The automobile sector in Saudi Arabia is largely geared toward the trading of imported vehicles and parts with the exception of assembling facilities at the National Automobile Industry which produces Mercedes-Benz trucks and at Al-Jomaih Company which produces General Motor (GM) buses. Furthermore, a local leading distributor, Al-Hamrani Group and Nissan of Japan are understood to have been talking about the possibility of establishing an assembly plant in the Kingdom, but no final decision has been made public. In the spare parts segment of the market, core industrial activities are almost non-existent except for some manufacturing of air and oil filters, exhaust systems and radiators, while no serious efforts were made to produce automobile tires locally.
In quantity terms, Saudi Arabia’s imports of automobiles are estimated to have risen by 6.3 percent to 175,000 units in 2000 following a 6.4 percent increase to 164,631 vehicles in 1999, from 154,742 vehicles in 1998. By 1999, data revealed that passenger cars and jeeps accounted for 75.5 percent of total vehicle imports (142,362), followed by vans and trucks 19.7 percent (32,525), special purpose vehicles 3.3 percent (5,356) and busses and lorries 1.5 percent (2,423). Within the category of cars and jeeps, brand new vehicles amounted to 86,461 units in 1999 while secondhand ones totaled 37,865 units. Excluding secondhand category, total Saudi imports of new automobiles declined marginally by 0.6 percent to 126,766 units in 1999, from 127,521 units the year before. Meanwhile, Saudi imports of secondhand cars and jeeps accounted for nearly 23 percent of the total number of vehicles imported in 1999, compared to 17.6 percent in the previous year. On the back of strong economic growth last year, the Kingdom’s imports of new automobiles are estimated to have increased by 9.4 percent to 138,000 units and those of secondhand ones to have declined by 2.3 percent to 37,000 units in 2000.
The near-term outlook suggests that import demand for automobiles is expected to remain somewhat subdued this year despite an expansionary budget and accelerated private sector activities. The influx of secondhand vehicles over the previous two years has resulted in an inventory build-up of new cars, across local dealers, which is believed to have adversely affected their sales and profitability. As a result, import demand for all types of automobiles is expected to decline by 3 percent to 170,000 units in 2001, and is forecast to rise moderately to 175,000 units in 2002, giving a yearly average of 172,500 units for the period. These imports will likely include new passenger cars and jeeps totaling 95,000 units, vans and trucks of 33,500 units, secondhand vehicles at 37,000 units, with the remaining 7,000 units consisting of special purpose vehicles, as well as buses and lorries.
The combined market valuation for automobiles, spare parts, and vehicle tires is estimated to have declined by 5.5 percent to SR15.6 billion in 1999, from SR16.5 billion in 1998. For 2000, the Saudi automobile market value is estimated to have risen by 2.6 percent to SR16 billion. Through import financing, consumer credit and direct lending to automobile dealers as well as to transport and shipping companies, it is estimated that commercial banks provided a total financing of around SR21.1 billion in 2000.
Socio-economic factors
Consumers’ purchasing power is driven by the level of personal income and bank credit facilities, generally available on the back of future cash flows of individuals or their guarantors. Since disposable income data are not available, per capita GDP can be used as a proxy to track the pattern of personal income. Per capita nominal GDP in Saudi Arabia fluctuates in line with oil prices and the level of exports. The Kingdom’s per capita nominal GDP is estimated to have increased by 7.7 percent to SR26,309 in 2000, from SR24,432 in 1999 and SR22,610 in 1998. The rise in income last year boosted import demand for new and secondhand automobiles, increasing by 6.4 percent and 39.1 percent, respectively. As average income varies across different household segments, however, low-income group opts for secondhand imported automobiles. With per capita nominal GDP expected to rise marginally in 2001, the demand for imported automobiles will likely remain subdued as well.
The demand for automobiles depends upon the performance of the economy, which governs the per capita income. The Kingdom’s faster population growth compared to nominal GDP growth will likely restrain any rise in personal income, thereby reducing purchasing power.
