16 minute read
FIGHT OR FLIGHT
THE WAY AHEAD
Analyst Subash Joshi of Frost and Sullivan says that the industry must embrace services to thrive in a post-COVID-19 world
Although the last few months have shown how reliant countries are on the fleet and transport industries, they thrive best when the economy is booming.
The impact of the COVID-19 pandemic may have sent the global economy into a spin but there is hope that the GCC and the wider Middle East can be among those who come out in better shape. In fact, the signs are already there according to Subash Joshi, VP – Mobility and regional head (ME), Frost and Sullivan. In a wide-ranging overview of the market on behalf of Automechanika, however, he says that operators and those that supply should be preparing for a new normal where services are key.
“We have done a comparison of GCC with the Eurozone, 11 countries in Asia, BRIC and NAFTA country. So, if you look at the Eurozone and NAFTA that are declining but if we compare Asean, GCC and BRIC countries, the GCC is among the fastest growing,” he notes. “In the entire Middle East region, the GCC is the fastest growing. It used to account for about 5.9 percent of the world GDP share back in 1990 and by 2030
we’re expecting it to be 2.1% of the market share. Definitely, there is a short-term blip but in long-to-medium period, the GCC will bounce back and we are expecting it to become a $2.8 trillion economy by a 2030.”
Part of this bounceback will be powered by the economic diversification that is underway in the GCC.
“(Look at) Saudi – they are creating a multi-sector economy by year 2030 and it’s all to become more self-resilient and self-dependent. Oman is already way ahead of many countries in the GCC region and we will see a lot of development
happening in the sector,” adding that other governments remain determined to stick to their plans to develop their economies.
“The Covid-19 period has impacted it in a short term and implementation has been delayed. However, we are talking about 2020-2030and implementation will get back to normal in a year or a year and half time once we move towards the new normal,” he says. “A lot of people were from the region will agree with me that it’s not about setting the vision anymore. It’s about implementing that vision.”
From house buying to running a business, location is everything and Joshi suggests that the GCC, at least, will continue to benefit from its unique geographical importance, particularly to a China, emerging from its own crisis.
“The GCC has a strategic location when it comes to the world map and it’s experiencing increasing trade due to the Silk (Belt and) Road and the 21st century Maritime Silk Road. In fact, China by amount is the most important exporter with the UAE,” he remarks.
“Chinese banks are also entering UAE along with Chinese companies that contact us like transport, logistics and tourism. And even in the automotive industries, we have seen that brands like Changan in Saudi Arabia. They are among the top 10 brands and one of their models was listed in the top seven selling models in Saudi Arabia in the last quarter of 2019. We have already seen that influence coming and that change in behaviour of the local consumer has come in.”
Another major trend that will shape the region is the development of what he calls: a heterogeneous society.
He explains: “When I say it’s heterogeneous, I mean in terms of it being very polarised. It’s broken down by a number of things divided by income - 10% of the population in the GCC accounts for almost 68% of the total regional income. It is divided by age and 50% of the GCC’s population is under the age of 30 and by 2025 we are expecting it to increase to 54%.
“In Saudi almost two-thirds of the population is under the age of 35. It’s divided by gender and ethnicity. We have more than 200 nationalities living in the UAE and more than 50 nationalities living in other GCC countries. What does it mean for companies? Companies need to understand and evaluate and develop personalised services and products for this heterogeneous society.”
The time for a single overall strategy for the GCC is consequently a non-starter for firms looking to work across the region.
“What works in Saudi Arabia doesn’t work anymore in the UAE. What works in Oman doesn’t work anymore in Kuwait. The regional strategy can be the same but then country-specific changes or adoption of this heterogeneous society has to come in product and services - and that’s a key message from me.”
Frost and Sullivan celebrates its 60th anniversary since it was founded in New York city next year. Today, it operates out of 40 offices across six continents. From the start of the pandemic the consultancy and researcher has been exploring the macroeconomic
Implementation will get back to normal once we move towards the new normal”
impact of covid-19 globally as well as how it may continue to affect the regional economy going forwards. It now sees one clear route out of the harm caused by the pandemic.
“When we started the covid-19 impact analysis, we were doing three scenarios. However, now we have come down to only one,” he says, adding that the world is facing the worst recession since the global depression started in 1918 due to governments underestimating the impact of Spanish Flu. Understandable given that many countries were still recovering from the First World War but a mistake that sparked a decade of difficulty.
“Whenever we talk about recession, we talk about the depth, length and the
THE GROWTH IN USED Used vehicles and leasing is growing in popularity with 8 out 10 prospective buyers now turning to used vehicles.
