Challenges

Repercussions of Economic Slowdown

The determined delicate quality in oil costs since mid-2014 has fundamentally affected the to a great
extent oil-subordinate GCC economies and enlarged their financial shortfalls to a record-breaking high.
IMF has determined financial deficiency for the locale at 12.3% of GDP in 2016. As open accounts come
progressively underweight, the part countries are deduction to execute charge changes for imposing
corporate duties and VAT, among others keeping in mind the end goal to shore up their monetary
revenue. In the meantime, appropriation cuts and other starkness measures are being reported to trim
down use. Some administration orders are unequivocally focused at the vehicle area. For example, the
Saudi Finance Ministry coordinated the administration organizations in October 2015 to stop spending
on buy of new cars. Financial stoppage combined with the legislature initiated fixing measures,
additionally resulting into employment misfortunes and pay cuts especially in the vitality and
development divisions, are influencing the general customer estimations and spending in the GCC. The
testing macroeconomic environment is adversely affecting car deals in the district. Every one of the
nations, excepting Saudi Arabia, saw a drop in new vehicle deals amid 2015. Be that as it may, Saudi
Arabia couldn't remain protected for a really long time and new vehicle deals in the nation dropped
19.3% y-o-y amid the main portion of 2016. The lull has likewise prompted to an adjustment sought
after example, coming about into extreme stock among the merchants. For an example, merchants in
the UAE who basically take into account re-trade markets are seeing heaping up of auto stock because
of feeble request from the bigger Middle East and Africa region. In perspective of this, auto merchants
are probably going to slice costs to bait purchasers.

Deregulation of Fuel Prices

Fuel value changes are a part of the more extensive program of the GCC governments on endowment
cuts. The UAE was the main part country to deregulate the cost of transport fuel by connecting it to
worldwide market costs in August 2015. Thus, costs of petrol in the nation expanded by 24%. Saudi
Arabia, Bahrain, Qatar, and Oman stuck to this same pattern by raising petrol costs by up to half amid
December 2015-January 2016. The expansion in costs of petrol in the midst of a lazy financial
environment is probably going to adversely impact the interest for vehicles.

Implementation of VAT

The GCC governments are likely to introduce VAT at a uniform rate of 5% by January 1, 201880.
Although the proposed rate is not significantly high, it is expected to have a negative influence on
automobile sales volumes as effective sales prices rise. Sales of high-value luxury cars could bear the
biggest impact. In a survey conducted amongst financial and investment professionals in the UAE, 79%
felt that the automobile industry will be the most affected by the introduction of VAT. In addition to
VAT, the IMF has suggested that the GCC governments to consider implementation of excise duty on
various items, including cars. For the UAE, it has proposed a 15% excise duty on cars. Notwithstanding
the imminent rise in vehicle prices and resultant pressure on sales volumes, the automobile industry
may seek partial relief from the fact that discerning consumers may line up to purchase cars before the
new levies take effect.
High Competition

Nearness of countless makes the GCC vehicle advertise very aggressive. A few dealerships in the district
are a piece of broadened neighborhood business bunches having a solid acknowledgment in the market.
Presence of all universal vehicle marks in various variations and fragments has left clients with a wide
exhibit of decisions. The power of rivalry has brought about value affectability and low brand reliability
among end-buyers. The section of Chinese brands and their continuous new dispatches in the most
recent couple of years have just upgraded the level of rivalry.

An aggressive market has driven merchants to continually concentrate on offering creative and esteem
for-cash items and create compelling showcasing effort. Then again, the approved vehicle merchants
need to hold fast to specific determinations expressed by the central/automaker as far as the plan, size,
and area of showrooms and administration focuses. This adds to the working expenses of the
merchants. Presence of a flourishing utilized auto market is likewise including to the aggressive weights
new car merchants in the district. The GCC area is seeing rebuilding and scaling down of workforce,
particularly in the vitality and development areas. In the midst of such a situation, the supply of utilized
autos is expanding the same number of ostracizes are auctioning off their vehicles as they move to
different nations. In perspective of the testing market environment, merchants and wholesalers in the
area are expanding limited time offers and rebates on new vehicles.

Exchange Rate Fluctuations

Monetary forms of the greater part of the GCC part countries are pegged to the US Dollar. Hence, huge
vacillations in return rates between the US Dollar and monetary standards of the significant vehicle
sending out countries to the area can impact car costs in the GCC. The Japanese Yen has acknowledged
almost 16% against the US Dollar since the start of this year. Being the biggest source showcase for
vehicle imports, fortifying of Yen is probably going to make imports costlier for the GCC nations when
the locale is as of now pondering monetary difficulties. Also, valuation for Euro or the Korean Won can
adversely affect the GCC vehicle imports.

Reputational Issues of Car Manufacturers

Review of vehicles due to certain assembling issues can influence the brand unwaveringness and
notoriety of automakers and subsequently the deals. There have been many examples of vehicle
reviews before, nonetheless, a large portion of the circumstances makers in a joint effort with the
merchants handle reviews suitably by planning support visits. Since 2008 to 2015, more than ten
automakers have reviewed a large number of vehicles comprehensively, attributable to flawed airbags
made by Japan-based Takata Corp. In perspective of this, the approved merchants of such brands in the
GCC ran crusades to give repair and follow-up upkeep administrations to the clients. Another case of
review is by some extravagance auto brands, which reviewed more than 93,500 autos and SUVs all-
inclusive because of fuel break problems. In the event of events where reviews happen on a vast scale
combined with reports on harm or demise, the brand notoriety and consequently deals take a hit.

