From Amman to Riyadh, Jeddah to Cairo there’s always one place where you’re guaranteed to find a crowd. Head down to a second-hand car market and you will be surprised by both the number of people and the range of cars on offer.
There’s everything from your everyday family wagons such as GM Suburbans and Toyota Camrys, to the ubiquitous pick-up trucks and high-end sports cars. If the numbers of second-hand car dealers and prospective buyers are anything to go by, the Middle East’s used-car market is flourishing.
The Middle East – and the Gulf in particular – has long had a love-affair with the automobile. It’s probably no surprise when petrol prices are cheaper than water in most of the region, a lack of public transport, and a pervasive cultural conservatism that there’s a Middle East obsession with cars. Even in Jordan and Syria a car is more than a functional necessity – it’s a symbol of wealth and status.
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However, the global economic collapse put the brakes on the region’s new car sales. Before the recession and during the Gulf’s boom years last decade, waiting lists would grow longer at the launch of each and every new car model; after 2008 and without easy access to financing and with money being tight customers had to change their buying habits. The region’s second-hand car markets came into their own.
“The market in the UAE and the GCC traditionally was always a new car buyer market,” Jeff Mannering, Audi’s Middle East managing director told Emirati newspaper The National back in 2010. “People had a lot of disposable income. I think after the financial crisis that people are a little bit more careful with the money they spend and used cars are becoming a very considered option for a lot of people.”
In 2008, many of the region’s banks, fearing the financial cost of defaults, tightened their purse strings and curbed their car loan lending almost overnight. The region’s consumers were also impacted by fluctuating currency rates, which raised costs for Japanese car manufacturers. And then there was the widely reported exodus of expatriates who left or sold their cars as they departed the UAE with one-way tickets.
The new car market’s contraction was repeated across the Gulf. Vehicle sales in Saudi Arabia fell by 15 percent according to the Kingdom’s National Commercial Bank. New car sales in the UAE dropped by as much as 60 percent in November 2008 as consumers found financing increasingly hard to come by, according to consultancy group Frost and Sullivan. The UAE’s new car sales growth over the previous 12 months was 38 percent. While not as dramatic a drop, Kuwait’s new car sales fell as much as five percent in 2009. In the face of the storm the region’s automotive dealers realized that the used car market was their silver lining.
“Used car sales is going to grow,” John Passadis, the regional sales director for General Motors, told UAE media in 2010. “In any mature or more developed market, used car sales may even reach the volume of new car sales. In these markets, it (represents) not more than 20 per cent and there is a lot of opportunity. That is why you are seeing the numbers increasing.”
Over the past five years all of the major brands have expanded their presence in the used-car market, either through extending their dealer network or introducing pre-owned vehicle schemes. That focus has paid off, with dealers recording record second-hand sales. General Motors recorded 28 percent growth for its used-car sales programme during the first six months of 2010. During the first six months of 2011 and following the launch of the largest used-car dealership in the UAE Arabian Automobiles recorded a 54 percent rise in sales of used Nissans and Renaults.
And people aren’t just buying low-end or mid-range used cars either. BMW realized a growth of 89 percent for its year-on-year 2010 first half-year sales through the company’s certified used car programme BMW Premium Selection. Even brands which have always focused on the new car segment have changed tack for the region and invested heavily to promote their products to customers looking for cheaper, second-hand cards. At the beginning of this year Mohamed Yousuf Naghi Motors opened the world’s largest second-hand car showroom for Hyundai in Jeddah. The site was Hyundai’s first ever showroom exclusively for certified, pre-owned cars worldwide.
The region’s branded distributors attribute the rise of the pre-owned car industry in the Middle East not only to tighter financing and more prudent budgeting by the consumer but also to their own efforts to improve the second-hand experience. In most of the Gulf approximately eighty percent of used cars are sold directly through classified advertisements or via the hundreds of car lots in areas such as Doha’s Salwa Road or Jeddah’s Heraj. Distributors such as Arabian Automobiles argue that their emphasis on safety and on providing an informed, quality service has already helped to convey a sense of trust in a market that accounts for sales of up to 125,000 units a year in the UAE alone.