THE GROWTH OF USED VEHICLE LEASING
Used vehicle leasing has seen growth in individual segments where, even small shops are trying to deliver product at home, says Joshi
“These shops require the LCV or delivery vans. A lot of leasing company have re-purposed their vehicles to deliver food at the doorsteps and that’s the segment where these small shops cannot afford new vehicles. So, we have already seen a growth in used vehicle leasing in the LCV side and this will continue to increase in the near-future”
“A survey conducted by one of our partners interviewed about 1,200 customers and prospective buyers in the GCC. Out of those 1,200 or eight out of ten were looking to buy a used vehicle and four out of eight were looking to get a used vehicle on leasing rather than getting a loan or buying it by paying cash up front.
“Those changes are already happening in the UAE as well as in Saudi Arabia.”
timeframe of the recovery- or the speed of recovery - which the recession is going to take. In the current scenario, if I look at the global GDP, we are expecting somewhere about 3% to 8% depth and recovery begins in three to five quarters,” he remarks.
“We are expecting recovery to happen by Q4 2020 in terms of global GDP. However, we are expecting a spike in 2021 coming from a perspective that we already have $5 trillion globally in stimulus packages.
“A second wave of stimulus packages, which is likely to come in few months which will be focusing on capital spending and a last package might come towards the end of 2020 - and that is what is going to support a faster recovery. The market should stabilised to the pre-covid situation after 2021 and in 2022.
“If you look at it from the regional standpoint again, I have good news and bad news. The bad news here is that the US and Eurozone are definitely in a recession. But when we talk about the South Asia side of it, it just might escape the recession and the growth might be more stable in comparison with the US and the Eurozone.We are all aware about the China situation.South Korea has recovered well, and we have already seen growth happening in some of the East Asian countries.
“We are expecting the same trend to be followed in the Middle East. When we talk about GCC - these are all analysis based on that we will have the reopening of the economy to the 70 to 80% level by (at least) July and we are not expecting a second wave (of COVID). Otherwise, the recovery will become W curved rather than a V Curve. We are expecting somewhere about 1-3%percent decline in terms of overall GDP and the recovery will take at least on year to come to the normal level. When I say normal, I mean to come to the stable level where we were pre-COVID era.”
Joshi believes that incoming data is revealing that some economies are recovering faster than the others in the GCC with COVID-19 and low oil prices applying the brakes on an immediate bounce-back. Although the situation could have been a lot worse.
“When we were running our doomsday scenario where the pricescan go down to less than $5 or to even negative. Thankfully, that hasn’t happened, and we are forecasting it to be stabilised between 35 and 40 dollars. That will help in the recovery of the economy going forward.”
Joshi finds more reasons to be optimistic in the mobility industry’s
SUBASH JOSHI ON THE COVID-19 IMPACT ON CAR SALES
“When we came out of the 2008-10 recession (although Saudi Arabia was stable at that point of time), we saw a sharp increase in new vehicle sales which reached about 1.8 million units in 2015,
“The oil price dropped, the reduction in subsidies and the reduction in per capita income is finding power and drastically impacted new vehicle sales and the market bottomed up in 2018. In 2019, we saw some recovery and Q3/Q4 were good for the automotive industry. Even January 2020 was better than January 2019. In March sales declined by almost 50-60% approval.
“Now we are considering the that opening of 80% of the market will happen by the month of July; travel will be allowed. So overall, we are we are talking about a U-shaped recovery, where the recovery will start definitely by Q1 of 2021. The next two quarters are difficult, but we’ll see the market coming back to normal by the end of year 2022.
“In 2014-2015 in the UAE, there were about 0.8 used cars sold for every new car. In 2019, the UAE was almost equal to UK where for every new car there were 3.5 used cars sold. We are expecting that to stabilise by 2024/25 to about 2.8. However, that is changing the dynamics of the new vehicles that are sold in the markets. There will be more used cars than new.
“There will be used car leasing, there will be shared mobility, which will directly impact the new vehicle sales in future.”
historic ability to ride out the challenges set before it, even if it is in for a rough ride.
“If you look at the automotive industry, it is very resilient. We have seen it in 2001- 2002. We have seen it 2008-2009. In fact, in 2008 and 2009 OEMs bounced back within a two year time period. However this time it is going to take much longer,” he says.
“Covid-19 is definitely one of the reasons for that but if you look at the other reasons... In 2017, we already had the mass expansion of shared mobility services. In 2018-19, we had a trade war and Brexit uncertainty. The normal prediction - or the normal forecast - was by year 2021 we will reach hundred million units, but now we are expecting almost 12-17
million decline in the vehicle sales globally. In terms of percentage that’s about 21-28%.
“Going back to 2017 numbers, which is about 93-99 million units will easily take us five years now, which is a much-prolonged recovery in comparison with the previous recessions.”
What does this all mean for the fleet industry? Joshi believes that services within mobility like on-demand transport and car sharing will be pushed to the forefront as buying and working habits are re-shaped by the indelible mark left by the Coronavirus.
