By Santiago Castillo and Arvind CJ

Automotive industry globally is undergoing an unprecedent transformation across the value chain led by the megatrends around new mobility, autonomous, digitalization and electrification (MADE). Automotive distribution is also getting significantly impacted by many of these trends. Through this study, we are deep diving into the various new business models and are also highlighting the key considerations and emerging opportunities for automotive distributors in the Middle East region. For example, end to end online sale of cars can be a new reality – According to data, 96% of prospective auto buyers in the UAE and Saudi Arabia initiate their purchase journey online, leveraging the internet to research and explore their new car.

In this study, we are focusing on 5 key automotive distribution trends to derive considerations and implication for automotive distributors and dealers in the region. These trends include:

• Digital journey of car purchase
• Formalization of used car channels and business model innovations
• Subscription business model
• Vehicle electrification
• Increasing significance of value-added services

MADE (Mobility, Autonomous, Digitalization and Electrification) trends are defining the key automotive distribution trends in the Middle East region

Buying a car in the Middle East in the era of digital everything

• High internet penetration in the region (~96% in key middle east markets such as the UAE and Saudi Arabia) is driving the adoption of digital platforms for car purchase
• >90% of prospective auto buyers in UAE and Saudi Arabia (KSA) initiate their purchase journey online with internet-based search for exploring their new cars
• The way forward for the Middle Eastern distributors is to create an effective omnichannel strategy leveraging customer data – This could include optimizing offline presence to experience centers or pop-up stores

Formalization of used car channels and business model innovations

• Middle East region experiences relatively higher level of used car transactions. For example, 800k+ used cars were sold in UAE in 2019, indicating 3.5:1 used to new car sales ratio

• The market has witnessed entry of many new players across online-focused platform, while traditional dealers are also increasingly focusing on used car business through dedicated arms

• Going forward, we expect rise in used car sale through formalized channels as well as higher penetration of certified pre-owned (CPO) programs (currently 60-70% penetration among leading new car dealers in UAE)

Subscriptions for the automotive industry

• There is a shift in consumer preference towards shared economy. As per our ADR study, ~65% of people surveyed globally are already very familiar with the new mobility concepts
• Car subscription services are on a rise and are being offered through various asset-heavy and asset-light business models
• In the Middle East region, MOOV, ekar, selfdrive.ae are some of the examples of players offering car subscription. Future focus of the players could be towards driving profitability through better end of life management and stronger OEM collaborations for customized products

Electrification and value-added services

• The key markets in Middle East region are expected to witness significant electric vehicle (EV) penetration – 40-75% EV penetration in new car sales expected by 2035 for UAE and KSA
• Distributors will mainly be impacted due to direct sales approach by new-age EV OEMs and reduced aftersales volume from EVs (EVs require ~50% less aftersales services than ICE vehicle)
• In the era of electrification and shared mobility, alternate sources of revenue through value added services are becoming more relevant for car dealers. These include EV battery/ charging solutions, connectivity solutions and financial services.

Trends described in our study are expected to have a multifold impact on the business of dealers and distributors in the region. Concerted efforts are needed to ensure financial sustenance and growth. Diversification into new products across the automotive value chain, adoption of new business models and higher focus on non-traditional sources of revenue could be the potential way forward.