Car sales vroom before vat
dubai — As the year-end approaches, we see huge sales, discounts and freebies from car distributors in the UAE as they look to liquidate their stocks with the arrival of new models. So, if you’re looking to buy a new car, then this is the right time not just because of the rockbottom prices, but also due to the implementation of value added tax from January 2018.
Though prices are projected to stay low even during the first half of the next year, the buyers will have to take additional five per cent additional VAT charges while purchasing their favourite cars.
According to Akil Vanthliwala, partner for audit at KPMG Lower Gulf, 2017 has been a challenging year for automotive dealers. Across the board, auto dealers have experienced declining sales
Car ownership cost in the UAE is now very low, especially compared to other mature markets Axel Dreyer, general motors, Galadari Automobiles Group
with some forecasts expecting new car sales to drop over 15 per cent in 2017.
“Auto dealers have been introducing innovative financing schemes and incentives like extended warranty, free insurance, etc, with some support from manufacturers to stimulate sales. However, these cherry top deals have resulted in a margin squeeze. Auto dealers have also shifted focus on high-margin after-sales by enhancing capacity and improving efficiencies,” he said
“Auto dealers were hinging hopes on pre-VAT sales in the last quarter of 2017, which does not seem to have materialised. Customers are carefully deliberating owning versus leasing and new as well as pre-owned options in the current economic environment,” Vanthliwala added.
He said that based on KPMG’s interaction with auto dealers, it appears that the forecast for first quarter of 2018 is also not encouraging as customers will need some time to reconcile with the new normal VAT environment. As part of the GCCwide agreement, the UAE will impose five per cent VAT on new and used car purchases from January 1, 2018.
According to Bill Carter, chief systems and innovation officer at Autodata Middle East, new car sales are to be lower by 15 per cent this year as compared to last year, reaching 260,000. He expects sales growth to remain stagnant next year as well. He said people are worried about their job prospects and there were layoffs in the oil and gas sector. Therefore, residents are holding back their new purchases.
With regards to the impact of VAT, he noted that dealers have already launched promotions such as “beat the VAT and buy cars now”.
Pick-up from Q2
According to Vanthliwala, dealers expect a positive sales pick-up from the second quarter leading into 2019 and then Expo 2020 Dubai.
“Another key auto trend that we are seeing is the introduction of electric versions in the market and we expect this trend to continue. Government entities have recently announced a number of incentives to support plug-in cars and huge investments will be made towards building supportive infrastructure, and all of this is aligned to the clean environment vision. Overall, a positive outlook is in the horizon from second half of 2018 and it remains to be seen how dealerships will pass on the impact of VAT on to customers,” he said.
According to Axel Dreyer, general manager at Galadari Automobiles
Overall, a positive outlook is on the horizon from second half of 2018 and it remains to be seen how dealerships will pass on the impact of VAT on to customers
Akil Vanthliwala, Partner for audit at KPMG Lower Gulf
Group — the distributor of Mazda in the UAE — since the automotive market has dropped from 2016, the prices of new cars have dropped simultaneously. The UAE automotive market has turned in a very short time to a mature and very competitive market; together with the market drop, dealers were forced to reduce prices or offer additional value-added packages.
He said dealers have limited margin as they have to maintain their infrastructure to provide excellent service to their customers.
“I believe we have reached in 2017 the bottom-line and there will be no further drop in new car prices. Car ownership cost in general in the UAE is now very low especially comparing to other mature markets,” says Dreyer. He said there will always be dealers who are carrying a very high inventory for they might have overestimated the market.
Additionally, many principals are putting a lot of pressure on dealers in ordering cars; in case certain sales channels are not ordering in line with forecasts, inventories pile up. “Inventory management is one of the most critical tasks in automotive management especially when operating in a volatile market. High inventory is costing a lot of money as the cash flow is negatively affected and not to forget the maintenance cost to keep the new cars in a pristine condition,” Dreyer said.
Liquidate stocks
He said dealers with high stocks, especially with older models, are forced to liquidate their stock until end of the year. Consequently, prices for those specific cars are dropping. As a general note, nearly all dealers are offering special discounts and programmes all year to attract buyers — which is good for customers. Also, during this period, all brands are having the new model year in their showrooms, which is always attracting potential buyers.
Galadari Automobiles is offering savings of Dh10,500 on the Mazda 3 and Dh14,000 on the Mazda CX-3 for their 2018 models.
Al Habtoor Motors has been running a massive campaign whereby it offers 10 Lancer EX, five kg of gold and up to Dh1 million in cash, in addition to a two per cent trade-in bonus for any car and zero per cent interest for four years. Moreover, it offers buyers to pay the first instalment after four months, five years or 100,000km warranty, service up to 30,000km and free Llumar tinting and Scotchgard.
Similarly, Trading Enterprises offers a 20 per cent dealer down payment contribution, two-year buy-back guarantee option, twoyear service contract, unlimited kilometre warranty and 24-hour roadside assistance for certain Volvo models. Honda also offers a premium upgrade worth up to Dh20,000 and five years of unlimited mileage warranty on Accord models.
For the big boys looking for a big toy, buyers can save up to Dh40,000 for a Dodge Ram as the dealer offers up to 20 per cent dealer down payment contribution and five-year warranty, service contract and roadside assistance.
Liberty Automobiles — the distributor of Cadillac and Chevrolet — is running its “Bigger, Better, Best” offer, which gives Chevrolet customers the opportunity to save up to Dh50,000.
The automotive market is competitive by nature; however, prices haven’t changed. Instead, many offers have been built-in to the vehicle prices, Liberty Automobiles said.
Replying to a query about some car dealers failing to sell off their inventories, the company said that situations like this do occur from time to time in the automotive industry. However, as far as Liberty Automobiles is concerned, this is not the case as it has already started offering and selling 2018 models. — waheedabbas@khaleejtimes.com