UAE is the second largest automotive market in the GCC after Saudi Arabia. Last year the automotive retail sector growth is estimated to be 6.5% year-on-year in the first half. It is estimated that the overall UAE volumes would have approximately 30% share of SME Automotive business and this is currently growing.
The SME sector has in the recent few years recorded an impressive growth in terms of new entrants. According DED between Jan-Sep 2010 and Jan-Sep 2014, the net number of SME licenses issued increased at an average of roughly 7.6% annually indicating an improvement in business environment. The net number of SME licenses issued in Dubai increased by 8.3% year-on-year in 2014. By the end of 2014, 132,288 SME licenses had been issued in Dubai.
Ease of doing business, overall political and economic stability are some of the contributing factors towards the growth of SME sector. This is evidenced by the fact that bank credit to UAE wholesale and retail trade sector for the period Jan-Sep 2014 expanded by 13.5% year-on year.
SME is a growing percentage of auto loans, currently estimated to be hovering around 20% for big banks and could be up to 50% for small to medium banks focused on SME segment.
It is estimated that the overall UAE volumes would have approximately 30% share of SME Automotive business and this is currently growing. Some studies indicate that in Dubai, SMEs represent 95% of all firms, account for 42% of the workforce and contribute around 40% to the GDP generated in Dubai’s economy. This includes tourism and transport companies. With 2020 preparations this segment is poised for growth.
UAE is the second largest automotive market in the GCC after Saudi Arabia. UAE relies heavily on imports with virtually the entire supply being imported. Last year the automotive retail sector growth is estimated to be 6.5% year-on-year in the first half. Many retailers registered even higher growth by year end.
A noticeable increase in demand was witnessed mainly originating from the commercial segment of SME which accounts for an estimated 75% of the sector, with manufacturing and tourism segments trailing behind.
In our context the increase in demand for new vehicles from the SME sector has been mostly from the rent-a-car segment and largely confined to the price sensitive segment of the market.
Auto Finance data corroborates this with 70% rent-a-car and transport lending whilst corporate use is also growing within SME segment. With Dubai being a tourism and travel hub, number of RACs and limousine companies setting offices is on the rise.
Most of the Auto lending product structures are towards transport sector, with others catering to commercial vehicle segment. In our case the incremental sales are more evident in Volkswagen passenger cars sales, with a healthy year-on-year double digit growth in the sales of compact segment cars.
For us the premium vehicle segment is still to experience the spin-offs, although a modicum of increase in demand is evident from SME sector. In terms of automotive financing, we work with a panel of banks that specialize in SME financing.
Unlike retail customer financing, the finance approval process is elaborate and time consuming. Our F&I department in close cooperation with our panel banks, provide the necessary expertise and facilitate a quicker turnaround time to help customers obtain bank finance.
Dubai business community was less optimistic in the first quarter of 2015 according to the quarterly business survey of the Department of Economic Development (DED).
Dubai’s composite Business Confidence Index (BCI) stood at 130.1 points in Q1 2105 down from 135.5 in Q1 2014 due to the decline in the large firms’ outlook, which comprise 60% of the overall BCI. Dubai SMEs, which comprise the remaining 40% of the index, were also less confident in Q1 2015 compared with Q4 2014.
It is with a sense of cautious optimism one views the potential offered by SMEs. With many new players in the fray, it remains to be seen how sustainable the demand is in the long run. It would also depend quite a lot on the ability of financial institutions in managing their collection and their risk appetite in the long run.