New Market Report: Saudi Arabia Autos Report Q2 2013

Saudi Arabian new passenger car sales increased by 18% over 2012, to reach 704,214 units. This was very much in line with BMI's forecast of around 700,000 units for the full year. BMI's Country Risk team expects that Saudi Arabia should remain on a solid growth path through 2013, as the non-oil sector continues to expand on the back of booming household expenditure and given a strongly expansionary fiscal stance from the government. BMI is forecasting 23.8% growth in passenger car sales in 2013, to reach 871,931 units.

One major risk to our upbeat forecast is the rising cost of buying new cars in Saudi Arabia, which is forcing increased numbers of consumers to look toward the second-hand market. However, owning a used car can incur additional maintenance costs, which means owners can still be left with higher outlay than intended. For this reason, consumers are looking for used cars with proof of safety and maintenance checks, which leads BMI to believe that there is now a clear opportunity for carmakers in the authorised second-hand market.

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The increase in the average minimum price of a new car, which the Arab News has stated as SAR60,000 (US$10,700), is either pricing out consumers at the lower end of the market, or forcing them to take on financing. However, turning to the second-hand market also brings problems - and costs - if repair work is required or more regular maintenance needed. For this reason, we see potential for further growth in the authorised used car market, where carmakers sell their own pre-owned vehicles, which have undergone a series of checks and carry a warranty.

We initially saw an opening for used car sales in the wake of the global financial crisis, when credit for new cars was harder to come by, while new restrictions on the maximum age for second-hand imports also made newer, well maintained used cars more appealing. Therefore, the companies that have already moved into the used-car market should be able to capitalise.

In this context, companies such as BMW, which reported growth of 6% in 2012 for its BMW Premium Selection division in Saudi Arabia and General Motors, which has been expanding its presence in the certified pre-owned market, look well placed. There are also newcomers such as Hyundai Motor, which announced in January that it will open a network of certified pre-owned outlets throughout the markets of the Gulf Co-operation Council and Levant. The Korean carmaker started its expansion with a showroom in Jeddah, lending weight to our view of potential demand in the country.

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