United Arab Emirates - Automotive UAE - Automotive
Overview
The UAE automotive industry faced another difficult year in 2018. According to industry specialists, the trend is likely to continue through 2019 and even if there’s a growth of two percent, it would make for a decent year for them. This is due to various factors, such as, lack of economic clarity in the near future, overstocking of cars by dealers, and abundant availability of certified pre-owned vehicles.
That said, the UAE will continue to be one of the most robust automotive markets in the GCC thanks to factors such as low fuel costs, low import tariffs, high per capita disposable income, and a favorable tax regime. Also, attractive insurance and finance options make it relatively easier for consumers to buy cars in the UAE. The outlook is particularly favorable for the sale of luxury cars, electric and hybrid vehicles, and motorcycles. Due to a likely increase in migration from neighboring countries with inadequate public transport, buying cars should remain a priority for new residents.
The UAE relies heavily on imports, with virtually the entire supply of car and light vehicles being imported. That trend however is changing lately as local production gains pace and companies such as Ashok Leyland, Hafilat Industries, W Motors and Zarooq Motors continue to expand in the UAE.
Market Trends
Passenger Cars
Approximately 80 percent of the UAE automotive market is passenger cars and the remaining 20 percent is commercial vehicles (trucks, vans and buses). In 2018, Japanese manufacturers Toyota, Nissan and Mitsubishi remained the leading sellers of passenger cars in the UAE. Toyota retained its position as the market leader with 29.9 percent share, followed by Nissan at 23.7 percent, and Mitsubishi at 13 percent. The top three brands comprised around 66.6 percent of total passenger car sales in the UAE in 2018, a gain of 12.3 percent over to previous year.
Among the top ten brands, the only other brand that gained sales in 2018 was Land Rover (28.5 percent). The two American brands that continued to feature in the list of top ten included Ford and Chevrolet. However, sales of both brands were lower in 2018 as compared to the previous year.
Other brands such as Chinese MG, Lincoln, Jaguar and Hino -- not listed in top 10-- gained sales in 2018. Of such brands, Lincoln saw significant sales growth, up 50 percent compared to the previous year.
Commercial Vehicles
With major infrastructure and housing projects being planned, this sector will experience continued growth. While light commercial vehicles sales should continue to see a surge due to increased business and investments associated with increased migration from neighboring countries, heavy commercial vehicles sales will continue to be supported by extensive infrastructure and other construction projects. Also, to cater to increased tourism and hospitality activities in the UAE, as well as growing demand for use by construction workers, the demand for bus and minibus will see continued positive growth.
The buoyant construction sector is expected to continue to grow by 9.7 percent in 2019 resulting in increased demand for heavy commercial vehicles, especially in anticipation of Expo 2020 in Dubai, a six-month long event that will certainly stimulate sales. The spike in construction activity will lead to increased commercial vehicle sales, and rise in tourism will result in increased bus/minibus sales.
Local Production
Production of vehicles in the UAE is relatively very small. However, recently a few companies have setup production in the UAE. Ashok Leyland, the flagship company of the Hinduja Group and a major manufacturer of trucks and buses in India, is ranked #4 globally as manufacturer of buses and the 14th largest manufacturer of trucks. They commenced production in the UAE in 2010. The UAE is also home to bus manufacturer Hafilat Industries. In addition, it is reported that W Motors and Zarooq Motors have started production of cars locally on a small scale.
Market Entry
Regulations
To comply with local requirements, all vehicles must conform to the UAE standards and their steering wheels must not be modified. There must be no damage on the vehicle outer body. The UAE does not allow importation of vehicles that have been subject to accidents such as submerging, fire, collision, rollover, etc. Also, vehicles previously used as taxicabs or by police are not allowed to be imported. Vehicles may only be exported to companies (having commercial registration for business activities in vehicle sale and import) and to individuals with a valid residence authorization, if the importer is not a citizen of any of the GCC States.
All cars and buses entering UAE must abide by safety regulations issued by the Emirates Authority for Standardization and
Metrology (ESMA). In addition, the following rules must be adhered to:
Head restraints in all seats and air bags for the driver and the front passenger are compulsory for all passenger cars and buses with capacity up to 22 passengers.
Safety belts and Anti Braking System (ABS) are required in all new vehicles. Extra seats in the aisles are prohibited for any motor vehicle with a riding capacity of four people or more every vehicle must have an alarm to notify when drivers exceed speed limit of 120 km in cars and 100 km on buses.
