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March 19, 2010

MARKET SNAPSHOT: Kuwait’s income squeeze to abate and lift car market

Car sales fell in Kuwait in 2009 to 119,133 units, from 122,623 in 2008, according to Business Monitor International (BMI) as the impact of the international economic crisis was felt in the Gulf state’s economy.

Car sales fell in Kuwait in 2009 to 119,133 units, from 122,623 in 2008, according to Business Monitor International (BMI) as the impact of the international economic crisis was felt in the Gulf state’s economy.

Plunging oil prices in the latter half of 2008 and early 2009 had a serious effect on the country’s income, while tightening credit also curtailed economic growth. The Central Bank of Kuwait (CBK) estimates that the country slid into recession, in 2009, with BMI estimating a 2.4% contraction.

As a consequence of these factors, the automotive sector, heavily reliant on consumer confidence, took a knock, though the fall in sales is nowhere near as drastic as in many other countries. Dealers have reported that second-hand car sales have been holding up considerably better than those of new vehicles, the Kuwait Times reported in June 2009.

While new model sales had dropped by around 50%, used vehicle sales had only fallen by 10-15%, the newspaper said. However, as the market picks up as expected in 2010, this trend may be weakened as buyers in Kuwait – particularly Kuwaitis – show a clear preference for new vehicles. Recovery in the economy will be slow to arrive, providing little impetus to consumer confidence. BMI forecasts car sales rising to 121,861 in 2010, still below 2008 levels. By 2014, the market should reach a value of 140,361 units.

Sales of BMW’s Premium Selection, its global used car sales programme, rose in the Middle East in 2009, despite – or because of – the downturn, albawaba.com reported in February 2010. The carmaker sold 1,888 Premium Selection vehicles in eight markets in the Middle East, against 1,512 in 2008.

It may be that customers feeling the squeeze on their incomes are turning to used cars where previously they would have bought new ones. Some may also be concerned about the depreciation of new cars. Whether this trend continues as the region’s economies pick up remains to be seen, but it is possible that 2009 saw the start of a new culture of buying used vehicles in the Gulf, where previously new ones have been much preferred. If acceptance of used vehicles can become more embedded and widespread, used car dealers stand to benefit. This may be particularly the case with used luxury cars such as BMWs.

Meanwhile, in the premium segment, Kuwait’s Investment DAR now appears unlikely to sell its 50% stake in British luxury carmaker ASTON Martin as part of its restructuring of KWD1bn in debt, Maktoob Business reported in January 2010. The fund hopes that a new model will help enhance the value of its ‘trophy asset’.

DAR is in the process of finalising a debt-restructuring deal with its creditors, which will involve selling some of its assets. ASTON Martin seems unlikely to be part of the sell-off at first, though there are suggestions that a stake may be sold later when the automotive market has recovered and the marker itself has received a boost from sales of its new model, the Rapide. ASTON Martin forecasts production of around 1,500 Rapide cars in 2010, upping sales to about 6,000 units this year, one of the highest levels in company history, an ASTON spokesperson said. This is likely to boost the carmaker’s value considerably.

This article is based on Kuwait Autos Report Q2 2010 (download)

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