This report first appeared in Gulf Marketing Review's November 2008 issue.

Background

Cars can almost be looked at as a necessity in the UAE with public transportation systems still in the works to alleviate the congested buses and substitute the expensive taxis. In the midst of global inflation, reaching 11.1% in 2007 in the UAE, car purchase decisions are affected.

Car sales in the UAE grew 37% year-on-year in the H1 of 2008. This increase in sales despite inflation can be justified with three main components; the necessity of having a car, banks’ involvement in providing the necessary financing and a dynamic population growth.

Automotive financing is one of the profitable segments for banks, as its revenues constitute approximately 25% of all retail banking revenue. With abundance in demand, banks begin competing heavily for financing cars for clients. Demand is at its peak at the first quarter of each year as it coincides with employees receiving their bonuses and are in better financial positions. Banks expect that demand will continue to increase as agencies will soon unveil the 2009 models.

Perhaps another factor that enabled the automotive sector to continue to thrive is the spread of Islamic banks, which provide competitive prices for their financing offers.

Media Coverage

Six car companies were evaluated for the sake of this analysis. Three of the 6 car companies represent luxury cars (BMW, Mercedes and Lexus) while the 3 others represent the compact and economy cars (Renault, Honda and Mazda).

Messages

BMW penetrated a great deal of messages to the media with topics ranging from its sponsorships, promotions, reviews, profits growth, new concepts, and announcing new models.

Mercedes’ amount of coverage came 3rd after BMW and Honda. Its coverage consisted of messages on its appointments, profits growth, increased sales, CSR initiatives, deals, improvements and reviews.

Lexus, ranking 5th in terms of amount of coverage penetrated messages on it being awarded, its deals, promotions, profits growth, sponsorships and launching new showrooms.

Honda, ranked 2nd, put out messages on it being awarded, its deals, expansion, profits growth and new products. The messages were also on it being one of the most popular cars rented.

Mazda, ranking last, had messages on its sponsorship, reviews, developing advanced stop-and-go system and on it launching new products. Its coverage had its fair share of negative coverage, such as on it ranking worst in terms of CO2 cut efficiency and reducing output.

Finally, Renault penetrated messages on its deals, profits growth, new products, and ranking high in terms of CO2 cut efficiency. It also included messages on a strike in France due to its job cuts.

Facets Of Coverage

The majority of the coverage came out of the UAE market, equaling almost 10 folds of that of the Saudi market. BMW ranked 1st in terms of amount of coverage, AVE, impressions and coverage size in both markets. Mercedes came 2nd in terms of AVE, while Honda came 2nd in terms of amount of coverage, impressions and coverage size.

Renault came in the 4th position in terms of amount of coverage, coverage size, impressions and coverage size in the UAE market, while Lexus came 4th in all these categories in the Saudi market. Mazda came last in all markets under all the categories.

Penetrations

BMW had an astounding 17 feature reports, followed by 11 from Mercedes, 7 for Honda, 3 for Lexus, 2 for Mazda and 1 for Renault. BMW, Mercedes and Honda were also the only 3 to have coverage expressing the opinion of editors or editorial boards. As would be expected, English coverage is greater than Arabic for all 6 car companies. However, the ratios greatly varied. While BMW had an English:Arabic ratio of 1.55:1, Mercedes 1.52:1, Lexus 2.1:1, Honda had a ratio of 3.25:1, Renault 5:1 and finally Mazda with 8.33:1.

Publication genres for the 6 cars ranked ‘General / Politics’ first, followed by ‘Motoring’, ‘Business’ and ‘Lifestyle & General Interest’ genres in terms of amount of coverage.

Newspaper coverage outnumbered that of magazine and website coverage for the 6 car companies with the exception of Mercedes, which had greater magazine coverage. Magazines generally came 2nd, while websites came last. However, it is worthy to note that Renault had a substantially greater ratio of website coverage relative to the other 5 car companies.

Content Analysis

BMW had the greatest amount of manifest (direct) messages, followed by Mercedes, Renault, Honda, Lexus and finally Mazda. In terms of percentage of manifest mentions, Renault came in the lead, followed by Mercedes and Mazda. Honda also had the greatest percentage of latent (indirect) mentions, followed by BMW and Mazda.

Renault came first in terms of percentage of PR Influence (percentage of press releases issued by the respective company in relation to the overall coverage) with 75%, followed by Lexus with 64.5%, Mazda with 60.7%, Mercedes with 56.2%, BMW with 54.4% and Honda with 50%. A pattern stands out revealing that luxury cars get talked about without the influence of PR, which can explain the relatively low PR Influence percentages of BMW and Mercedes.

While, Lexus and Honda received the highest percentage of positive reputation drivers, they also received negative reputation drivers. BMW and Mercedes were the only car companies that did not receive negative reputation drivers.

Survey Findings

A survey was conducted in the UAE and Saudi markets. Both sample pools consisted of 18 year olds and above, divided by gender, age and nationality. The UAE sample size was 507 respondents while the Saudi sample size was 898. They were asked to indicate to what extent they agree with the following statement about inflation – ‘Inflation has a negative impact on my car purchase decision’. 0= I do not know | 1= I completely disagree | 2= I disagree | 3= Neutral | 4= I agree | 5= I completely disagree.

Gender and Nationality does not seem to play a major role in the Saudi market. The only visible pattern is with age. The greater the age, the more affected they are by inflation. Saudis seem to be slightly more affected with inflation in terms of their car purchase decisions than Arab Expats are in Saudi Arabia.

There were no clear patterns in terms of gender, age or nationality in the UAE market. However, 2 groups were highlighted; 25-34 year old seem to be the most affected by inflation. This can be explained as an age where they begin their careers and they are not as financially capable as their older and more established counterparts nor their younger and sponsored counterparts. 65% of Indian respondents expressed that they are affected by inflation in terms of their car purchase decisions, making them the most affected nationality group.

Conclusion

60.5% of all respondents in the UAE and 58% in Saudi express that their car purchase decision are impacted by inflation. One would expect that such a large percentage would lead to a decrease in car sales or in particular luxury car sales, yet sales continue to grow.

Car companies continue to sponsor events, promote their products and roll in the profits. Luxury cars too experienced an increase in sales and profits, while banks enjoy the benefits of the increase.

Luxury cars continue to increase its sales for two primary reasons; the region is flush with cash and the well-offs in the region are not as affected by inflation and the general global economic downturn as is the cast in the west.

Compact and economy cars continue to increase its sales due to the growing dynamic population in the region as well as the availability of competitive prices for car financing via the multitude of competing banks. As long as the population continues to grow and remain dynamic, inflation will not negatively affect sales growth of cars.