Grey Imports

Notwithstanding imports by means of local merchants, vehicles are being foreign made in the GCC
through different channels. The UAE specifically has seen an expansion in dark imports, which are
sourced generally from the US, Europe, and Japan. The primary drivers behind dark imports are
accessibility of new autos from second hand merchants at a low value, access to new models that are
not offered in the nation, and merchants in different nations hoping to offload their unsold stock. Dim
imports should either be possible by an individual straightforwardly by satisfying custom methods or can
be purchased from merchants worked in bringing in and offering dark imports. Such merchants are
available in the UAE in the Al Awir Used Car Complex in Dubai. Approved auto merchants in the UAE are
confronting the warmth from dark imports, which in specific cases influences the merchant's volumes by
around 20%.

Barriers to Entry

In the GCC car division, certain administration directions go about as hindrances to section. According to
the UAE Commercial Agencies Law, there must be one merchant for each auto maker in each Emirate.
Besides, business specialists ought to be nationals or organizations enrolled in the UAE and possessed
completely by local people. The majority of the nations in the Middle East have a business office law to
secure their nearby specialists. Be that as it may, Oman, Kuwait, and Qatar have as of late corrected
their organization laws permitting principals to designate more than one agent. Evacuation of such
limitations is probably going to energize rivalry.

Shortage of Skilled Workforce and Growing Nationalization of Jobs

The GCC area confronts a deficiency of talented workforce crosswise over different parts, predominantly
as the training framework is yet to adjust itself to the necessities in the globalized work advertise. A
restricted pool of neighborhood ability, close by the expanding accentuation on nationalization of
employments, is representing a test for the locale's vehicle industry. As nations like Saudi Arabia, the
UAE, and Oman witness interests in car fabricating, the prerequisite for talented and prepared
specialists is set to increment. Powerlessness to contract workers with the correct involvement and
aptitudes could restrain the development of the segment. Then again, Saudi Arabia is wanting to expand
nationalization of employments in the car part to 100% by 2017. Without further ado, just half of the
business delegates in the vehicle part in the Kingdom are nationals. Sudation of occupations will be
pertinent in merchants' workplaces, auto showrooms, and auto rental outlets. There is no specify on
nationalization of employments at the assembling units yet. A confinement on procuring ostracizes
implies a diminished pool of imminent talented workers. Besides, entire nationalization of workforce is
probably going to blow up costs of merchants, as they should pay more to contract and hold
neighborhood subjects. Oman likewise sees a deficiency of specific Omani professionals, while the
nation is concentrating on building up the nearby car fabricating. The nations have set up preparing
establishments to give more experts to the car business. One such foundation is the Saudi Japanese
Automobile High Institute, built up in 2002, to give automobilerelated professional preparing. Driving
vehicle merchants in Oman shaped the National Automotive Higher Institute in June 2015 to help local
people seek after a profession in automobiles.
Regulations to Reduce Carbon Emissions

Rising natural worries over an unnatural weather change are prompting to burden of stricter controls on
nursery gas emanations and advancement of option fuel advances in the GCC. With engine vehicles seen
as a huge donor to air contamination, the nations are thinking about a large number of measures for the
area. In November 2014, Saudi Arabia presented mileage benchmarks in light of the US Corporate
Average Fuel Economy (CAFE). The principles are being executed in a staged way beginning January 1,
2016 up to December 31, 2020 and will be appropriate to every light vehicle, new or utilized and foreign
or produced. Likewise, the Emirates Authority for Standardization and Metrology is set to present a
couple of directions in 2017 to lower carbon discharges in the UAE. Under the proposed standards, auto
producers will be punished for offering vehicles over the normal mileage standard and enrollment
expenses on vehicles with high discharge levels will be increased. Another administrative standard is the
foreseen usage of the Euro IV emanations measures for overwhelming obligation vehicles in the GCC.
High innovative work costs connected with the Euro IV innovation is probably going to add to
automakers' cost making the vehicles costlier to the purchasers. On the off chance that the automakers
are not ready to pass the net increment in cost to purchasers, then the edges of makers and retailers are
probably going to be influenced. Despite the fact that the usage of the Euro IV emanations guidelines in
the locale is probably going to be deferred past the before focus of September 2017, the presentation
later on has may an effect on the vehicle deals. The expanded administrative oversight on discharges is
adding to the consistence and innovation costs for the car producers, at last making the vehicles costlier
for purchasers. As a part of the contamination control endeavors, the GCC governments are likewise
advancing deal and utilization of half and half vehicles. Despite the fact that the utilization of half breed
vehicles is boosted by the administration, they offer at a higher cost than ordinary vehicles. For
example, the normal cost of cross breed vehicles in the UAE is around AED 2,000 (US$ 544.5) higher
than that of the customary vehicles. This leaves shoppers with two alternatives keep utilizing the
traditional vehicles and cling to stricter directions or pay higher costs and change to half breed vehicles.