In addition, all vehicles must be exported from the country of manufacture and steering wheels must not be modified. There must be no damages on the outer body and vehicles must be accident free.
Required Documents
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Proof of vehicle ownership and invoice must be attested by the local chamber of commerce in the U.S.
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Export declaration from U.S. Customs
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The invoice and the certificate of origin must be attached to the export declaration
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A document issued by Police in the U.S. indicating that the vehicle is not wanted for any criminal investigation
Local Standards Requirements
GSO Standards tests for motor vehicle spare parts:
UAE Scheme for Automotive Spare Parts
GSO Standards tests for multipurpose tires
U.S. tire suppliers must ensure that RFID labels are affixed on their tires before entering to UAE market. For more information about RFID labels, please see: UAE Tire Labeling Scheme.
Re-Manufactured/Used Auto Parts
Importation of reconditioned/used auto parts is not allowed for sale in the UAE, unless reconditioned by the original manufacturer. The reseller is not allowed to claim that the part is the same as an original part. There is no difference in the treatment between remanufactured and used auto parts. This treatment applies to all motor vehicle parts.
Remanufactured/rebuilt parts are generally considered used or semi-used and are reflected in the pricing. Normally, the warranty period will not be the same as the original, if offered. Used, not remanufactured, parts usually carry no warranty.
Local industry sources believe that there could be potential as there are a number of American cars sold within the UAE and also a number of used American cars are re-exported to other neighboring countries through the UAE rebuilding of parts in the UAE is limited to auto mechanics offering their clients an extra service in their maintenance of cars.
The 5 percent import duty for new parts also applies to remanufactured or used parts. The use of the company logo as well as the original packing design is not allowed for reconditioned/used parts. As there is a complete difference in packing from the original, advertising costs for resellers of reconditioned/used parts are higher even though the quality of the product is similar. It will not be easy to lend credibility to reconditioned/used parts in this market and a lot of effort would need to be put into the process of establishing a brand.
Truck approvals are conducted at the GCC level by the GCC Standards Organization which is based in Riyadh. The product should be first approved by GSO before the truck can be exported to GCC countries, including the UAE.
U.S. truck manufacturers or exporters may contact the office below for approval:
Conformity Assessment Department
G.C.C Standardization Organization (GSO)
Phone: +966 1 274 66 55 ext. 333; Fax: +966 1 210 53 90
E-mail: alsagr@gso.org.sa
Tariffs: The tariff applied to cars is 5 percent customs duties (on value of the vehicle plus 1 percent insurance plus cost of the shipment). For trucks, the customs duty is 12 percent.
The tariff for radiators and filters is 12 percent and 5 percent for all other spare parts. 5 percent VAT will be added to the sales price from January 1, 2018.
Taxes: The UAE government imposed a 5 percent VAT from January 1, 2018 on vehicles sold in the country.
Barriers: The UAE’s trade policy has been consistent with its obligations under the WTO. There are few trade barriers, viz. automotive parts should not contain asbestos, and products should not have been manufactured or transited through Israel.
Leading Sub-Sectors
Electric Vehicles
The UAE has stepped up measures to promote electric vehicles (EVs) in order to reduce carbon footprint and is working on standardizing its regulations governing EVs. Various government entities, like the Dubai Water and Electricity Authority (DEWA) and Dubai Silicon Oasis Authority (DSOA) have installed EV charging stations in the emirates and the trend is likely to increase in future.
In addition, ESMA has set standards for imported EVs to address concerns surrounding overheated batteries, operating in extreme heat and humidity, preventing drivers and passengers from the risk of electric shocks and protecting passengers in case of front and side impacts.
Under this initiative, Tesla launched operations in the UAE via an online platform and a store in Dubai Mall. This was followed by Tesla Service Centers in Dubai (in July 2017) and Abu Dhabi (early 2018) marking Tesla's first entry into the Middle East. It is reported that Tesla has signed an agreement with Dubai's Roads and Transport Authority (RTA) to provide some 200 EVs for use in the limousine fleet operated by Dubai Taxi Corporation. Apart from Tesla, BMW, Renault and Toyota are also offering electric vehicles for sale in the UAE.
Autonomous Vehicles
According to media sources, Dubai RTA signed a memorandum of understanding in February 2018 with Netherland-based Here Technology Dubai for digital mapping and developing high-definition maps of Dubai's road network. This was in line with Dubai’s goal of autonomous vehicles accounting for 25 percent of all transportation in the Emirate by 2030, including all mass transit modes such as trains, buses, marine transit modes and taxis, as well as private vehicles.
