SEMA News - August 2009

By Linda Spencer

Gateway to the Middle East

“The UAE market holds a large degree of promise as a growth opportunity for SEMA-member companies. There is demand, resources and a wide variety of vehicles that our member companies currently offer parts for,” said Jim Cozzie, SEMA Board of Directors Immediate Past Chairman.

More than 50 personnel from SEMA-member companies as well as association executives visited Dubai recently to explore business opportunities. Many of the companies also exhibited at the sixth edition of the Automechanika Middle East Show, held in Dubai on May 31-June 2. A total of 15,431 visitors attended the three-day event.

Of that number, said organizer Epoc Messe Frankfurt GmbH, 46% were international visitors who had converged on Dubai from 114 countries.

“The United Arab Emirates (UAE) and the Gulf region are very important markets for Evosport, as they represent a growing percentage of our business,” said Simon Atik about his retail and wholesale accessory sales company based in Huntington Beach, California. “It’s also a very exciting time, as the potential for the specialized aftermarket is immense, albeit in its infancy stages. The entire Gulf region is exploding with potential buyers, and there is an overwhelming demand for quality products.”

Bob Scheid of Perry, Ohio-based Fidanza Engineering Corp. was also among the visiting SEMA contingent and agreed that the UAE represents a real opportunity.

“We like to believe that Americans love their cars and this hobby more than anything else,” he said. “I really think we have some competition with what I saw. Not only is there passion, but they have the disposable income to spend. The markets are so similar in that they want good quality parts. The market in Dubai is not only the same, but they are willing to pay much more for quality. In the U.S., we love to customize, but there they want to do whatever it takes to make sure that their car is like no other on the road. If you pull up to a light and see two Corvettes, they will almost certainly be built totally differently. Uniqueness is not a goal; it’s mandatory.”

SEMA Immediate Past Chairman Jim Cozzie noted that SEMA traveled to the region to determine the viability of the market and identify the opportunities as well as hurdles regarding entry to the marketplace for member companies.

SEMA Board of Directors Immediate Past Chairman Jim Cozzie (left) and SEMA CEO and President Chris Kersting answered questions on car modification regulations at a seminar during Automechanika Middle East.

“As part of this assessment, SEMA talked with SEMA members about their dealings in the region, with local companies about the market and trends and with government officials—including U.S., UAE and Dubai-based—to discuss the legal environment in which the specialty market operates,” Cozzie said. “More broadly, we spent the week shoring up our understanding of the key factors influencing the market currently and its short- and medium-term potential. Among the factors we investigated were the current and potential market size including population, the number and type of vehicles on the road and disposable income, the car culture and laws and regulations regarding vehicle modification as well as tariff levels and each country’s laws regarding counterfeit products. Those are some of the most important factors in determining an overseas market’s viability for SEMA members.”

The UAE is a federation of seven emirates, including the capital, Abu Dhabi, as well as Dubai. Founded in 1971, this small but wealthy nation has a population of 4.7 million. The UAE borders Saudi Arabia and Oman and serves as the gateway to the other members of the Gulf Cooperation Council (GCC), which includes the UAE, Saudi Arabia, Kuwait, Bahrain, Qatar and Oman. A significant percentage of products are shipped to Abu Dhabi or Dubai and then re-shipped to other GCC or middle Eastern countries.

The specialty-equipment market is quite new to the UAE and the region. A real passion for everything modified has spurred the growth of world-class distributors and installers, including Chrome and Carbon, Liberty Motor Sports, TAM, Lap57 and Extreme Performance. Well-known international companies are also setting up shop in the UAE. West Coast Customs has a showroom in Dubai, and Yellow Hat—a Japanese-based accessories chain—has signed an agreement to open five shops in the country. See SEMA's list of UAE distributors and installers.

Size of the Market

There are approximately 8.7 million vehicles in the Gulf region, with about 2.6 million vehicles registered in the UAE. The Dubai market represents about 45% of this total and Abu Dhabi accounts for another 30%. Market analyst Auto Strategies International estimates the number of cars in the road in the other GCC countries at 3.6 million in Saudi Arabia; 1.1 million in Kuwait; 352,000 in Qatar; 243,000 in Bahrain; and 793,000 in Oman.

Vehicle Mix

Slime was one of 50 SEMA-member companies exhibiting at the Automechanika Middle East Show recently held in Dubai.

Some quick observations to be noted when driving through Dubai and Abu Dhabi reveal high-end vehicles, lots of SUVs and a great diversity of cars. Said Scheid: “I have traveled a lot. Nowhere have I seen the diversity of vehicles. Ferraris, Porsches, Lambos, Corvettes, EVOs, BMWs, Toyotas—you name it. The laws for importing the cars leave them open to having a diverse mix of vehicles. What a pleasure to just car watch!”

Zlatko Mulabegovic of Top Performance magazine took note of the number of light trucks on the road, commenting that the UAE market is similar to the one in the U.S. but is significantly smaller. It is also heavily influenced by aftermarket trends in the United States, and Mulabegovic estimated that at least 25% of the customized vehicles in the UAE are SUVs or light pickups.

“SUVs dominated alongside foreign compacts like Mitsubishi, Honda and Toyota,” said Mike Robleto of U.S.-based Motor Media.

Mulabegovic identified other top modified vehicles that included the Honda Civic, the Mitsubishi EVO, the Ford Mustang and the Nissan 350Z and Patrol.

Robleto said that one of the highlights of his visit was a trip to Dubai-based TAM Automotive.

