The Middle East Fleet Market: A Tale of Three Regions
One large fleet customer in Iraq is the Ministry of Interior (MOI), which has acquired the Chevrolet Tahoe to meet its fleet applications. Photo: GM.
When discussing the Middle East fleet market it should not be viewed as a single region, but, rather, it should be viewed as three separate regions.
One region is the Gulf Cooperation Council (GCC), which is a regional intergovernmental political and economic union consisting of all Arab states of the Persian Gulf, except Iraq. The GCC member states include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
The second region in the Middle East is known as the Levant, which includes Syria, Lebanon, and Jordan.
The third region includes the “Rest of the Middle East” or ROM category designation, which are Yemen, Iraq, and Iran.
The economies in the Middle East are coping with the impact of lower oil prices by instituting austerity measures and investigating ways to make their economies less oil-dependent. While these factors are impacting the fleet market in the Middle East, it is difficult to quantify the impact across the entire region. “It is difficult to gauge the size of the total fleet market in the Middle East because vehicle registration data is not available in the Middle East,” said Seyar Shunnar, regional manager – Fleet & CPOV for General Motors, who is based in Dubai.
The Kingdom of Saudi Arabia (KSA) is where 50% of the region’s automotive sales are generated. This is true for General Motors and all other car manufacturers that are selling vehicles in the region.
Low oil prices continue to challenge growth and fiscal sustainability in the Kingdom of Saudi Arabia (KSA). For first half of 2017, vehicles sales in Saudi Arabia declined double digits.
Data courtesy of General Motors
“Saudi Arabia has an unhealthy fleet market environment for small to mid-size enterprises (SME), due to the declining economy,” said Shunnar.
The decline in oil prices has resulted in the Kingdom’s worst economic slowdown since the global financial crisis of 2009-2010. The downturn in oil prices impacted many small and medium enterprises, along with larger corporations that were contracting with the oil industry, due to pending payments and large payables owed by governmental entities, which cause projected completion dates to lengthen, which required some companies to extend lease terms. This forced fleets to keep vehicles in service longer, extending the vehicle’s lifecycle costs. In addition, the government decreased fleet purchases for governmental entities.
In addition, earlier austerity measures dampened consumer sentiments deferring automotive purchases. However, these austerity programs have since been somewhat relaxed. One recent development that may spur future sales is that, for the first-time ever, women will be allowed to drive in Saudi Arabia starting in June 2018.
The outlook for future sales of commercial vehicles in Saudi Arabia is positive. Anticipated stabilization of crude oil prices, implementation of favorable government initiatives, growing infrastructure construction and logistics industry to drive sales of trucks, buses, and vans in the Kingdom. In order to accommodate growing vehicle demand of the Kingdom, Saudi Arabia General Investment Authority (SAGIA) plans to increase investments toward strengthening and expanding the country’s road infrastructure. The Kingdom’s Ministry of Economy and Planning is increasing overall spending of about USD$27 billion to improve and expand the country’s road infrastructure. These infrastructure projects are anticipated to boost the sales of commercial vehicles.
Data courtesy of General Motors
Austerity measures were announced in September 2016 as part of an ambitious plan (Vision 2030) to repair public finances and revamp the oil-dependent economy of Saudi Arabia. Two noteworthy aspects of Vision 2020 are:
Ministers will take a pay cut of 20% and 15% to Shura council members, with bonuses canceled for the financial year.
In addition to pay cuts, government-sponsored cars will be discontinued.
Decreases in automotive sales have been noticeable due to lower consumer sentiment and lower internal/national tourism impacting the RAC industry. Small- and medium-sized businesses, along with large corporations contracting with the oil industry, are being affected due to reduced purchases and extended project completion dates. In terms of fleet vehicles, there are pressures to extend vehicle lifecycles at fleet operations. Austerity measures have decreased government fleet purchases.
Other fiscal and political pressures are mounting within the region due to the economic and diplomatic blockade against Qatar that Saudi Arabia and its allies
implemented on June 5, 2017. While the economic impact of the embargo on the Saudi economy is expected to be limited, a potential escalation of the crisis is a concern.
Data courtesy of General Motors
In other recent automotive news, SsangYong agreed to license CKD assembly to (SNAM) Saudi National Automobile Manufacturing Company. The agreement allows SNAM to “localize” key components and provide training and other technical support. SNAM aims initially to build mid-size pickup truck with production capacity of 25,000 units annually by 2020.
In 2017, General Motors won some major fleet contracts in the Middle East. One of the biggest fleet contracts was winning the Saudi Electric Company tender, which comprised around 2,500 units, mostly Silverado pickups and full-size utilities.
GM has also been successful in Kuwait with the Ministry of Interior and the Kuwait oil company, which will acquire more than 1,000 units of full-size utilities.
Looking at the future fleet business opportunities, one of GM’s main focuses is to improve its passenger car business.
Data courtesy of General Motors
GM has consummated fleet agreements in the sedan segment, such as police departments, and several high-exposure hotel contracts with GM sedans being used for guest pickup services that are provided by hotels in the Middle East.
Another fleet focus is on airport VIP services. This is a door to immigration VIP service, where vehicles will come to the plane, pick you up, and take you to the immigration offices. This is a very popular service in the Middle East.
“GM recently concluded a deal with the Dubai Police on the back of which we are building some strategic deals across the region, with volumes that might go up to around 1,000 Bolt EVs within the next 18 months,” said Shunnar.
As in other areas of the world, there is an increasing penetration of Chinese products that are slowly infiltrating these local markets. “They haven’t gained traction yet; however, we foresee that there will be a future for the GM products that are manufactured in China,” said Shunnar. “We are researching at this point in time how to take advantage of this.”
