How Car Finance Market is positioned in Saudi Arabia?
Middle East is the one of the most lucrative regions for automotive industry. Saudi Arabia is the largest importer of automotive parts in Middle East and is the largest automotive market for both new and used cars in GCC. In the recent past, the Kingdom’s automotive market have developed at a robust pace owing to the strength of the Saudi Arabian economy, favorable financing options, low gasoline prices, high private consumption levels and growing population.
Though the use of cars has a great significance in the Kingdom, dependence on a financing option to fund the purchase of the car had gained less attraction among the public. Moreover, the financial institutions have given less stress on the car financing products. The Saudis always preferred buying a through self-financing instead of depending on an external financing option.
Which Car Is Financed The Most? New or Used Car?
Banks and private financing sector in Saudi Arabia finances both new and used passenger and commercial cars. The major difference is in the interest rate and the minimum salary requirement based on which the customer avails the car loan. Used car finance bears a higher interest rate compared to the new car finance. The market is dominated by new car finance with a share of ~% as of 2016 on the basis of credit disbursed. The past five years’ trend displays that, though the market is dominated by new car finance, used car finance market has also observed a significant rise in the share every year during the review period, 2011-2016. Major factors that influences the credit disbursed are the average ticket size of the car and the number of cars sold, along with the financial system of the country. Financing options are availed by the mid-income group of people among Saudis and expatriates who buy it for private use. Ideally, the price of a new car is always higher than a used car. Hence, the amount of credit disbursed for new car finance remains higher. As of 2016, the average price of a new car ranges between SAR ~ and SAR ~ whereas the average price of a used car ranges between SAR ~ and SAR ~.
What Are The Major Trends And Issues In Saudi Arabia Car Finance Market?
- The prices for used cars in Saudi Arabia have witnessed a decline in 2016 which is expected to continue further in the coming years. Falling used car prices can be attributed to an increase in the supply wherein the demand is low.
- During 2016, the new car sales have showcased a sharp decline in the Kingdom. There were several factors that affected the consistent fall in the sale of new cars during this year. In the same year, the transport ministry of the Kingdom has halted the transport permit for new taxis in Riyadh and Jeddah due to the increased number of taxis operating in these two cities.
- The Saudi Arabian economy is currently facing the aftermath of the severe oil shock. Crude oil that was sold over USD 100 per barrel in 2014 was sold for only USD 26 per barrel in February 2016. As a specialized exporter of oil, Saudi Arabia is particularly vulnerable to a price decline.
- Increasing retail gasoline and diesel prices is regarded as a strategy to deal with the declining oil revenues by the Saudi government. The government is in plans to either link local fuel prices to benchmark oil prices or charge an average of gasoline and diesel fuel prices on the international market. In both the cases it would lead to an increase in the prices.
- The banks and the private finance companies in the country are reducing the profit rates as to attract more number of customers. Since the penetration of car finance in the Kingdom is less than ~%, the major players in the market are all set to introduce new product offerings, lowering the profit rates and such other upgrades in the car finance products.
What Is the Future Outlook for Saudi Arabia Car Finance Market?
The car finance market in Saudi Arabia is expected to recover from the fall experienced towards the end of the review period and grow at a CAGR of ~% during the forecast period 2017-2021. The growth is expected to emerge on the grounds of new schemes and loan programs being introduced by the banks with minimal terms and conditions. However, the growth rate expected to display during this period is moderate, which is anticipated to fluctuate depending on the Kingdom’s economic and political circumstances. The fuel price hikes and falling crude prices are expected to continue the trend.
Furthermore, the introduction of VAT by the government in 2018 is expected to adversely impact the automotive industry. The new car sales are expected to fall due to the increase in the cost to be incurred for the purchase of a car. Owing to the lowering prices for used cars the demand for used cars is expected to rise, thereby raising the demand for used car finance. The SAMA’s reform of lowering interest rates to enhance liquidity is expected to positively impact the growth in the market.
Key Topics Covered in the Report:
Car Loans Riyadh Bank Share
Applying Car Loan in Saudi Arabia
New Car Sales in Saudi Arabia
Used Car Sales in the Saudi Arabia
Financing a Used Car in Saudi Arabia
Used Car Sales in Saudi Arabia
Vehicle Financing in Saudi Arabia
Used Car Financing in Saudi Arabia
Car Financing Option in Saudi Arabia
Interest Rate Car Loan in Saudi Arabia
Passenger and Commercial Vehicles Sales in Saudi Arabia
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Ankur Gupta, Head Marketing & Communications