Have we reached the bottom yet?

Posted on Jul 1, 2009 by

After fantabulous three years of double digit sales growth, car sales in the middle east tanked towards the end 2008/beginning 2009. Dubai, a key growth driver, stalled overnight. All were caught off guard. Low consumer confidence and non availability of credit earlier in the year added to the complexities. Such was the state of industry in Q1 2009. The unthinkable had happened.

Car stocks started to pile up and panic set in. Proactive brands, notably GM, and were the first to open this gridlock and offer bank finance and incentive schemes on cars. Once again, sales started inching in upward direction as compared to previous quarter and there was euphoria. Such was Q2 2009.

Summer months are traditional lean business months in this part of the world. By now, most car dealers have some sort of financial tie up in place. The consumer is having a free ball with all the offers, incentives and promotional schemes on offer. From cash rebates, extended warranty, free service package, cash back offers, free insurance and registration for up to 2 years, even free holiday vouchers are available on purchase of a new car these days. By and large, these offers total up in the range of 10-15% of the price. That’s a lot of indirect discounting and a clear indication of the desperation levels in the industry. Such is the beginning of Q3.

What will happen from here on? Will car sales sustain their present levels, that are substantially lower than the same period last year, will they show any signs of improvement or will they slide further? The silver lining on the cloud is that the bank finance is available to support car sales, and dealers are all out to sell. Will there be any more price drops? I don’t think so. Although there are abundant rumors of further price cuts, in my opinion, the dealers have already cut it down to the bone and even further in some cases. Any further price drops are likely to bleed dealers excessively.

The holy month of Ramadan traditionally sees sales chart pointing upwards. The timings are such that the holy month lies in Q3 2009. It may well prove to be a saving grace and prevent car sales from sliding back in the negative territory. For sure, the goodies on offer will be higher than any previous years. The mood is cautiously optimistic. Industry is well aware and willing to flex all its muscles to avoid any further slides. It may well be able to negate the effects of a traditional lean period in this quarter by the grace of god almighty.

But what about Q4? Wish I had a time machine…

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