Saudi auto imports to break 1m units barrier in 2015

In 2011, Saudi Arabia recorded strong growth as the expansion of the oil sector was complimented by increased stimulus measures. However the earthquake in Japan and heavy flooding in Thailand disrupted the supply chains of several automobile producers. The Kingdom's vehicle stocks were negatively impacted, causing auto imports to marginally increase to 737,197 in 2011. This marked an annual growth of 4.8 percent, according to a report by the National Commercial Bank
The automotive sector is expected to resume expansion in the medium term. Total vehicle imports are projected to increase between 8-9 percent annually to reach 1,015,187 units in 2015, valued at SR76.4 billion. The return to single-digit growth illustrates that: (1) the double-digit growth of 2010 was simply a recovery phase needed to jolt the sector back to a stable growth momentum; and (2) the slow growth of 2011 was due to extenuating circumstances.
Demand for vehicles was witnessed across all three automotive segments over the past 2 years: Demand for small passenger cars, SUVs and commercial vehicles rose by 30 percent, 4 percent and 39.8 percent, respectively. The growth of the passenger segment is expected to continue over the forecast period as the youth demographic expands. Shifting preferences of this population segment, alongside rising inflationary pressures, will result in greater price sensitivity among the buyers.
The ongoing construction boom in the Kingdom is expected to cause a favorable shift to increased demand for commercial vehicles. According to market experts, the commercial vehicle segment is expected to continue its growth over the medium-term. While Japan, US and South Korea are the largest exporters of private cars, Thailand, alternatively will continue to play a large role in the export of commercial vehicles, the NCB report said.
Commercial banks financing of automotive imports is expected to accelerate in support of rising demand levels. New and settled letters of credit are expected to increase at a 5-year CAGR of 13.5 percent and 13 percent, respectively, to reach SR39.3 billion and SR53.2 billion by 2013.
While cash and traditional financing methods represent a decent share of sales, the auto-lease product garners the highest share. The actual value of new business for the auto-lease market in 2011 was SR7.9 billion. It is projected to reach SR9.7 billion in 2015 as the rising employment rates of Saudis will supplement the growth of private consumption.