Car rates

Rising rates in the UAE: Will cost-conscious consumers switch from buying cars to subscriptions?

Dubai: New car sales – especially in the mid-price category and price-sensitive fleet purchases – in the United Arab Emirates may slow as the full weight of the latest interest rate hikes is passed on to buyers. New auto finance deals will effectively top 4% with Wednesday’s 0.75% rise.

Dealers, however, hope the needs will eventually outweigh the cost of loan worries for buyers – and the sooner that happens, the better. Because new car sales in the UAE are currently 15-20% higher than the same period last year, and could have increased further had dealers managed to bring in enough cars for sale.

“After June’s 0.75% rise, inquiries had dropped, but that could also be due to the relative slowness of the summer,” said the CEO of a major dealership. “But another 0.75% so close to the previous rise could cause many potential buyers to delay making decisions.”

According to Vincent Wijnen, Senior Managing Director of Al-Futtaim Automotive, before the last rate hike, “we saw auto finance interest rates increase in some segments by 25 to 50 basis points.” (Rate comparison websites show car finance offered at 2.50-3.99% on a flat rate basis, with a 20% down payment.)

Rental or used car?

The UAE automotive market has faced multiple issues in recent months. First, the lack of enough new cars – of all models and price ranges – available to meet the kind of demand seen since the second half of 2021. On reservations made now, the actual handover of the vehicle could take up to three months, even longer.

Then there are high shipping costs, which dealerships have managed to manage in a number of ways without passing the entire burden onto car buyers. Now comes the prospect of further auto finance rate increases at a time when consumers are beginning to be wary of spending, with inflation a constant concern.

Dealerships expect some of the potential new car buyers to shift their focus to car leasing or opt for used vehicles, which have also seen exceptionally high growth rates during this period. In fact, some in the industry claim that used car sales are growing at a faster rate than new car sales.

Major dealerships across the country offer every possible option to add to their new car offerings. It was last October that Al-Futtaim Automotive launched a car subscription service – MOOV By Al-Futtaim – in an attempt to capture the attention and contracts of UAE residents who prefer to rent/subscribe rather than own.

“Since launch, the customer base has grown by 70% each month, demonstrating the demand for the service as well as the appetite for the digital offering offered by Al-Futtaim Automotive,” Wijnen said. “By taking out a short-term, no-commitment subscription, users can access a wide variety of models, including hybrid vehicle options.

“From Q3-22, electric vehicles will also be available, making MOOV By Al-Futtaim the first car subscription service to offer electric vehicles. Approximately 25% of the current fleet on MOOV is hybrid with 100% utilization.

Vincent Wijnen, Senior Managing Director of Al Futtaim Automotive: “Since the launch (of the MOOV), the customer base has increased by 70% each month, demonstrating the demand for the service as well as the appetite for the digital offer… ”
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New residents, new leases

As banks are always cautious when lending to new residents of the country, they choose to lease and wait the required period before becoming eligible for bank financing. This is where subscriptions work and begin to provide fierce competition for more traditional care rental services.

“The likes of ekar and Udrive have already seeded the market for use-by-need or subscription services,” said one consultant. “It is now natural for the large historic dealers to enter this space…”

And consumers in the UAE are ready for it – until the moment they decide to buy a new car. And at financing costs they are comfortable with.