Small Cars Gaining in Saudi Arabia’s Growing Car Market
As there is no direct tax on an individual’s income, disposable income is high in Saudi Arabia. In fact, 94% of households have an annual disposable income in excess of US$10,000, while 86% earn more than US$15,000. Nevertheless, despite the low price of petrol and vehicle insurance as well as the growth and improvement of leasing programmes, new vehicle sales have typically just followed growth in the economically active population. However, car registrations are now significantly outpacing population growth in the Gulf state, and, interestingly, small cars are proving increasingly popular among Saudi’s young population, despite the fact that Saudi women are not issued with driving licences.
New Vehicle Sales and Economically Active Population, 2006-2011
Source: Renault, Euromonitor International
Saudi Arabia’s economy is naturally dependent on the oil industry, and oil income increased due to a rise in production of nearly 10% in the first half of 2011, with a subsequent increase in oil prices. Furthermore, recognising the housing shortage and unemployment affecting the growing young population, the Saudi government announced public spending of SR500 million (over US$130 million) on social welfare. This has included major investment in the construction business, leading to job creation, spending on minimum wages and increased unemployment benefits. In addition, employees in both the public and private sector have received bonuses proportional to their salaries.
These events have, unsurprisingly, all had a positive impact on consumer confidence and, in turn, on new vehicle sales. In fact, the MasterCard Worldwide Index of Consumer Confidence Survey reveals that “all the indicators of consumer confidence were rated as being exceptionally positive, including employment (99.1) and quality of life (98.9)”.
Saudis are fond of large sedans and SUVs, but young Saudis now prefer smaller cars. The Saudi Gazette reported that 30% of car imports concern smaller vehicles. The growing preference for small cars is partly due to the increase in number of nuclear families requiring less space. In addition, single Saudis are buying cars at an earlier age while people are also increasingly requiring better mobility and easier parking in large, busy cities.
Although the proportion of people under 30 years of age has been falling over the last 30 years, the under 30s age group still accounts for almost 60% of the Saudi population in 2012 and is projected to rise to more than 17 million from 2018. The demand outlook for small cars in Saudi Arabia therefore looks positive and this is despite the fact that citizens must use locally-issued licences that are not given to women, effectively making it illegal for them to drive. Moreover, the government has indicated a willingness to reconsider this issue and so carmakers should certainly be present unless they wish to miss out on the inevitable boom in small car sales if the licence situation changes.