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Abu Dhabi, UAESaturday 21 July 2018

Nissan Middle East forecasts flat 2018 on VAT and sluggish economy

Japanese car maker increased market share last year despite challenging conditions, says regional head

The Nissan Patrol. The Japanese firm has gained market share. Christopher Jue / EPA
The Nissan Patrol. The Japanese firm has gained market share. Christopher Jue / EPA

Japanese automaker Nissan forecasts a flat year in 2018 for the Middle East car market, as still-slow economic growth and the introduction of VAT takes its toll on consumption, the company’s regional director said.

Total industry sales across the Middle East dropped 9 per cent year-on-year in 2017, and by 11 per cent in the GCC, according to Nissan.

“Last year was a difficult year for our territory and going forward we believe the market will be flat versus full year 2017,” Juergen Schmitz, managing director of Nissan Middle East, told The National.

“We’ve see a decline in the market for the last three years now, and it’s not only for the automotive industry. There are very few sectors in the Middle East that have not declined due to the macroeconomic environment and low oil prices, which have hit consumer confidence.”

Economic growth in the GCC contracted 0.2 per cent overall last year, although it is expected to rise to 1.9 per cent in 2018, the International Monetary Fund said in a report in April.

Government cuts to fuel subsidies across the Arabian Gulf, as well as the introduction of a 5 per cent VAT in the UAE and Saudi Arabia in January, have also had a negative impact on sales volumes.

“The effect [of VAT] is not immediately positive for consumption – ask any retailer who’s selling something over a certain price level and he will tell you the same story,” Mr Schmitz said.

Nissan last month reported a 22.6 per cent drop in global operating profit for the full year 2017, to $5.25 billion (Dh19.24bn). It registered a 2.6 per cent increase in car sales over the period against a 1.9 per cent rise in sales across the whole industry, measured in total industry volumes (TIV). The company does not disclose net profit, nor does it break down its financial performance by region.

Globally, Nissan projects 2 per cent growth in TIV in 2018, Mr Schmitz told reporters in Dubai on Tuesday. Despite TIV declining last year, Nissan Middle East managed to claw a bigger slice of the regional market, reporting a 10 per cent rise in market share in 2017.

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The company, which markets 19 of its car models in the Middle East including the Leaf, Kicks, Patrol and, from this week, the Pathfinder Midnight Edition following its regional launch on Tuesday, expects cumulative growth in market share of around 15 per cent by 2022, Mr Schmitz told The National.

“It’s harder to predict TIV growth over that period because we have so many rivals and so many different political environments, but in principle we believe the market will slightly grow, assuming no [further] geopolitical issue crops up,” he said.

“We don’t expect the oil price to dramatically change over the next couple of years, and other GCC countries are expected to introduce VAT, which as we’ve seen in the UAE and Saudi Arabia gives you an initial downturn, as people are more cautious.”

Nissan Middle East does not plan to reduce its sales prices in response to the impact of VAT, the managing director said. “We have competition, so we have to watch what [rivals] are doing,” he added.

The key growth markets for Nissan are the UAE, Turkey, India and Pakistan, a new entry for Nissan. It also hopes to expand in Africa, with two announcements planned this year. Saudi Arabia is the largest Middle East market for Nissan, and the company set up a separate unit last year for which Mr Schmitz is not responsible, and therefore declined to comment on its performance.

This week, women were permitted to drive in Saudi Arabia for the first time in its history – a landmark government decision that is expected to lead to a surge in car sales across the kingdom.