Car dealers and banks are pushing cheap financing deals in a bid to drum up business after slow vehicle sales in the first quarter of the year.
Some of the major dealerships have teamed up with banks to offer financing rates lower than the average for the past year, and they are also throwing in enticing extras such as free insurance and extended warranties.
Al-Futtaim Motors was offering customers initial loans at 1.99 per cent interest for many of its Toyota models in the first quarter, below the past year's average market rate, which analysts say ranged between 3 and 7 per cent.
Arabian Automobiles, the exclusive dealer in Dubai and the Northern Emirates for Nissan, Renault and Infiniti, is offering zero per cent interest on the Nissan Sunny to encourage customers to buy at the budget end of the market.
"The reports we are getting are that [dealerships] had a very quiet start to the year," said Bill Carter, the valuations manager at Autodata Middle East, an independent vehicle valuation company. "Consequently, the banks and dealerships are starting to increase the numbers of deals they are making. It's a quiet start to the year and obviously that's why we are getting low rates of finance."
Analysts said overall sales in the UAE were up only slightly on the first quarter of last year, but they also said that was a tough comparison because sales in the first three months of last year had been especially strong. No independently verified information is collated in the UAE to give exact figures on cars sales.
But dealerships said they began to experience slower sales growth in the second quarter of last year, after the March 11 earthquake and tsunami in Japan, which limited the supply of vehicle components globally.
In the UAE, the Central Bank also changed car financing rules last May, enforcing a mandatory 20 per cent deposit on all car purchases in a bid to prevent buyers going too deep into debt.
"Talking to the retail banks, the key issue is that borrowers have to put down at least a 20 per cent deposit due to new Central Bank rules. That really affected the car financing business. Banks can now only finance 80 per cent of the asset," said Mahin Dissanayake, a banking analyst at Fitch Ratings. "Some car dealers are obviously trying to boost sales by offering low rates."
He said some banks were not keen on the car market overall, because it was staff intensive, competition was high and customers were more likely to shop around for bargains.
Felix Welch, the sales and marketing director at Arabian Automobiles, said banks and dealerships were planning to offer better rates on cars.
"It's coming from both ends. The banks are increasingly looking to do deals and offers. They are all trying to secure as much business as possible," he said.
Arabian Automobiles has teamed up with Emirates Islamic Bank to offer the zero per cent finance deal. Mr Welch said he believed the overall market had grown steadily, albeit slowly, in the first few months of the year and that Arabian Automobiles had sold 10 per cent more cars in the first quarter of this year than in the same period last year.
He said that level of growth was above that of the overall market.
About 75 per cent of cars the company sells are bought through financing deals.
Arabian Automobiles said it sold 9,000 Nissan cars in the first three months of this year.
"Banks are looking to offer short-term incentive options," said Ashwani Shiv, the divisional manager at Omeir Bin Youssef & Sons, which distributes Peugeot in Abu Dhabi.
He said the dealer had sold about the same number of cars in the first quarter of this year as in the first half of last year. But as a brand with a small market in the Emirates, Peugeot's growth is from a very low base.
"Most of the bank deals are being supported by a car dealer," said Mr Shiv.
