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UAE used cars won't take a brake

The used car market is expected to be less impacted by Covid-19 than new car sales in 2020.

The UAE's pre-owned car market is more resilient than the new car market, but the gap between the two will narrow over the next years as UAE residents will buy more new cars over the next five years as the economic outlook strengthens, say analysts and industry executives.

Going forward, the pre-owned vehicle market will continue to maintain its lead compared to the new car market.

According to Frost & Sullivan, around 832,500 used vehicles were sold in the UAE in 2019 with the market value estimated at $14.2 billion (Dh52.1 billion). It is expected to grow to $18.2 billion (Dh66.8 billion) by 2025, driven by the shift towards organised sales.

Dubai constitutes around 75 per cent of the UAE used car market in terms of volume. With around 500 independent dealers in the UAE and a growing car market, consolidation is expected to accelerate, driven by a market slowdown in 2020 and further growth towards 2025, said the consultancy.

For every new car sold in the UAE in 2019, about 3.5 of used cars were sold. In 2020, due to the Covid-19 crisis leading to economic instability and negative sentiments among consumers, used car sales are projected to decline by almost 12-15 per cent, compared to new vehicle sales' drop of almost 20-25 per cent. However, as the economic outlook strengthens in the medium to long term, by 2025, this ratio of used to new car is expected to settle at around 2.9:1 in favour of used cars, with overall sales crossing the one million mark, says Subhashree Ramarathnam, senior consultant for mobility practice at Frost & Sullivan.

She said demand for used cars is expected to remain resilient as a result of prices that are 30-35 per cent lower, on average, than that of their newer counterparts.

"The used car market is expected to be less impacted by Covid-19 than new car sales in 2020 as customers are expected to remain price-sensitive. Though showroom walk-ins have increased by 50-60 per cent compared to March-April 2020 [which was the complete lockdown period], and as digitalisation becomes more widespread and as value chain partners increasingly embrace online platforms, we expect the market to see full recovery at par with pre-Covid times by the second quarter of 2021," said Ramarathnam.

Axel Dreyer, CEO of Galadari Automotive Group, sees the pre-owned vehicle market recovering earlier than the new car market.

"The used car market started to recover even earlier than the new car market as people looked for an alternative solution to public transport. Especially, cars below Dh40,000 were and are on high demand. Generally, the used car business is on a positive trend and customers are looking for good certified used cars," added Dreyer.

Ralph Howie, managing director for used cars at Al Futtaim Automall, said used cars have always shown stronger resilience to shocks than the new car market.

"Given the countercyclical nature of the used car market, the price of used cars still remain lower than what they were at pre-Covid levels - which is great for anyone looking to buy a used car right now. we have witnessed a trend towards buying more affordable cars that provide greater value," added Howie.

From a company perspective, Al Futtaim Automall is currently at 60 per cent of its pre-Covid-19 sales and showroom visits, with June sales being twice as high as the previous month, indicating that there are slow but optimistic signs of the market beginning to pick up soon, he said.

"This could indicate a revenge buying phenomenon, with customers keen to splurge after having spent months cooped up inside. Also, it could suggest that consumers are moving away from buying new cars in favour of more affordable cars, with the average used car prices being 30-35 per cent lower than those of new cars," said Howie.

Ramarathnam revealed that the used car market is dominated by SUVs and sedans, contributing 75 per cent of the cars sold. The share of sedans is likely to drop and SUVs are expected to account for 50 per cent of the market, reflecting changes in consumers' preferences going forward. 

Source: khaleejtimes.com

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