“When we look at mobility as an industry, we have already seen in the last three to four years, the offering has become more about customer-centric solutions rather than car-centric,” he affirms.
“Start-ups and new companies they have been working to provide more convenient and integrated modes of transport. As we all are aware, our cities in the GCC like Muscat and Doha are in the top five most Private Car-dependent cities globally. Personal cars typically account for 85% of the total commutes. However, at the same time, countries like KSA, Kuwait were investing in developing the public transport system.
“The public transport system will account for 12 to 15% of the total commutes which was about 5-7% in 2019. But this current situation is definitely going to change it in the shortterm and medium-term because commuters will not be convinced of using the public transport during the covid-19 situation.”
Joshi continues: “We have already seen that they are moving towards more sorts of shared services. We have seen higher usage of services like E-Kar and Udrive before the lockdown period, and we are expecting that to continue. Customers are moving towards more used vehicle purchases; taking vehicles on leasing. Who can afford to use those services? So, 12-15% reliance on public transport is definitely not going to happen by 2025 and that isgood news for the automotive industry.”
With UDrive and EKar providing more than 2,500 car-sharing vehicles and Careem, Uber, et al, bringing eHailing vehicles up to 7,000 in the GCC, Joshi believes that integrated and multimodal mobility investment is on track to double by the middle of the decade. In fact, many of the new bus and transport services are ready to be rolled-out.
“In the last year, we have seen the launch of UDrive and EKar in Saudi Arabia and the response in the month of November and December was good for such services. We
have demand-responsive transit, which was piloted in 2018 and now it is functioning well in Dubai. Saudi is also preparing towards those services but one of the key pointers here, the testing which is been done,” he notes. “The services being offered definitely have been impacted in terms of slowing down these trials or slowing down the services which have been offered. However, it is a short-term impact. In the medium to long term, we are expecting that MaaS is going to increase in the region.”
Consumer and buying habits are changing meaning that we are now, not only less likely to take to the road, but also expect many of our goods and produce to come straight to our homes and offices. Indeed, one of the
REACHING OUT
The last year has seen the launch of UDrive and EKar in Saudi Arabia and data suggests the demand will grow.
major success stories of recent years has been the emergence of fleets that provide food deliveries from online ordering. Joshi says that he expects the market to grown even further.
“We have already seen double digit growth in this segment and a lot of fleet buyers are repurposing their vehicle for it,” he says. “A lot of leasing companies are also repurposing their vehicles for food delivery and grocery delivery have seen better utilisation. Services, like mobile services, add-on services, the mechanic on demand and on call.... all these services are getting piloted by many companies in the UAE Saudi Arabia and Oman. We expect these services to become mainstream down the line. The customer preferences are
IT IS NOW NOT ALL ABOUT THE CAR
Mobility is moving away from ownership and towards convenience and integrated forms of transport.
changing. They are okay to use services at their home, at their workplace rather than investing their time at a service centre, for example.”
“Similarly, on the after-sales parts front… online sales started about five years back in the GCC and it has picked up brilliantly in other segments but in automotive parts, it was limited to a very few parts and accessories. During the lockdown, between March to April we have already seen a huge spike in the DIY Community.”
Joshi adds that owners are extending the intervals between servicing and maintenance: “The demand for vehicle servicing and spare parts has been weakening and we are expecting about 16-19% decline.”
Unsurprisingly, new car sales are also being hit hard and could be in the throes of a major change spurred on by the restrictions introduced to stop the spread of the Coronavirus: “The average leasing contract term has gone up and web traffic on used car platforms. Taking the example of Dubizzle cars - it was 38% higher in January-March 2020 - and the used car transactions through online platforms has also had an 8.5% increase.”
GForces, a company that works with manufacturers and dealers sell online, has seen its a year-on-year sales almost quadruple in Q1 with growth continuing even after restrictions were lifted in May.Joshi says that 25% of the transactions through its platform take place outside of dealer working hours.
“In Q12020 online sales were equal to the whole 2019 sales and 50% of the online transactions are a deposit as part of a loan process,” he says before pausing. “This is the key point I would like to highlight because in the UAE, we had a problem where online sales were not supported by banks. But now there is a specific bank that is supporting end-to-end online sales where customer doesn’t have to step out of his house for to make the loan application. He can access everything; approved and the vehicle can be delivered to them at their home. These online purchases are without the customer even entering the showroom. I know 95% of the used cars sold by one dealer in the month of April were sold via an online platform only.
“We are not saying that it will be moved a hundred percent online. But there can be online to offline then back on online or it can be online to offline only. The comparison will happen online, for that touch feeling or that test drive is required to be done offline and the customer can come back at the comfort from his home.”
