With a population of just five million, the UAE is the world’s fourth biggest market for luxury brands like Rolls-Royce and the emirates’ roads are a firm favourite for gas guzzlers such as the Hummer, the Ferrari and the Maserati.
This all changed when the real estate bubble burst. The credit crunch took hold and job cuts became commonplace. Suddenly, the car became a symbol of excess and overindulgence. Many of those who could no longer afford their car loan repayments fled the country and cars, with keys and apologetic notes inside, were allegedly abandoned at the airport to gather dust.
Last year, General Motors — itself no stranger to debt issues — claimed over a third of applications for car finance were now being rejected by UAE banks.
“These are people walking into our showrooms and wanting to buy that new [car] and not being able to get financing,” Mike Devereux, outgoing managing director of GM Middle East operations told Arabian Business before heading for pastures new in Australia.
As the UAE economy begins to recover, an IHS Global Insight report has forecast sales of new cars are also on the rise again and are likely to increase to 240,000 this year, up from 210,000 in 2010 but still a lot lower than the 324,000 sold in the boom era of 2008.
Toyota, the world’s biggest automaker, accounts for 40 percent of all new car sales in the UAE and local agent Al Futtaim Motors says sales in the first four months of the year were up 45 percent year-on-year.
While sales are racing upwards, the results of an Arabian Business debt survey shows only 37 percent of respondents have a car loan and half of those have less than AED50,000 outstanding, a clear sign drivers appear to be more frugal and banks are still reluctant to finance that new speed racer.
“Stricter banking rules and higher interest rates will curb new car sales,” says Stephanie Vigier, senior market analyst at IHS Global Insight. “We think that it will be difficult to come back to the 2008 level as the government has learnt the lesson and will not open widely credits and car loans.”
The government has indeed learnt its lesson and has introduced changes to the terms allowed for new car loans. Borrowers must now have a minimum monthly salary of AED5,000 ($1,361) — 66 percent more than during the boom era — and must already have 20 percent of the value of the car as a down payment.