According to the Ministry of Interior, the number of registered vehicles in the Kingdom reached 7.05 million at the end of April 27, 1998. Based on the level of imported vehicles in the subsequent period to December 2000, the cumulative stock of registered vehicles should have been around 7.33 million vehicles. Allowing for a discarding factor of 20 percent, the actual size of registered vehicles in operation is estimated to have reached 5.86 million at the end of 2000. In turn, the average vehicles per 1000 people amounted to 251 by the end of 2000, higher than South Korea at 226, but lower than the US at 767, UK at 522 and Kuwait at 462. Nearly 82 percent of the total registered vehicles in the Kingdom in 1998 were concentrated in three main provinces, which include Riyadh (32.7 percent), Makkah (32.3 percent), and the Eastern Province (17.1 percent). The remaining 17.8 percent of the total registered vehicles were scattered across various population centers of the country.
Vehicle import trends by category
In the nine-year period to 1999, Saudi Arabia spent SR73.3 billion on imports of 1,362,730 vehicles of all types at an overall average import price per unit of SR53,800, providing a yearly average of 151,414 vehicles. In the same period, imports of new vehicles accounted for nearly 78.3 percent of the total while those of secondhand ones constituted nearly 21.7 percent. Passenger cars and jeeps comprised the largest segment, accounting for nearly 73.1 percent of the nine-year total number, followed by vans and trucks 24.1 percent, with the remaining 2.8 percent composed of buses, lorries, and special purpose vehicles. In the largest category, passenger cars and jeeps, Japanese brands continued to dominate this segment. In the 1990’s, Japanese auto makers apparently have been more responsive in meeting the requirements of customers from all different income groups, fostering this ability by differentiating product designs and modifying engine capacities. In the same period, Saudi Arabia imported 996,152 passenger cars and jeeps at a combined value of SR53.4 billion, yielding a yearly average of 110,684 vehicles at an average import price per unit of SR53,573. While the yearly average imports of secondhand vehicles in this category amounted to 32,857 units comprising 29.7 percent of the total, those new ones totaled 77,827 units (70.3 percent). Fluctuating oil prices in recent years along with slowing per capita GDP, prompted import demand for secondhand vehicles, mainly, American cars, recording significant growth. Imports of passenger cars and jeeps, which rose by 8.8 percent to 124,326 units in 1999, included 37,865 secondhand vehicles (30.4 percent) and 86,461 new vehicles (69.6 percent) while the combined average import price per unit dropped to SR46,680 compared to SR53,290 in 1998.
Top ten suppliers of automobiles
The largest ten exporting countries of vehicles of all types to Saudi Arabia are lead by Japan, counting for 42.6 percent of the total, followed by United States (14.9 percent), Australia (12 percent), South Korea (10.5 percent), Germany (9.4 percent), Canada (3 percent), Mexico (1.1 percent), France (0.7 percent), England (0.3 percent), and Sweden (0.2 percent). In 1999, the top ten exporting countries supplied Saudi Arabia with 155,947 vehicles of all types worth SR7.6 billion, compared with 148,907 vehicles at a total cost of SR7.9 billion in 1998. Therefore, average import unit price fell by 8.6 percent to SR48,755 in 1999 compared to SR53,323 in the 1998.
Japanese cars and jeeps are popular among Saudis and expatriates in the Kingdom as they offer good value for money, have a high resale value, and can be serviced at comparatively lower costs. Toyota dominates the Japanese segment of the market for passenger cars and jeeps in the Kingdom, followed by Nissan, Mazda, Honda, Mitsubishi, and Suzuki among others. In terms of number, Saudi imports from Japan expanded from 45,188 vehicles in 1995 to 70,156 vehicles in 1999, representing an increase of nearly 55.3 percent over the period, while the average number of vehicles imported during the same period was 49,822 units. In value terms, the value of imports rose nearly by 22 percent in the same period, from SR2.3 billion in 1995 to SR2.9 billion in 1999.
