UAE’s used car sales set to surge past 1 million mark by 2025

For every new car sold in the UAE in 2019, about 3.5 used cars were sold.

By 2025, this ratio is expected to settle at about 2.9: 1 in favour of used cars, with overall sales crossing the 1 million mark.

What’s clear from these figures, based on Frost & Sullivan’s recent analysis, Growth Opportunities in the UAE Used Car Market by 2025, is that the UAE’s used car market has new energy and dynamism.

Consumers are being drawn to used cars not only because of their greater affordability at a time of economic uncertainty but also by the ease with which transactions can now be executed thanks to the digital transformation of the used car business.

New business models, more flexible approaches by both independent and franchised dealers, and innovative platforms and services – many of them digitally enabled – are redefining how used cars are being bought and sold across the UAE while creating exciting growth opportunities.

Covid, Customer interest and certified pre-owned (CPO) programmes spur growth
The immediate impetus to market growth will come from Covid-19.

Amid economic volatility and weak consumer sentiment, new vehicle sales are projected to decline by almost 20-25 per cent in 2020.

However, the demand for used cars is expected to remain resilient as a result of prices that are 30-35 per cent lower, on average, than that of their newer counterparts.

Such trends will be reinforced by auto dealer groups that will sharpen their focus on their used car retail business as they seek to diversify revenues.

From 2021-2025, the market will become increasingly organised, boosting consumer confidence and further spurring used car sales.

Accordingly, franchised dealers will experience a fourfold increase in used car sales; the share of volumes sold through independent dealers is set to grow by 50 per cent.

Currently, peer-to-peer transactions dominate. However, as convenience becomes a key factor for sellers, the customer to customer (C2C) segment is set to shrink with volumes moving to other selling partners.

Simultaneously, digital platforms and OEM support programmes for franchise dealers are expected to boost CPO sales.

Today, seven out of the 10 largest volume brands and five of the largest premium brands in terms of new light vehicle sales in the UAE’s automotive market have strong dedicated CPO programmes. Such trends are set to continue with OEMs on track to strengthen their CPO programmes from 2020-2021.

Another major trend will be the increasing focus on older used vehicles.

At present, the share of “almost new” used cars with an average vehicle age of less than five years in the C2C segment and among used car dealers is close to 50 per cent.

However, this share is expected to shrink marginally as both independent and franchise dealers turn the spotlight on older vehicles between 5-7 years old.

Online platform development and omnichannel approach underpin digitalisation initiatives
Acknowledging that digitalisation will shape the future of the used car business, stakeholders across the value chain are ramping up digital investments.

Simultaneously, OEMs and dealers are expected to leverage digital technologies to build omnichannel, ‘brick and clicks’ retail models.

Higher investments in online digital platforms are seen as critical from two perspectives.

Firstly, such platforms enhance the customer journey and address the intensifying demand for more streamlined, convenient and transparent buying/selling processes.

Secondly, they empower retailers with data-driven insights into changing customer preferences, allowing them to develop more targeted offerings.

Today, several companies offer new functionalities like vehicle history, valuation through digital tools, and cash purchase options that simplify the process of buying/selling used cars.

Meanwhile, online trading of used vehicles is set to gain momentum. Franchise and independent dealers are expected to adopt the online sales model through their websites or through aggregator platforms to improve customer reach and push sales.

The emergence of new business models
One of the key corollaries of digitalisation will be the emergence of new business models, including the bricks and clicks model.

Already, there are signs that the online-to-offline (O2O) approach is evolving towards a bricks and clicks approach, which allows customers to move seamlessly between physical and online channels to initiate and conclude transactions.

Among other emerging business models will be used car leasing and vehicle subscription services.

Used car dealers will adopt these models to target improved fleet and stock utilisation and offer customers greater flexibility of choice. Frost & Sullivan expects such models to grow dynamically after 2020.

Going forward
Tech disruptors will be at the forefront as digitalisation becomes more widespread and value chain partners increasingly embrace online platforms.

Importantly, digitalisation will not replace the human element; instead, dealers will look to invest in upskilling and reskilling their sales personnel to work synergistically with digital tools.

For dealers, particularly, changing the mindset of sales personnel will be crucial as they move to integrate online sales functionality into sales processes and fully leverage omnichannel approaches.

OEMs, meanwhile, will need to support their dealership network by adapting and localising global best practices in sales digitalisation to address the particular needs of the UAE market.

And, finally, as consumers turn towards mobility as a service (MaaS) concepts, stakeholders should actively explore the option of deploying used cars, whether through vehicle leasing or subscription, as part of MaaS solutions.

Vitali Bielski is an associate director and Subhashree Ramarathnam, a senior consultant, Mobility Practice at Frost & Sullivan