Market Opportunities for Used Cars in Saudi Arabia, 2020
According to the demographic survey conducted by the General Authority of Statistics, most Saudi families own at least two cars (~92% have at least one car and >56% have more than one car). It has been observed that Saudis use their car for a range of activities including daily commute to schools, offices and shopping. Long-distance travelling and desert safari are preferred weekend getaways for them. Saudis refrain from options such as carpooling and opt for any convenient transport system.
Used Car market in KSA is US$ 16.8 billion in revenue (0.9 million units) in 2019, based on 9-year car parc. The market is estimated to grow at a CAGR of 6.3% in the next 6 years to reach US$ 24.3 billion in 2025.
The KSA Used Car market will be propelled by multiple factors such as: younger generation of Saudi’s entering the workforce, lifting the ban on women drivers, the fall in disposable income and middle-income expatriates looking for better bargains- these all will lead to considerable growth of the said market.
Market Trends in Used Car Market
Around 1 in 5 cars of the car parc (15 years) was transacted in the Used Car market in 2019. In comparison, for 1 new car sold 2.5 used cars (under 15 years) are sold each year. This ratio is likely to grow in favour of used cars in the next 5 years.
The perception among used car dealers is that Saudi’s replace their cars between 2 to 4 years, while most of the expatriates change the cars after 4 years on an average; however, given the current pandemic scenario, factors such as younger Saudis entering the workforce and women being allowed to drive, Saudi’s are likely to retain their cars longer and the average age of used cars sale is likely to move towards 5 to 6 years.
Generally, Toyota and other Japanese vehicles are sold after 4 to 6 years of ownership compared to American and European Models which are sold after 2 to 4 years.
Japanese vehicles topped the Used Car market in Saudi Arabia transaction data when compared to American and European Models.
Rental/ leasing companies change their fleets with new cars between 18 months to 30 months on an average.
Online App based transaction (digitalization) of Used car transactions is at a very nascent stage with hardly 3% to 5% of overall market – this is mainly attributed to the lack of trust among consumers.
COVID Impact on Used car market
KSA witness pitfall in used car sales owing to economic downturn, Government discontinuing allowance and triple VAT aided by lockdown.
Customer walk-in decreased by 75 – 80%. Pandemic resulted in 6 out of 10 buyers would consider online purchase. There has been an acute drop in used car sales by 50%, 7 out of every 10 buyers opt for used car and certified pre-owned car.
A recent Yalla Motors Survey outlines about 74% of the people seek a discount or reduced price which positively impacts their decision of buying used cars. 11% prefer attractive loan offers, while 10% would require complementary financial assistance.
The introduction of VAT created general price increase, reduced purchasing power and restricted the consumer goods demand including vehicles sales.
Production cut in importing countries will increase the pricing pressure for dealer and distributors due to increase CAPEX price from OEMs.
Factors influencing purchase of Used Car market Saudi Arabia
In spite of wealth concentrated in KSA at the top end, close to 50 % of the population are at an average age of 30 and below, who have limited spending power. This hinders the purchase power of New Cars.
Used Car market is forecasted to see an uninterrupted growth as Saudi hikes its VAT from 5% to 15% effective on July 1, 2020. The consumers anticipation to buy a new car traded their existing car before the price hike during the pre-implementation of VAT phase which resulted in surplus sales of Used Cars.
On March 2020, there has been a huge job loss and domestic and international travel freeze among the expatriates resulting in the enormous supply of Used Cars from the rental companies.
In the coming years, many financial companies may open up different avenues with the current up surge in the Used Car sales which is not currently offered.
Intrusive offers and certification on pre-owned cars are expected to come from OEMs and dealers would drive the growth of Used Cars. The positive growth of Used Car sales will be backed up by pre and post purchase inspections, vehicle certification and some value-added services provided by the OEM and dealers.
Used Car Journey – Buyer
The demand for used cars in KSA is likely to remain strong in the short to mid-term perspective. Used car market is becoming even more appealing due to the sudden stir caused by the Covid-19 pandemic. Compared to New cars, VAT increase has a less impact on the said market, making it more affordable for most buyers who were budget constraint due to the recent reduction in disposable income.
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