UAE’s car dealers walk the talk with their VAT offers

Indications are these promotions did manage to pull in enough buyers into showrooms

Dubai: Potential buyers are willing to head back into UAE car showrooms … provided the dealership is willing to go the extra mile on takingcare of the VAT costs. That seems to be the prevailing sentiment and dealerships willing to take this up are faster off the track in their 2018 sales push.

Traffic to the showrooms has inched up slightly after a drastic decline in the first few days of 2018. Dealership sources say it is taking longer to close a deal, and buyers are having a lot of think about the options they want in the car and what that could mean to the final price. But the key for dealerships is that potential buyers are making the trip to showrooms. By the looks of it, many are turning up and that the first quarter will not be a complete write-off for the auto retail industry.

“The general observation is that all customers walked in with an understanding that we will bear the VAT as a default,” said Rimoun Hanouch, Group General Manager at Liberty Automobiles Co. and the biggest Cadillac dealer in the region. “This behaviour is probably driven by recent aggressive dealership offers.” (For the wealthy, the additional VAT costs still seem a minor detail, given that Liberty’s most in-demand model in the first two weeks of 2018 was the Cadillac Escalade, which starts north of Dh302,000.) “We believe — as do most of our colleagues in the automotive industry — that the first quarter with VAT will be decisive,” said Hanouch. “It was how we planned for 2018 … I won’t call it a difficult situation for the market, it’s only a slowdown.

“But with any campaign, there’s only up to a point that dealerships can go. We will keep on being flexible with end-of-year promotions, but beyond that it becomes tough. The industry is operating on fairly thin margins.”

For the moment, dealerships across the board have gone out of their way to limit — or even remove in full — the VAT component on a new car purchase in the first weeks of the year. Al-Futtaim Motors has said it is maintaining 2017 price levels on Toyota models for a certain period. Arabian Automobiles Co., the local dealer for Nissan, has offers where a buyer makes the 5 per centVAT payment, but gets free fuel for a year.

Al Ghandi Auto, the Chevrolet and GMC dealer in Dubai and northern emirates, is running the “5 on Us” campaign, which absorbs the 5 per cent VAT, then pads that up with a four-year roadside assistance, three-year warranty and a two-year/40,000 kilometre service contract. Plus a one-year free insurance on select models. Al Tayer Motors is offering a chance to win back the price of a car — of up to Dh150,000 — through a raffle draw on select Ford models.

Meanwhile, some dealership sources say they will do “whatever it takes” to convince people not to put off their next purchase. They say that the VAT element is a one-off event and that requires changes to strategy on when and how long to run promotions. Many of the 2018 models have already arrived at showrooms and more will do so in the weeks ahead.

Dealerships will then have to find ways to sustain their promotional pitch even after the DSF campaigns end. They will also need to keep in mind that all of their imports done after on or after January 1 will bear VAT-related costs. How to manage these costs without upsetting the equation with potential buyers will decide how the market runs from February onwards. In many ways, starting February will be the real crunch period for dealerships.

Hanouch, for one, is an optimist. “I think 2018 it will eventually be a flat year for car sales in the UAE,” he added. “The market was down by less than 15 per cent in 2017, and could have ended up with approximately 320,000 new cars sold.

“It helped that the last couple of months of 2017 performed better (because of pre-VAT buying and for premium cars, demand was a bit more. For the whole of 2017, premium would have been down by about 10 per cent for a final total of 60,000 units. And Cadillac has been growing despite the decline in the premium segment, that’s how we gained in marketshare.”

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VAT IN UAE: Dubai to remain city of gold

Thanks to favourable conditions, new tax won't dim shine of jewellery sector

                                                   

Dubai will continue to shine as the 'city of gold' and its position as a preferred destination for gold and jewellery purchase would not be affected by the implementation of value added tax (VAT), industry experts and jewellery retailers said

However, jewellery sales could witness a modest fall in the short term that would gradually recover as soon as consumers get used to VAT, they said

GCC countries have agreed to collect a five per cent VAT on non-essential luxury goods from January 2018. According to an estimate the implementation of VAT will generate around Dh12 billion in the first year in the UAE