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“The growing demand for pre-owned cars in the first half of 2012 is attributed to the improvement in the quality standards of used cars sold by the dealerships,” Mahesh Rohra, general manager for pre-owned cars at Arabian Automobiles told UAE newspaper Gulf News in September 2012. “Most dealerships now have a certified pre-owned programme which has warranty as a part of the offerings. This has given creditability and customers have an option instead of (buying) a new car.”
Today’s Middle East’s consumer appetite for pre-owned cars may also be indirectly fuelled by distributor pricing strategies for new cars. Despite the return to economic growth across the Gulf, the shine has been taken off the new car market’s resurgence by consumer complaints about inflated pricing. At the 2013 Qatar Motor Show visitors from Saudi Arabia grumbled about the cost disparity that local distributors charge for the latest models versus the cost for the same model across the border in the UAE. For some brands and models on display at the show a consumer in Saudi Arabia or Qatar could pay up to 15 percent more than their UAE counterparts for a new car.
“Certain agencies raise their prices for new cars in markets like Saudi Arabia, Qatar and Kuwait,” one visitor from Riyadh told local media during the show. “We’ve come here to buy used cars as the prices in Saudi Arabia are exaggerated when compared to Doha. We’ve seen a price increase of up to forty thousand Riyals for some models, and cars from Toyota, BMW and Infiniti always seem to be more expensive in Saudi Arabia.”
The trip to Doha’s and Dubai’s second hand car markets has become a pilgrimage for Saudi nationals who can be seen on a daily basis bartering over and purchasing used cars which they then ship back home to Dammam, Riyadh or Jeddah. But consumers have also found other ways to shop for second-hand cars, most notably on-line.
One of the region’s most prominent websites for classified adverts and community forums has emerged to become a preferred destination for buyers and sellers of used cars. Dubizzle has helped to sell approximately 221,000 cars, worth an estimated 14.5 billion Emirati Dirhams. And second-hand car buyers aren’t just interested in buying your household brands online; Dubizzle has hosted (and sold) Ferraris, Maybachs, Lamborghinis and McLarens.
“In January (of 2013) we found ‘Eleanor’ for sale on Dubizzle: an original 1967 Mustang Shelby from the movie ‘Gone in 60 Seconds’ starring Nicolas Cage and Angelina Jolie and it sold for 460,000AED. Traffic on the site has continued to increase and there are almost 12,000 auto ads on the site today,” said Barry Judge, marketing manager for Dubizzle.
While both on-line and off-line Arab consumers may be enamored with the second-hand car market, several of the region’s governments including Egypt, Iraq, Jordan, Kuwait, Lebanon and Saudi Arabia have successively passed and enforced legislation to ban the import of used cars older than five years old. The largest market in the region, Saudi Arabia, enforced a ban on the import of used cars and heavy vehicles in June 2009. Most recently, Jordan last year passed a law to place a five-year age limit on imported cars.
National car markets have reacted to the government legislation with price rises of up to fifteen percent for second-hand cars over the past two years alone (used car prices in Saudi Arabia rose twenty percent in the space of two months following the announcement of a grace period). As used-car prices have gone up, growth has slowed; car traders and dealers across the region accused governments of acting in the best interest of distributors and agents.
Even in adversity, individuals are finding a way to thrive and turn second-hand cars into a business opportunity. A number of initiatives in Saudi Arabia have focused on the recycling of spare parts from damaged and wrecked vehicles, to provide dealers with original parts for older cars but at a lower cost than through importing from abroad.
If the numbers of potential buyers at Jeddah’s second-hand car market are anything to go by then the region’s fascination with second-hand cars will long continue regardless of the Middle East’s economic conditions. For many consumers in the Gulf today as good as new is their preference when buying a car.
“I come down to Heraj (the second-hand car market) to buy a bargain and make sure that I can get the car type I want at a price that is good for me,” said one Saudi shopper on the look-out for a Toyota Camry. “I don’t need a bank loan when I’m here and I can make good money by selling the car again. Why should I go anywhere else?”