The United States is the second largest exporter of automobiles to the Saudi market, however, its share assumed a declining trend as new vehicle imports continue to fluctuate significantly at the expense of secondhand vehicles. The share of American exports of automobiles to the Kingdom declined substantially from 37.6 percent in 1995 to 14.9 percent in 1999 with the value of exports dropping form SR2.3 billion to SR1.4 billion over the same period. The corresponding number of vehicles imported from the US declined by 32.9 percent to 24,566 vehicles in 1999 from 36,586 vehicles in 1995.
Imports of secondhand automobiles
The Kingdom’s market for imported secondhand or reconditioned automobiles exists only for sedan type passenger cars and four wheel-drive jeeps, while most of the other types of imported vehicles are new. Between 1992 and 1999, Saudi Arabia imported 234,728 secondhand passenger cars and jeeps at a total cost of SR8.9 billion and at an average price per unit of SR37,906. On a yearly average basis, imports of secondhand vehicles accounted for 27.3 percent of the passenger cars and jeeps total number but it comprised 19.7 percent of the average value of imports for the same category during 1992-1999 period.
Competing brands
The market share by brand was estimated on the basis of average number of automobiles sold during the two year 1998-1999 period. In the same period, the Kingdom’s yearly average imports totaled 159,687 vehicles, comprised of a combined total of 153,884 passenger cars, jeeps, vans and trucks and of 5,803 large buses, lorries and special purpose vehicles. The dominating Japanese brands in the Saudi automobile market included Toyota (23.4 percent), Nissan (13.9 percent), Mazda (3.3 percent) and Honda (1.9 percent), which together controlled nearly 47.1 percent of the total cars, jeeps, vans and trucks imported during 1998 and 1999. Other popular models from Japan include Suzuki, Subaru, Isuzu, and Diahatsu.
Excluding second-hand automobiles, the market share of American Caprice was 7.3 percent, followed by Ford (6.8 percent), GMC jeep (3 percent). European brands created a market niche by continuously focusing on luxury vehicles. Occupying the third place in market share, major European brands include Mercedes-Benz, BMW, Jaguar, Volvo, Saab, and Renault.
Automobile market valuation
In value terms, in the last six years to 1999, Saudi Arabia imported SR52.6 billion worth of automobiles, related spare parts and automobile tires, with vehicles’ segment accounting for 80 percent, related spare parts and components (18 percent) and tires (2 percent). In the same period, the yearly average import bill was SR7 billion for automobiles while those of the related spare parts and components at SR1.6 billion and automobile tires of SR1.1 billion.
Imports of all automobiles are currently subject to 12 percent custom duty, however, it is expected to decline gradually once Saudi Arabia joins the World Trade Organization (WTO).
The average yearly market valuation is estimated to have reached SR14.5 billion in the last six years 1994-1999 period, of which, the vehicles segment is estimated at SR9.1 billion (62.8 percent) while that of spare parts and related components at SR3.6 billion (24.7 percent). However, the market valuation is estimated to have declined by 5.5 percent to SR15.6 billion in 1999, from SR16.5 billion in 1998. For 2000, the market value is estimated to have risen by 2.6 percent to SR16 billion, while the composition is believed to have remained intact.
The overall Saudi vehicle market is estimated to have increased by 6.4 percent to 164,631 imported vehicles of all kinds in 1999, up from 154,742 vehicles in 1998, but was significantly up from the five-year low of 91,109 vehicles in 1996. Imports of new automobiles, however, marginally declined by 0.6 percent to 126,766 units in 1999. Preliminary indications suggest that import demand for automobiles is expected to decline by around 3 percent to 170,000 vehicles in 2001, but to rise again to 175,000 units in 2002.
(The author is chief economist at National Commercial Bank in Jeddah.)