VZCZCXRO9460
PP RUEHDE RUEHDH RUEHDIR
DE RUEHRH #0462 0841339
ZNR UUUUU ZZH
P 251339Z MAR 09
FM AMEMBASSY RIYADH
TO RUEHC/SECSTATE WASHDC PRIORITY 0422
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 3049
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE

UNCLAS RIYADH 000462 
 
SIPDIS 
 
STATE FOR NEA/ARP AND EEB/TTP/MTA BRIAN NAFZIGER 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD PREL WTO SA
SUBJECT: SAUDI ARABIA'S AUTOMOBILE SALES SLOW DOWN 
 
REF: STATE 4753 
 
¶1. (U) Key points and comment: 
 
-- The "boycott" of local car dealers by Saudi 
   consumers, launched in late 2008, continues. 
 
-- Saudi consumers are relying more on a market 
   of second hand cars from Dubai. 
 
Comment:  The grass roots campaign against "greedy car dealers" and 
criticism of the Ministry of Commerce are symptoms of a general 
dissatisfaction over the increase in the cost of living, which 
official statistics do not capture fully.  Growing uncertainty about 
the global economy and a sense that the car dealers and government 
authorities are in cahoots exacerbate the dissatisfaction.  End 
comment. 
 
It's a Boycott 
-------------- 
 
¶2. (U) In late 2008, Saudi consumers launched an extensive 
internet-based campaign entitled "let it rust" to boycott local car 
dealers.  Since Saudi Arabia does not manufacture cars locally, 
American and Japanese cars constitute the bulk of the Saudi 
automotive industry.  The lack of auto financing and news of steep 
declines in Ford, GM, and Chrysler sales in the U.S. raised Saudi 
consumers' expectations that American car prices will drop by at 
least 40% on the local market.  However, car dealers continued 
toward the end of 2008 to offer no reduction in retail prices; a 
policy they believed would prevent the market from going into a 
steep decline. 
 
Tough Dealers, Tougher Consumers 
-------------------------------- 
 
¶3. (U) The boycott campaign gained momentum in December 2008.  There 
was much public criticism of the Ministry of Commerce and Industry 
for failing to "reign in greedy car dealers," who, in the public's 
eye, coordinated efforts to manipulate the market in direction 
contrary to global trends.  In spite of local dealers' efforts to 
fight the campaign and keep sales from plummeting, recent public 
reports quote sources in the car industry as saying that Saudi car 
sales dropped by around 80 percent from November to January.  They 
attributed this acute and unprecedented decrease to the current 
global recession. 
 
Saudi Consumer Patterns 
----------------------- 
 
¶4. (U) In spite of it being the largest market in the Gulf, the 
Saudi automotive market has tended to grow at a far slower rate than 
neighboring Gulf states.  Saudi consumers do not generally take out 
car loans.  Most Saudi and expatriate workers produce salary 
statements from their employers, which allow them to place a down 
payment on a car and pay the rest in monthly installments over 2-3 
years.  Local economists believe that this tendency to favor cash 
purchases, along with continued expectation that a reduction in 
prices is inevitable, has encouraged most consumers to abstain from 
near-term purchases. 
 
Other Alternatives 
------------------ 
 
¶5. (U) A Saudi British Bank economic report published in February 
predicted that the Saudi car market would face bitter competition 
from the second hand car market and unofficial importers.  As a 
result of the credit crisis, a growing number of expatriates have 
been departing Dubai, leaving behind their unpaid for properties and 
vehicles.  We have heard numerous reports that a large number of 
unofficial importers are purchasing hardly used, second hand cars 
from Dubai at highly attractive prices.  Saudi Arabia also tends to 
have more lower-cost cars than neighboring Gulf states.  With more 
Saudis and expatriates holding onto their old cars and a growing 
second hand car market, the car spare part market is booming. 
Recent reports indicate a 35 percent hike in car spare parts. 
 
FRAKER