Potential buyers are willing to head back into UAE car showrooms … provided the dealership is willing to go the extra mile on taking care of the VAT costs. That seems to be the prevailing sentiment and dealerships willing to take this up are faster off the track in their 2018 sales push.
Traffic to the showrooms has inched up slightly after a drastic decline in the first few days of 2018. Dealership sources say it is taking longer to close a deal, and buyers are having a lot of think about the options they want in the car and what that could mean to the final price. But the key for dealerships is that potential buyers are making the trip to showrooms. By the looks of it, many are turning up and that the first quarter will not be a complete write-off for the auto retail industry.
“The general observation is that all customers walked in with an understanding that we will bear the VAT as a default,” said Rimoun Hanouch, Group General Manager at Liberty Automobiles Co. and the biggest Cadillac dealer in the region. “This behaviour is probably driven by recent aggressive dealership offers.” (For the wealthy, the additional VAT costs still seem a minor detail, given that Liberty’s most in-demand model in the first two weeks of 2018 was the Cadillac Escalade, which starts north of Dh302,000.) “We believe — as do most of our colleagues in the automotive industry — that the first quarter with VAT will be decisive,” said Hanouch. “It was how we planned for 2018 … I won’t call it a difficult situation for the market, it’s only a slowdown.
“But with any campaign, there’s only up to a point that dealerships can go. We will keep on being flexible with end-of-year promotions, but beyond that it becomes tough. The industry is operating on fairly thin margins.”
For the moment, dealerships across the board have gone out of their way to limit — or even remove in full — the VAT component on a new car purchase in the first weeks of the year. Al-Futtaim Motors has said it is maintaining 2017 price levels on Toyota models for a certain period. Arabian Automobiles Co., the local dealer for Nissan, has offers where a buyer makes the 5 per cent VAT payment, but gets free fuel for a year.
Al Ghandi Auto, the Chevrolet and GMC dealer in Dubai and northern emirates, is running the “5 on Us” campaign, which absorbs the 5 per cent VAT, then pads that up with a four-year roadside assistance, three-year warranty and a two-year/40,000 kilometre service contract. Plus a one-year free insurance on select models. Al Tayer Motors is offering a chance to win back the price of a car — of up to Dh150,000 — through a raffle draw on select Ford models.
Meanwhile, some dealership sources say they will do “whatever it takes” to convince people not to put off their next purchase. They say that the VAT element is a one-off event and that requires changes to strategy on when and how long to run promotions. Many of the 2018 models have already arrived at showrooms and more will do so in the weeks ahead.
Dealerships will then have to find ways to sustain their promotional pitch even after the DSF campaigns end. They will also need to keep in mind that all of their imports done after on or after January 1 will bear VAT-related costs. How to manage these costs without upsetting the equation with potential buyers will decide how the market runs from February onwards. In many ways, starting February will be the real crunch period for dealerships.
Hanouch, for one, is an optimist. “I think 2018 it will eventually be a flat year for car sales in the UAE,” he added. “The market was down by less than 15 per cent in 2017, and could have ended up with approximately 320,000 new cars sold.
“It helped that the last couple of months of 2017 performed better (because of pre-VAT buying and for premium cars, demand was a bit more. For the whole of 2017, premium would have been down by about 10 per cent for a final total of 60,000 units. And Cadillac has been growing despite the decline in the premium segment, that’s how we gained in marketshare.”