2013-08-19 09:55:41 - Fast Market Research recommends "Saudi Arabia Autos Report Q3 2013" from Business Monitor International, now available
BMI maintains an upbeat view on the Saudi new car sales market at the mid-point of 2013. Early indications (from the first two months of the year) show that new vehicle sales are up by 14%, at 121,583 units. For 2013, BMI maintains its forecast for real GDP growth of 4.1%, rising to 4.6% in 2014 on the back of a slight rebound in oil exports. Business activity in the private sector remains supported by the government's loose fiscal policy stance, easy credit conditions and robust consumer confidence.
Looking forward, we expect the government's fiscal policy stance to remain broadly supportive of the economy over the coming quarters, with both current spending and capital expenditure continuing to see strong growth. Saudi
Arabia's 2013 budget is the most ambitious in the country's history in nominal terms, planning for expenditure of SAR820bn (US$218.7bn); 18.8% higher than the amount outlined in the 2012 budget.
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Encouragingly for the autos sector, BMI expects private consumption to grow by 5% throughout 2013, with the retail sector having undergone a sustained boom since government spending began accelerating in 2011.
BMI believes that the outlook for the retail sector is set to remain bright over the medium term, with sales benefiting from rising disposable incomes, favourable demographics and increasing urbanisation. Consumer loans granted by Saudi commercial banks grew by 20.5% year-on-year (y-o-y) in 2012, with loans for the purchase of cars and equipment rising by 16.1% to reach SAR57.4bn.
Rounding out a broadly-supportive picture is the fact that inflation remains relatively subdued, averaging 4.5% y-o-y in 2012 and set to fall to 4.1% in 2013, paving the way for local interest rates to remain at 2%. This will help with those customers who need to take out loans for their car purchases.
Against this backdrop, BMI is targeting 15% growth in new passenger car sales over 2013, to reach 609,500 units, and 4.8% growth in new commercial vehicle sales over 2013, to reach 167,712 units. All told, the total new vehicle market should see growth of some 12.6%, to reach 777,212 units.
Recent news flow continues to bear out BMI's view that Saudi Arabia will become an ever more important regional autos hub over the coming years. In June 2013, Zawya reported that representatives from the Saudi Arabian auto industry are to attend a conference held by the US-Saudi Arabian Business Council to promote the country as an essential auto market in the Middle East and a gateway to North Africa. The forum was to open on June 26 2013 and aims to build stronger business relationships between the US and Saudi Arabia, and encourage investment from US businesses. Young people, with substantial disposable income, mean there is an increase in driving demand in Saudi Arabia.
Moving forward, the outlook for domestic auto production will be transformed should Jaguar Land Rover (JLR) decide to establish production facilities in the country. The company originally announced plans to set up production facilities in Saudi Arabia in December 2012, in another significant move in the country's efforts to industrialise the economy and move away from its reliance on the oil sector. It also aligns with BMI's long-held view that the country is the best placed of the Gulf Cooperation Council (GCC) states to begin domestic vehicle production.
By 2017, JLR plans to be producing 50,000 Land Rovers per annum, if the project goes ahead. The carmaker has signed a letter of intent with Saudi Arabia's National Industrial Clusters Development Program (NICDP) and a feasibility study is currently ongoing. Until this is complete there are likely to be no more details on investment, capacity or the number of new jobs, but Azzam Shalabi, president of NICDP, said the first phase of the project would involve investment of SAR2.5bn (US$666.6mn), with SAR220mn (US$58.7mn) going towards parts production in Jubail.
According to a May 2013 report in UAE newspaper the National, senior officials in Saudi Arabia are confident that a deal with JLR will be signed before year-end to establish a production line in Yanbu. Aiding negotiations are the availability of cheap aluminium from the expanded Alcoa and Saudi Arabian Mining Company (Ma'aden) smelter at Ras al-Khair from 2014, as well as likely generous financial incentives (in the order of US$1bn) from the Saudi government.
From an autos sector perspective, it makes sense for the region's biggest market to have some level of domestic production. Should JLR commence production over the coming years, this is also likely to attract investment from parts and component suppliers, particularly if there is the potential for export to other neighbouring markets.
In 2012, the dominant carmaker on the Saudi new car sales market remained Toyota Motor, which sold 263,851 cars and commercial vehicles, for a market share of nearly 37.5%. Some way back in second place was Hyundai on 123,782 units, or 17.6% share. Other key players in the Saudi new car sales market include Ford Motor and Chevrolet in the passenger car segment, and Isuzu Motors in the commercial vehicles segment.
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