Open road for MENA car manufacturers

Vehicle sales are growing fast across the region, not least luxury brands. Published in MEED, 26 May 2015

If recent history is any guide, more than 3 million additional vehicles will be on the roads of the Middle East and North Africa over the course of this year, adding to congestion in cities such as Cairo, Casablanca and Kuwait.

The biggest market for new car sales is likely to be Iran. It led the region with 1.1 million sales last year, according to the Paris-based International Organisation of Motor Vehicle Manufacturers (OICA), followed by Saudi Arabia with 633,000 sales, Egypt with 274,000 and the UAE with 207,000.

The leader board for commercial vehicle sales is slightly different. Saudi Arabia heads the pack with 196,000 sales last year, followed by Iraq with 181,000, Egypt with 76,000 and Oman with 70,000.

Regional sales

Iran’s position at the top of the car sales league table is a direct result of its large population of close to 80 million people. There are about 12.7 million vehicles on the country’s roads, including 11.4 million passenger cars, and last year it was the 12th-largest market in the world for new car sales. However, it is far from being the most car-crazy country in the region. There are 164 vehicles for every 1,000 Iranians, compared with the global average of 174 per 1,000.

Instead, it is GCC states that are in the lead. Kuwait has 727 vehicles for every 1,000 residents, followed by Bahrain with 698 and Qatar with 424. At the other end of the scale, Sudan has just 3 vehicles for every 1,000 people, Mauritania has 10 and the Palestinian Territories have 56.

In terms of the type of cars people are buying, it is European, Japanese and South Korean marques that tend to dominate across the region. Among the four largest markets, for example, the top-selling brand in the UAE last year was Japan’s Toyota, with close to 108,000 vehicles sold, followed by another Japanese brand Nissan with just under 44,000, and South Korea’s Hyundai with 34,000, according to Japanese research company MarkLines.

In Saudi Arabia, Toyota was also on top, with sales of just over 200,000 last year, followed by Hyundai with 141,000, and fellow South Korean firm Kia with almost 49,000. In Egypt, Hyundai was the biggest brand, selling almost 45,000 vehicles last year, followed by Nissan and the US’ Chevrolet with close to 25,000 sales each.

Iran has a more distinct market, due to its substantial domestic car production industry, which is led by Iran Khodro and Saipa. Both firms sell cars under their own brands, as well as under foreign marques such as Peugeot and Suzuki (produced by Iran Khodro) and Renault and Kia (produced by Saipa).

Peugeot was the most popular brand last year in the Islamic Republic, racking up 336,000 sales. In second place was Saipa, with 327,000 sales. Iran Khodro cars were the third-largest sellers, with 140,000 sold during the year.

Iran is one of only four countries in the region with a domestic production capability, and it is by far the largest, with output of more than 1 million vehicles in 2014. The vast majority of that was made up of cars, but buses, trucks and vans also roll down some of the production lines.

The second-largest producer in the region is Morocco, although it is still some way behind Iran. Last year, it had an output of 210,000 cars and 22,000 vans. Egypt makes a wider range of vehicles, with factories producing buses, trucks, vans and cars, although production levels are far smaller, with total output last year of 27,000 vehicles, most of which were passenger cars. Tunisia also has a small plant producing 1,860 vans a year.

New producers

Some other countries are now entering the market, however. In November last year, France’s Renault inaugurated its Oued Tlelat plant in Oran, Algeria, which will manufacture the Renault Symbol model.

The plant has an initial production capacity of 25,000 vehicles a year and it will help Renault cement its leadership in the country, where it already has a 27 per cent market share. A second phase of the plant could increase production to 75,000 vehicles a year, although no decision has yet been made on this.

Saudi Arabia may also join the list of vehicle manufacturers in the region one day. In December 2012, British carmaker Jaguar Land Rover, owned by India’s Tata Motors, signed a letter of intent with the National Industrial Clusters Development Programme in the kingdom. At the time, the UK firm said it was launching a detailed feasibility study on Saudi Arabia’s suitability as a location for a production plant, although the project has yet to move forward.

Even if this scheme does not progress, the Saudi government seems keen to develop other vehicle manufacturing in the country. The Petroleum & Minerals Ministry and the Commerce Ministry are jointly leading this effort, with the aim of developing car, truck and bus production plants, as well as research and development, design and logistics capabilities.

Such plants would help to reduce the region’s reliance on imported vehicles, but for the foreseeable future the vast majority of car sales will be imports.

Most of the cars being brought into the region are vehicles with mass appeal, designed by the likes of Toyota or Hyundai, but there is another important part of the car market in the region. Some car marques are all about exclusivity rather than ubiquity and here the Gulf states are again to the fore, particularly the UAE, which is the main market in the region for luxury car brands.

Luxury brands

Data from MarkLines shows 1,141 Bentleys were sold in the UAE last year and a further 382 were sold in Saudi Arabia. Among other high-end car brands, Rolls-Royce, part of Germany’s BMW Group, sold 405 cars in the UAE and 293 in Saudi Arabia, and Aston Martin, another UK manufacturer, sold 253 cars in the UAE and 179 in Saudi Arabia.

Bentley Motors, which is owned by Germany’s VW Group, says its Middle East sales were up by 7 per cent last year, led by the Flying Spur W12, which it calls the world’s fastest road-going sedan, and the Continental GT Speed Convertible, which is the fastest convertible it sells.

Neil Wilford, Bentley’s regional manager for the Middle East, India and Africa, says its UAE and Saudi showrooms are now among the firm’s top three dealerships in the world. The company says it has high hopes for next year’s launch of its new SUV, the Bentayga, with the Middle East expected to be one of the main markets for the vehicle.

Among some of the other supercar marques owned by the VW Group, Lamborghini sold 341 cars in the UAE and 265 in Saudi Arabia, and Bugatti sold 75 in the UAE. UK-based McLaren, perhaps better known for its Formula 1 team, sold 131 cars in the UAE. That sounds like a small number, but the cars cost several hundred thousands of dollars apiece; the company only delivered a total of 1,648 cars to customers around the world last year.

More mainstream car brands also find it is their more expensive models that do best in the region. BMW says it sold 30,148 BMW and Mini cars across 12 countries around the Middle East last year, its highest ever total.

The UAE accounted for more than half of the sales, followed by Saudi Arabia and Kuwait. In terms of models, its biggest seller was the BMW 5 series, with 5,900 sales, followed by the BMW X5, with 5,800, and its largest model, the BMW 7 series, with about 4,200. The last of these represented 14 per cent of total sales, which is the highest share in any market in the world. Despite the relatively small size of the Middle East, the region is the third-largest market for the BMW 7 series after China and the US.

Promising outlook

Forecasts for the future of the region’s car market suggest there is plenty of room for car brands to increase their sales further. US-based research firm IHS predicts that the automotive sector in the Middle East – which it defines for these purposes as the GCC, Iran and Israel – will grow twice as fast as those of Western Europe and the US between 2012 and 2022, with a 30 per cent rise in sales likely.

Pierluigi Bellini, an analyst at IHS Automotive, suggests that by 2022 sales will reach 1.74 million in the GCC, compared with 1.38 million in 2012. Taking in Iran and Israel, the total will rise to 3.45 million by 2022, compared with 2.66 million in 2012. Consequently, the region’s roads are bound to get even more crowded in the years ahead.