In addition, Dubai's Smart City initiatives and introduction of Internet of Things (IoT) technologies provides readiness to adopt to autonomous vehicles by ensuring the coverage and availability of wireless broadband services. To that end, over the past few years, UAE Telecom Service Providers, Etisalat has launched several advanced connectivity features in vehicles in partnership with Nissan, Toyota and Tesla, allowing them to deploy machine to machine and IoT platforms using Etisalat’s cellular network allowing customers to keep their vehicles connected and receive real-time information with in-vehicle Wi-Fi.
Motorcycles
Demand for motorcycles is on the rise in the UAE, both for lower end (used by expatriate workers) and higher end (used by wealthy UAE consumers). Companies like Harley-Davidson, Honda, and Kawasaki have operations in the UAE but other
companies like Hero MotoCorp and Royal Enfield (from India) and others are also expanding to the market.
Used Cars
As a regional trade hub supporting intense international business activity, the UAE presents an extremely competitive business landscape for American companies in this sector. However, the UAE Ministry of Interior recently announced that as of May 2017 registration of imported used vehicles will be subject to a conformity letter by ESMA after verifying compliance with the new regulations on import of used vehicles. Many successful U.S. firms already in business in the region rely on technological advantage and quality assurance in addressing current demand and facing foreign competition. Also, with increased emphasis on consumer safety, the UAE government is introducing new regulations for Safety of Imported Used Light Vehicles to UAE and safety requirement for Modified Vehicles. More information can be found on the Emirates Authority for Standardization and Metrology.
Parts and Components
The UAE’s auto aftermarket has developed at a robust pace thanks to the strength of the country’s economy, high private consumption levels and a growing population. The UAE’s strategic positioning and economic conditions has led the country to become a regional hub for car parts and vehicle components in the entire Middle East and GCC. As a result, the UAE has become a key player in the car parts trade within the Gulf region and has positioned itself as a major re-export center. In addition, the economic slowdown that has resulted in fewer new vehicle purchases could positively impact auto aftermarket sales if vehicles are kept longer.
According to market reports, UAE's trade for auto parts and accessories was valued at around $11 billion in 2017. Imports of tires, batteries, engine components and systems into Dubai accounted for over 56 percent of imports. Major auto parts exporting countries to the UAE included Japan (14 percent), South Korea (7.5 percent), USA (7.2 percent), Germany (6.8 percent) and China (6 percent). Many parts imported into the UAE are re-exported of auto parts to neighboring countries, such as, Saudi Arabia, Afghanistan, Iraq, Oman and Kuwait. Re-exports accounted for about 33 per cent of imports in 2017.
Opportunities
Currently, there are relatively few barriers to exporting automotive products to the UAE beyond the conformity requirements previously mentioned. Since there is currently negligible automotive-related production in the UAE, U.S. vehicle and parts exports to the UAE Arabia are currently supported by the country’s acceptance of vehicles/parts produced to U.S. standards. Therefore, relatively few homologation changes are needed prior to export to the UAE.
The UAE currently is the sixth largest destination for U.S. exports of new passenger cars ($ 1.4 billion) and second largest destination for used vehicles ($426 million). These present an opportunity for increased exports of U.S. aftermarket parts for those vehicles.
Aftermarket parts for off-road vehicles and SUVs have good potential in the UAE SUVs and 4x4 cars are especially popular in the UAE and there is a high level of interest in off-road and desert driving. Larger vehicles are popular in order to accommodate large families, and the Detroit Three excel in this competitive segment, particularly the larger SUV market. In addition, U.S. manufacturers exploring business in the region may find it worthy to note that apart from EVs, the UAE government encourages autonomous vehicle technology, research and development into driverless vehicles and other smart, green and environment friendly technologies such as alternate fuel vehicles, including Hybrid and Hydrogen vehicles. Given high disposable income levels and an interest in classic, modified and luxury vehicles, demand for specialty performance and appearance products is likely to continue growing. U.S. companies can also endeavor to command a leading position in the supply of transmissions, tuning and high-performance parts and kits, steering, suspension, and brake components and parts to the UAE market.
Web Resources
BMI Report
Government of Dubai Customs Agency
GCC Standardization Organization
Emirates Authority for Standardization and Metrology
U.S. Department of Commerce, Bureau of the Census, Foreign Trade Division