Opportunities And Challenges Of The Auto Lease Market In Saudi Arabia

I was recently asked to be a panelist at the 4th Middle East Leasing Summit held in Dubai and participated in a lively debate on the challenges and opportunities in the auto lease market around the region. From a Saudi perspective there are a number of factors which are unique to The Kingdom and these are listed below. Whilst the challenges outweigh the opportunities in the short term, over the medium to long term it will remain the most important market in the region.


  • Traditional business models are under threat and will need to change and evolve due to the challenging external environment. Automotive dealers who have invested in large retail showrooms which incur high overheads, in terms of rentals and staff, will have to rethink their distribution models as car volumes continue to decline. Cost control will be critical in the short term
  • In Saudi Arabia retail car volumes touched 880,000 cars in 2015, but declined to 660,000 in 2016 and witnessed a further 20% drop to 535,000 by the end of 2017
  • After a late pre vat sales rush in December, January 2018 has been one of the toughest months in the industry in The Kingdom
  • Customers are driving a hard bargain as they shop around to seek the best deals
  • The removal of subsidies and rising fuel prices are squeezing consumers’ budgets
  • The collection of receivables will be key and this area will attract more focus and resources within banks and finance companies
  • Portfolio risk management and credit analytics will play an increasingly important role in determining risk appetite within financial institutions
  • The introduction of VAT is a new development
  • Securitization of lease receivables, which has been the traditional mechanism by which finance companies have raised funding for new business, will become more difficult as bank’s tighten their lending criteria
  • IFRS9 which requires banks and finance companies to take provisions for loan and lease receivables up front based on expected credit losses over the life of the loan adds a further new dimension
  • The value of second hand vehicles is reducing
  • The introduction of the expat levy in 2017 has seen many expatriates either leave the country or send their family members home which has further impacted the overall demand for vehicles and the caused different buying behaviors

Online shopping for cars has not yet developed in the Middle East but it won’t be long before you can buy a car from the comfort of your sofa, choose the colour and the interior and have it delivered to your front door. What we are seeing in The Kingdom, as cash becomes tight, is an increasing amount of total business undertaken via credit, either through banks or captive finance companies. Manufacturer or dealer support, in the form of cash incentives, will become increasingly important to move vehicles off the forecourts. Used car sales are on the increase too. Consumers are also purchasing more smaller cars with the average amount to be financed reducing. Bank’s and finance companies will become more sophisticated in their approach to lending relying more on affordability and credit scoring rather than simply relying on the residual value of the car at the end of the contract.


  • Women driving! From 1 June women will be allowed to drive opening up a new segment of the market. Industry veterans expect the take up to be gradual with limiting factors such as the lack of parking facilities being a damper on demand
  • As credit becomes a more important mechanism for car purchase there is the opportunity for finance companies and banks to offer new and innovative products
  • New products, especially in the insurance domain, will be introduced to drive additional revenue for dealers and finance providers. It is likely that the F&I model will be rolled out by more organizations not only to provide the consumer with an improved customer experience but as a necessity to drive additional income
  • Those companies with substantial financial resources will be best placed to take advantage of weaker players so we will expect to see some mergers and acquisitions and franchises moving between dealerships
  • Rewarding good customers who have demonstrated excellent repayment history.

As car dealerships strive to capture sales, better deals for the consumer will emerge with extended warranty, service packages, etc with the aim of providing an overall improved value added proposition. Integrated sales models involving web/ web chat/ call center and social media are becoming more prevalent.

There has never been a better time to get a good deal on a new or used car.