The GCC Automotive Sector’s Transformation
The GCC automotive industry is experiencing profound changes, mirroring global trends. Consumers are now purchasing cars differently, seeking alternative relationships with distributors, and demanding various vehicle types. Manufacturers are increasingly adopting direct-to-consumer sales models, bypassing traditional distributors, while regulatory changes threaten their position. Consequently, distributors’ profit margins are dwindling.
Market Dynamics and Forecasts
Despite these challenges, the GCC automotive market remains robust, with a growing appetite for battery electric vehicles (BEVs). We predict that automotive sales will continue to grow at a compound annual rate of 3-4%, reaching 2.3 million units by 2035, with Saudi Arabia accounting for approximately 1.2 million units. This growth is driven by a young, urbanized population with increased purchasing power, who prefer BEVs, luxury cars, and alternative ownership models like car subscriptions.
The Rise of Alternative Ownership Models
Consumers are showing a growing interest in leasing over ownership, a trend that is gaining traction in the GCC. Some consumers even prefer renting vehicles. Although BEVs are not yet widespread due to limited infrastructure, government incentives and growing domestic production are expected to drive their adoption over the next decade. Saudi Arabia is already home to two BEV manufacturers, Ceer and Lucid.
Challenges for Distributors
The distribution landscape is being reshaped by manufacturers’ aggressive market entry strategies, particularly by Chinese companies. The integration of digital and physical sales channels is also cutting out traditional distributors. Furthermore, technological advancements such as connected services and autonomous driving are altering the market dynamics, potentially diminishing the role of distributors.
Strategic Imperatives for Distributors
To secure their future, distributors must act promptly in four key areas:
- Going Downstream: Distributors can foster closer customer relationships and generate additional value by penetrating downstream market segments such as used cars, aftermarket parts, and leasing. This is particularly relevant for BEVs, which have distinct aftermarket requirements.
- Entering Adjacencies: Distributors can expand their offerings to include emergency roadside assistance, accident management, insurance claims handling, car subscription services, and short-term rentals. Partnerships with established players can help mitigate risks and reduce capital investment.
- Thinking Locally: Distributors can leverage their understanding of local markets to tailor their model lineup, form alliances with domestic suppliers, and create resilient supply chains. They can also explore manufacturing opportunities in cooperation with parts suppliers, taking advantage of government policies that encourage domestic production.
- Preparing for Growth: Distributors need to develop lean and agile organizations, efficient processes, and state-of-the-art digital technology. They should acquire and retain top talent, optimize their geographic footprint, and adopt an omnichannel sales approach that includes ecommerce. As leasing becomes more prevalent, distributors must strengthen their relationships with financial institutions to offer competitive rates.
The future of automotive distribution in the GCC is arriving faster than anticipated. Within a decade, the car-buying experience will be unrecognizable from today’s. GCC automotive distributors must move swiftly to capitalize on the emerging opportunities.
