The COVID-19 pandemic has had a significant negative impact on the global automotive industry, with most of the major auto manufacturers suspending production, and supply chain networks down. The spread of the pandemic, and the subsequent lockdown in Dubai have resulted in a drop of more than 80 per cent in car sales and more than 70 per cent in aftermarket revenues for most of the distributors here.
According to a survey conducted by consultancy firm Roland Berger, there has been a drop of 80 to 90 per cent in showroom footfall and 60 per cent to 70 per cent drop in service centre revenues in the period between April 2019 and April 2020. The study says the main reasons behind this slump are restrictions on showroom timings, complete closures or limitations from curfews, and non-issuance of loans, while minimal vehicle inspections due to RTA closure led to used cars not being registered as well.
“The current COVID-19 crisis has put a hold on new car sales across the world and also in the UAE. In the UAE, where distributors, which are both wholesale importers and dealers, buy several months of stock from the car manufacturers in advance, this situation is putting the distributors under enormous strain,” says Santiago Castillo, Partner and Head of Automotive Middle East at Roland Berger.
He adds that the COVID-19 crisis follows a four-year long fall in new, domestic car sales in the UAE. This drop since 2015 was caused by slowing economic growth and was sharpened by changes in customer behavior. These changes include a gradual shift from car ownership to usership, growing adoption of mobility services – such as ride hailing –, and digitisation of the customer experience. Castillo says the COVID-19 crisis is likely to accelerate some of these changes.
“During the last 5 years, this industry also witnessed strong transformational winds influenced by new technologies, changing customer sentiments and new products, “says Michel Ayat, Chairman, Dubai Car Dealer Business Group, which commissioned the study. “Amidst this industry transformation, the sudden and unexpected outbreak of COVID-19, which began in early 2020, has created unprecedented global panic and worldwide uncertainty affecting various organisations’ ambitious plans for performance, growth and expansion,” Ayat adds. However, he also expressed confidence that “this dreadful period will pass” and that the country and the region will rebuild its life and economy with “renewed vigour and perseverance.”
The study also says in 2020, the UAE new car market is expected to drop by 50 to 60 per cent along with contraction in other segments. Parts and service revenues are estimated to drop by 15 per cent to 30 per cent due to low traffic volume and reduction in spending by expats. Used cars volumes are also estimated to drop by 15 to 30 per cent. De-fleeting by car rental companies is expected as these firms face utilisation challenges. However, it also notes that reduced income effect along with aversion to public transportation could potentially boost used car sales.