Doing Business in Saudi Arabia - International Franchise Association

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Automotive Parts, Services & Equipment – APS Overview Return to top Saudi Arabia continues to be the largest automobile market in the Gulf and fifth in the world for auto parts, accessories, and service and garage equipment. Despite the global economic crisis, the Saudi Arabian auto market has been resilient and continues to thrive with projections of substantial growth and increased consumer spending in 2010. Saudi Reports indicate that the Saudi automotive market is estimated to worth around $9 billion (SAR33.75 billion) including commercial automobiles and transport infrastructure. Automotive sales are known to make up about 3% of Saudi Arabia’s gross domestic product. The market for luxury cars is also growing in Saudi Arabia, with the presence of high-income individuals; especially in the major cities of Riyadh and Jeddah. Reports indicate that more than 1,500 luxury cars worth over $1 billion (SAR4 billion) are sold in the Kingdom each year. Industry sources reveal that luxury cars sales have been steadily increasing by about 27% every year. Despite difficult economic times, the Saudi market has been resilient and the demand for vehicles and components continues to remain strong. There is also an increasing demand for high quality auto accessories such as alloy wheels, audio and video systems, wheels, and other internal and external accessories. Saudi Arabia is also gearing towards diversification of its automotive sector and the trend is setting up manufacturing plants. It is worthy to mention that the Saudi Authority for Industrial Cities and Technological Relations and the UAE based Gulf Automotive Manufacturing Company signed a $100 million (SAR375 million) contract to set up an assembly plant in the Eastern province. The plant would manufacture 15,000 vehicles, mostly trucks and buses. The Saudi government is keen on encouraging the set-up of manufacturing plants; since this will open up employment opportunities for its growing population; with 50% of the 25 million population under the age of 20. Furthermore, an important milestone in the industry was when the UK based engineering division of the iconic brand Lotus, now part of Malaysia’s Proton Group; announcement of setting up a testing facility in the Kingdom. Lotus has entered into a long-term strategic plan with the King Abdul Aziz City for Science and Technology (KASCT) to develop and promote environmentally friendly automotive technologies. Other diversification plans include the Kingdoms drive to develop its carbon-fiber composite industry, to serve a wide range of industries including the automotive industry. Auto industry experts have forecasted car sales in the Kingdom would grow to $19 billion (SAR69 billion) in 2010 and swell to $25 billion (SAR94 billion) by 2013. Increased lending by local banks offering easy and flexible financing options will further drive demand for new vehicles. According to a recently published report, vehicle sales in Saudi Arabia are expected to jump over 30 percent from around 676,000 units in 2010 to 880,000 units by 2013 as the Kingdom remains virtually unscathed due to global economic downturn and the recessionary period. Easily available and flexible credit financing options from local banking institutions have contributed to the increasing number of new vehicle sales in the Kingdom. The Saudi Arabian government has placed the development of the automotive sector as one of their prime strategies in the strengthening its industrial base. At a high-profile international motor exhibition in the capital Riyadh, the Saudi Minister of Transport Jabara Al-Seraisry expressed optimism on the developing trends and the upswing in vehicle sales in Saudi Arabia, pointing that this steady
growth will be sustained for years to come. The Minister indicated that the massive expansion of its roads and ports projects with a budget allocations of $3 billion (SAR12 billion); will ensure the steady development of key infrastructure in the sector. Best Products/Services Return to top U.S. manufacturers have faced stiff competition in the market, especially from Japanese and South Korean manufacturers. Japan, the United States, Australia, Germany, and South Korea are the key players in the Saudi automotive market representing more than 80% of all vehicle imports. Toyota Corp. controls close to 50 percent of the market share. U.S. manufacturers can be more competitive by introducing newer models from their fleet, which will in turn draw customers to their dealerships in the Kingdom. Flexible finance and installment options have always been popular with the discerning Saudi customer. It is worthy to mention that more than 700,000 cars, trucks and vans are annually imported into Saudi Arabia, including used cars and buses. The economic recovery, after the recent financial meltdown, will likely boost demand to around 750,000 units valued at $14 billion. The strength of the Saudi economy is reflected in a higher per capita income, has led to the increasing popularity of luxury cars and premium automobiles. Reports indicate that more than 1,500 luxury cars worth over $1 billion (SAR4 billion) are sold in the Kingdom each year with this segment increasing steadily year after year. In addition, Saudis have always preferred larger SUV’s and trucks such as the GMC Yukon, Ford Expedition, Escalade, Tahoe, etc. to accommodate large families. Other popular vehicles include the Ford Crown Victoria, Caprice and Chevy Lumina models. Some of the manufacturers of premium cars that have a good market share are Lexus, Mercedes, BMW, Porsche, etc. Used-Car Market The used-car market witnessed ups and downs in 2009. Initially there was a decrease of 10-15 per cent in prices in 2009 due to supply surpassing demand. The launch of 2010 models, summer, Ramadan and Eid holidays, together impacted the market for used cars in the Kingdom. But with the flood situation in Western city of Jeddah late last year which destroyed or wrecked thousands of vehicles; created a surge in demand and prices of used cars went up. A significant development in June 2009 was that the Saudi Customs Department implemented new rules banning imports of used cars over 5 years old. This regulation covers cars, buses and light commercial vehicles (LCV’s). Heavy vehicles over 10 years old will be barred from import. This will in turn increase the demand for used cars as well as push sales for new cars. The used-car market in the Kingdom is considered the largest in the region with huge financial returns that reflect positively on the national economy. The market for second-hand vehicles is largely sourced from the United States, and to a lesser extent from Germany. The Saudi market for second-hand automobiles consists of two distinct segments; throne based on imported, reconditioned passenger cars and four-wheel drive jeeps, and the other one based on the selling of locally registered vehicles, which were previously imported. Demand for second-hand vehicles has continued to shift as flexible and easier financing options are available for the customer. Automobile Parts Saudi Arabia is considered to be the largest automotive market in the Near East with imports of more than $650 million worth of parts and service equipment as of 2008 estimates. The high consumption is driven by customers, both Saudis and expatriates who opt for regular
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• Intellectual Property Protectio
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Return to table of contents Chapter
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Since this is a common practice in
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Franchising Return to top Franchisi
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companies interested in operating i
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Web Resources Return to top Travel
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Saudi Basic Industries Corporation
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E-mail: abondthorley@fmi.org, sgeor
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