UAE rate hike: Will cost-conscious consumers shift from car purchase to subscriptions?
Dubai: New car sales – especially in the price-conscious mid-priced category and fleet purchases – in the UAE could slow down as the full weight of the latest interest rate hikes are passed on to buyers. New car financing deals will effectively cruise past 4 per cent with Wednesday’s 0.75 per cent hike.
Dealerships, however, are hoping that needs will eventually trump cost of loan worries for buyers – and the sooner that happens, the better. Because new car sales in the UAE are currently at 15-20 per cent higher than during the same time last year, and could have gotten even bigger had dealerships managed to bring in enough cars to sell.
“After June’s 0.75 per cent hike, enquiries had dropped, but that could also have been because of the relatively slowness heading into summer,” said the CEO at a leading dealer. “But another 0.75 per cent so close to the earlier hike could force many potential buyers to delay decisions.”
According to Al-Futtaim Automotive’s Vincent Wijnen, Senior Managing Director, ahead of the latest rate hike, “We saw auto finance interest rates increasing in selected segments by 25–50 basis points.” (Rate comparison websites show auto financing being offered at 2.50-3.99 per cent on a flat rate basis, with a 20 per cent down payment.)
Car hire or pre-owned?
The UAE auto market has been dealing with multiple issues in recent months. First, lack of enough new cars – of all models and price ranges – available to meet the sort of demand seen since the second-half of 2021. On bookings made now, the actual handover of the vehicle could take up to three months, even longer.
Then there are the high shipping costs, which dealers have managed to deal with in many ways without passing on the full load to car buyers. Now comes the prospect of more increases in car financing rates at a time when consumers are starting to get cautious over spending with inflation a constant concern.
Dealerships expect some of the prospective new car buyers will divert their attention to car hires or opt for secondhand vehicles, which too has been recording exceptionally high growth rates during this period. In fact, some in the industry say that pre-owned car sales are motoring along at a higher rate than that for new ones.
Leading dealerships in the country are bringing on all possible options to add to their new car offerings. It was in October last that Al-Futtaim Automotive launched a car subscription service – MOOV By Al-Futtaim – to try and capture the attention and contracts from those UAE residents who prefer to lease/subscribe rather than own.
“Since launch, customer base has grown by 70 per cent each month, demonstrating the demand for the service as well as appetite for digital offering that is being catered to by Al-Futtaim Automotive,” said Wijnen. “By taking a short-term and no-commitment subscription, users can access a wide variety of models, including options of hybrid vehicles.
“Beginning of Q3-22, electric vehicles will also be available, making MOOV By Al-Futtaim the first car subscription service to offer electric vehicles. Approximately 25 per cent of the current fleet on MOOV is hybrid with 100 per cent utilization.”
New residents, new leasing
With banks still exercising caution on lending to newer residents in the country, they are opting to lease and wait for the required period before they become eligible for bank financing. This is where subscriptions work and starting to provide stiff competition for more traditional care hire services.
“The likes of ekar and Udrive have already seeded the market for use-per-need or subscription services,” said a consultant. “It is only natural now for the big legacy dealerships to enter this space…”
And UAE’s consumers are ready for that – until the time they decide to go in for a new car purchase. And at financing costs they are comfortable with.