"VAT exists in many countries so most people, especially tourists, are used to it. VAT is relatively less here compared to many other countries so the gold price in the UAE will remain competitive. The UAE jewellery retail is not just about the price, it is more about quality, consumer trust and design. These factors still remain the same. So in the long term, the market will adjust itself," argued Karim Merchant, group CEO and managing director of Pure Gold Group

Analysts also noted that a surge in jewellery sales is expected in the last quarter with the advent of festival season and 'pre-VAT' buying spree

"We will probably see a spike in gold sales in the fourth quarter of 2017, followed by a slowdown in the first part of 2018 as the tax is introduced. In the long-term, however, not much of an impact is anticipated on jewellery sales," reasoned Yaser AbuShaban, member of CFA Society Emirates

Jewellers' strategies

Jewellery retailers are chalking out plans and strategies to remain attractive for the customers

Arjun Dhanak, director of Kanz Jewellers, said that he is considering measures to reduce costs

"Jewellery is not just a commodity - it's a luxury good. We will expand our manufacturing operations here in the UAE to bring costs down and at the same time we will bring a unique product offering to our customers. Our customers can therefore expect to get the best in terms of value and designs," Dhanak said

He is also planning to share the burden of VAT to retain customers' attraction. However, he said that VAT has to be added on making charges to avoid any price shock for customers during the final stages of the billing process

Echoing the sentiment, Merchant said: "We will focus on the quality of our products, unique designs, customer service, loyalty programmes and retail experience, especially the use of technology in our stores to enhance the shopping experience

"We often offer zero making charges during special occasions and our making charges are very competitive so it will help customers shopping with us," Merchant explained

On a contrary note, Chirag Vora, managing director of Bafleh Jewellery, said it would be impossible for any jeweller to share or compensate consumers with the VAT amount. "Lowering the making charges will not even be an option because the cost will be further rising now with new laws coming in place," he argued

"No one can formulate any strategy to attract individual customer based on VAT because it's a federal law and everyone will have to comply with it. However, one will have to revise marketing strategies in order to keep a competitive edge of Dubai as the city of gold over the world," Vora said

Talking about Malabar Group's strategy, group executive director Abdul Salam K.P. said that he is waiting for more clarity on the method of calculations for VAT in the jewellery industry

"We currently operate in other countries where there is taxation, hence we are not new to the concept. However, we will wait for clarity regarding VAT and plan accordingly," he said

?EVER WONDERED WHY DUBAI GOLD IS POPULAR

Dubai gold is famous for its quality, purity, standard, variety and competitive pricing. For that reason, a large number of tourists and expatriates living in the UAE prefer to buy gold in the emirate

Ravi Shankar, senior analyst for investment research and analytics at Aranca, said that Dubai is a renowned location for gold and jewellery and has always been strong in terms of sales

"Tourists purchase gold in Dubai not only because of pricing but also because of the quality and wide range of varieties. They might get back their VAT at the time of departure or exit from the UAE," he said

Karim Merchant, group CEO and managing director of Pure Gold Group, is confident that prices will remain competitive in the UAE

"We do not expect customers of any nationality to reduce purchases because of VAT as prices in UAE will remain competitive plus let's not forget the peace of mind that buying from UAE ensures, the customer can rest assured he is buying a genuine product. Also, the variety of designs available in the UAE is second to none," Merchant said

"Dubai will continue to offer tourists a variety of gold designs at a reasonable mark-up for workmanship relative to other markets such as Europe and Asia," Yaser AbuShaban, member of CFA Society Emirates, said

"Tourists arriving from these geographies also have VAT imposed in their own countries on jewellery purchases, often at a rate higher than five per cent, so in that regard Dubai should remain competitive even after the imposition of VAT"

Abdul Salam K.P., group executive director of Malabar Group, said the Indian community in particular and other sub-continent nations in general will continue to prefer Dubai's gold

"The gold jewellery industry in the UAE is much cheaper. India has 10 per cent custom duty plus three per cent GST on gold jewellery," he said

Globally, an international consumer pays VAT at shops and collects a refund on the way back home

"So far the law has not mentioned any such refund applications. As long as there is a refund policy in place the Dubai gold prices will be cheaper than the local prices back home," Chirag Vora, managing director of Bafleh Jewellery, said