Sales of new cars slowed down in the UAE during the first quarter of 2018 following the introduction of five percent value-added tax (VAT) in January. However, industry executives are hopeful of reversing the trend and said sales will pick up in the second half of the year.

According to automobile distributors in the UAE, new vehicles sales dropped by 10 to 30 percent (depending on the brand) in the first quarter of 2018 due to strong buying in the last quarter of 2017 by nationals and residents prior to implementation of the consumption tax.

Industry executives are expected to post single-digit growth in new car sales this year due to strong appetite from buyers and introduction of new models in the market. They were of the view that VAT had a one-off initial impact in the first quarter and now both buyers and sellers treat it as an essential part of the deal.

Axel Dreyer, general manager, Galadari Automobiles Co, distributor of Mazda vehicles in the UAE, agreed that the anticipated drop in volume in the first quarter has become a reality as the fourth quarter of 2017 sales was above expectations due to pre-VAT buying. Hence, the volume in the following month was less.

“I’m confident that the great offers in the holy month of Ramadan from all brands will stimulate the market again and attract a lot of new car buyers,” Dreyer told Khaleej Times.
To a question, he said sales of new and pre-owned vehicles were impacted by VAT as buyers have preponed the purchases. For price sensitive pre-owned car customers, it is difficult to digest that they have to pay 5 percent extra on the selling price, although the car is 2-3 years old.

“I believe after more than 4 months, the customers are familiar with VAT impact on their purchases. At a certain stage, the customer has to decide what is more economical to use the old car with added repair costs or a new car with service package and less running costs,” Dreyer said.