Recently GM won a contract to sell Chevrolet Impalas to the KSA Intercontinental Hotel for guest pickup services. Another fleet application for sedans is airport VIP services, such as immigration VIP service, where vehicles will come to the plane and pick up a customer to be driven to immigration offices. This is a very popular service in the Middle East. Photo: GM.
In terms of challenges in the Middle East fleet businesses is that there is strong competition from the Korean products. “They are very aggressive when it comes to pricing, and we’ll see why with the next point. Our Japanese competition, Toyota does very well with the residual value and that stands as well with the leasing and rent a car companies,” said Shunnar.
In the Middle East fleet market, OEMs generally have no direct relationships with their customers since all the business dealings are through dealers. “However, that does not mean that OEMs do not focus on relationship management. Our relationship with our customers is through managing the relationships, making sure we do our needed PR, but anything over and above that is considered a business transaction. We do not directly transact with our customers,” said Shunnar.
GM is also looking to improve its remarketing channels by introducing strategic buyback initiatives with the focus of improving residual values.
The Dubai police vehicles are painted with a white and dark green color scheme, with all blue emergency lights. The Dubai police force purchases Chevrolet, Toyota, Mazda, and Nissan models used for general duties and patrol vehicles. Photo: GM
Another focus is GM’s fleet aftersales program. “We have specific fleet or aftersales offerings and go-to markets within each sector. We’ve got a fleet offer or a package that goes to our small-to-medium businesses, and then we’ve got fleet aftersales packages that go to our rent a car, and so on,” said Shunnar. “We’re being very surgical in how to go about the market and offer our aftersales package. This is all in the interest of completing the circle of taking care of our customers.”
GM is focused on addressing regional and government tenders. Currently, Aramco, the biggest oil industry company or semi-government entity within the Middle East is out to bid for a fleet contract. In addition, the U.S. Army and Kuwait Oil Company have conducted fleet tenders. “These represent north of around 4,000 vehicles for 2018 delivery, with some sales starting as early as December 2017,” said Shunnar.
Data courtesy of General Motors
The big fleet management companies in the Kingdom of Saudi Arabia are GM’s dealer leasing arms. “We’ve got two dealers in the Kingdom, and two of them combined would create the biggest entity, probably in KSA and the Middle East that handles leasing within this region. Otherwise, a lot of banks get involved with leasing, but leasing is still not very popular in the region,” added Shunnar
SUVs are very popular in the Middle East, especially in the GCC. “For example, in the UAE, you’ve got 60% of full-size utility sales in the Middle East are the Tahoe Denali and LT,” said Shunnar. “Small cars and low-displacement engines are popular in the Levant.”
Further diversities are the result of regulated and unregulated regions and different regulations per region.
GM’s fleet sales organization in the Middle East consists of five fleet development managers. Three GM team members specifically focus on the Kingdom of Saudi Arabia because that’s about 60% of its business in this region. General Motors has two other team members handling the rest of the Middle East, which is sometimes generically called ROM, meaning “rest of the Middle East.”
Abu Dhabi Police is the primary law enforcement agency in the Emirate of Abu Dhabi, one of the United Arab Emirates. All Abu Dhabi Police vehicles, including traffic patrols, rescue and assistance cars will be changed into blue and white colors.
Pictured is a Chevrolet Impala in use as an Abu Dhabi patrol vehicle displaying the new blue and white color scheme that replaces the prior red and white color scheme. Photo: GM
GM’s best-selling models are full-size utilities, such as the Tahoe and Yukon, which make up over 25% of GM’s sales in the Middle East. This is followed by pickups, whether Silverado or Sierras at 14%, followed by the sedan segment, the Impalas and Malibus, making up around 15%. The remainder of GM’s market share is comprised of the rest of the vehicles in its product portfolio.
“From an overall perspective, we’re looking forward to the new launches. We’re launching the Equinox, the Terrain, and the Traverse,” said Shunnar. “From a fleet perspective, our expectations are high, specifically on the Traverse. We feel that we will have some good business with government and leasing departments.”
The population of the Middle East is around 128 million, excluding Iran. It is estimated that around 50% of people in the Middle East are between the ages of 15 and 29.
One challenge is the ongoing political unrest in the Middle East. It is a politically volatile region. Some ongoing conflicts include the Syrian Civil War, internal conflict in Yemen, Isis in Iraq and the Qatar embargo. This makes it a very unpredictable market that is very difficult to forecast. “We’ve been through ups and downs the past two years. It’s been literally a roller coaster trying to maintain a solid forecast across two years,” said Shunnar.
Since the region is comprised of 12 different countries, its diversity drives the portfolio complexity for OEMs selling in the region. “There are very large wealth disparities across the region that range from US$3,000 per capita GDP in Yemen to Qatar at US$133,000 per capita,” said Shunnar. “There are generally high living standards for GCC nationals. Having said that, the common misconception here is that every Saudi in the KSA is wealthy. In actual fact, 90% of Saudi wealth goes to the top 20%. The majority of Saudis are not wealthy, and we can see that from the vehicle preferences, that is skewed to base models.
GM has also been successful in Kuwait fleet market with its full-size SUVs, which have been popular with the country’s Ministry of Interior. The major responsibilities of the ministry are public security, and law and order. Photo: GM.
The region’s economic downturn has resulted in a decline in consumer confidence when it comes to retail sales, which makes for less demand on vehicle purchases from a retail perspective.
In most of the GCC countries, there were value-added tax (VAT) introductions on Jan. 1, 2018, which did not exist before. There are differing opinions on how the new VAT taxes will affect the fleet business in the Middle East.
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