“TAM Automotive is an over-the-top impressive tuning shop that modified sport compacts but also a slew of high-end Euros and hot rods like an AC Cobra and a ’60s Corvette Stingray,” he said. “This amazing facility has a four-wheel dyno and maintains two race teams that compete in the local road course championship series. An engine-building room and a bustling crew of mechanics solidified the UAE’s seriousness about aftermarket performance.”

Quality and Brand Awareness

The SEMA delegation visited Dubai-based TAM Automotive. The shop houses a state-of-the-art dyno and is currently working on a dizzying array of vehicles, including sport compacts and American hot rods as well as a host of Japanese and high-end European vehicles.

The UAE is a gateway to the Middle East. Ford, GM and many of the other car manufacturers use the UAE—and Dubai in particular—as their regional headquarters. Specialty-equipment companies are also increasingly looking at the UAE as a launching pad for the region. That type of regional strategy is an important one for Treatment Products, a manufacturer of chemicals, waxes, polishes and other car-care products.

“When business gets more challenging, that is the time to get more aggressive in procuring new customers,” said Jeff Victor of Treatment Products. “Our goal was to sign new distributors in previously untapped markets. Although we do currently sell our products to the major Middle East markets, such as the UAE and Saudi Arabia, there are still many other markets in the region that are clamoring for U.S. products. Markets such as Qatar, Oman, Bahrain and Kuwait are all very receptive to U.S. goods and are good places for U.S. companies to do business.”

Tariff Levels

The UAE has one of the most open economies in the world. Tariff levels are low—up to 5% on manufactured goods—and the liberal use of free-trade zones (which offer 100% foreign ownership and zero taxes throughout the UAE) has further reduced the costs of doing business in the region. The U.S. and UAE governments have begun talks on a tariff-free arrangement between the two countries, and free-trade agreements exist with two other countries in the Gulf region—Bahrain and Oman

Buying Power

With a per-capita income (on a purchasing parity basis) of U.S. $55,000 compared to U.S. $46,000 in the U.S., the UAE offers a significant number of buyers who are in a position to purchase specialty- automotive products—and do. A unique characteristic of the specialty-equipment market in the UAE is its combination of passion and good buying power.

The industry in the UAE started much like it did in the United States. Look at Abdulla Al Zaabi of Extreme Performance. Al Zaabi’s business grew out of his personal interest in drag racing. “The origin of the company was when I used to race my old four-cylinder Mitsubishi Turbo at the drag strip back in 2002. I realized that I couldn’t find a decent shop which could take care of my own performance upgrades. The result is a thriving company which is a leader in modifying SUVs (particularly Jeeps) and sport vehicles.” Abdulla shares the credit for this firm “It’s combining Sheikh Abdulla’s[Sheikh Abdulla Bin Mohammed Bin Butti Al Hamed] vision, my experience in the performance and tuning industry and the guys in the shop.”

Challenges

Drag racing in Umm Al Quwain. (Photo courtesy of Top Performance magazine)

The regulation of vehicle modifications appears to fall into a gray area. There is confusion as to what is or is not legal. This is not surprising, given the newness of the industry. As it has grown, so too has the number of reports of police harassment, particularly if they think an aftermarket part appears to be “too loud.” There is also no consistency when a car goes for a safety inspection, with some inspectors questioning products. A number of consumers and specialty shops talked about safety-inspection station shopping, in which one group of inspectors fails a car but another then approves.

One of the goals for the SEMA trip was to talk to local industry and government leaders about the size of the market, the important role the industry plays in the U.S. and to gain a better understanding about the legal environment in the GCC as well as the UAE. SEMA had fruitful discussions with local industry and government leaders, which afforded the opportunity to discuss the legal environment, markets and trends in both countries.

“We found the UAE and Dubai government officials very welcoming to SEMA’s input as they begin to contemplate a regulatory framework addressing the specialty-equipment industry,” reflected SEMA CEO and President Chris Kersting. “U.S.-type regulations would fit well in the UAE. The country already has developed into a key gateway to the region with its low tariffs, free trade zones and tradition of allowing products which conform to overseas safety and emissions requirements to be sold in the UAE.”

The global economic crisis presents another challenge affecting the UAE. The credit crunch, job layoffs and uncertainties are present in this part of the world, and while the sale of luxury vehicles and the products to accessorize them continues nearly unabated, there has been a slowdown in sales to the non-Emirati buyer. Non-UAE citizens (85% of the population in Dubai) present the greatest potential for growth. According to analyst Business Monitor International (BMI), Emirati households own 2.35 vehicles per family on average. BMI reported that European, North Americans and East Asian expatriate (11%) as well as non-Emirati Arabs (21%) provide market potential. While sales growth has been temporarily dampened by the financial crisis, this presents another niche opportunity for SEMA members.

As in the U.S., education is an important component in growing the UAE market. Greater knowledge among enthusiasts as well as those who install and sell specialty products will improve safety as brand-name quality products coupled with installation by knowledgeable technicians help grow the market. This is an important task of industry said Mohammed Al-Bannai, manager of tuning shop Lap57, noting that the industry should pull together for the common purpose of educating not only the public but also tuners about their products.

“The UAE market holds a large degree of promise as a growth opportunity for SEMA-member companies,” Cozzie said. “There is demand, resources and a wide variety of vehicles that our member companies currently offer parts for. It is evident from observations at the street level that this is a market waiting to be serviced. I have always said that car guys are car guys no matter where one travels in the world, and the Gulf region is no different. There is a passion for all types of vehicles there along with a growing community of racing competitors and a thirst for the ability to accessorize and customize one’s ride. And the timing couldn’t be better for exploring this growing market.”

Concluded SEMA Vice President of Events and Communications Peter MacGillivray: “This market is a tangible example that there are opportunities in the world when the domestic market is down, and it underscores the importance for all of our members to seek out overseas customers.”