales, up 18.5 percent from the previous year.
The 2012 year ended at 69,580 sales, up 34 percent. Because of this performance, the Kingdom was the world's 21st car market, up two spots from 2011, according to an industry report.
The Kingdom is indeed a potential market. This is illustrated by numerous car dealers that include Abdullah Hashim Company Ltd. (Honda), Al Jazirah (Ford), Al-Hamrani and Al-Eissa (Nissan), Wallan (Hyundai in Riyadh), Naghi Motors (Hyundai in Jeddah, BMW and Tata), Al-Majdoi (Hyundai in Dammam), Al-Juffali (Mercedez Benz), United Motors (Chrysler, Dodge and Jeep), Abdul Latif Jameel (Toyota), Haji Hussein Alireza (Mazda, Geely and trucks), Olayan Group (Scania), Al-Ghazzan (Lamborghini, Ferrari and Bentley), Al-Jomaih and United Motors Agency (General Motors), Gulf Motors Company (Fiat and Alfa Romeo), Safari (Skoda and Seat), Al-Ghassan (Aston Martin), Specialized Company (Morris Garage), Al-Eissay (Mitsubishi), Al-Jabr (Kia, Rio, Cerrato and Optima), Barayan (Suzuki), SAMACO (Volkswagen, Audi and Porsche) and Al-Dados (Ssangyong).