Saudi Arabia’s used cars sales market is poised to take-off

18 October 2022 7 min. read

Glasgow Research & Consulting has conducted an in-depth strategic assessment of Saudi Arabia’s used passenger cars market. Vishal Pandey, managing partner of the firm, walks through some of the report’s key findings.

Saudi Arabia’s used car and aftermarket segments have experienced a renewed demand in the recent times. The used car market is expected to grow at a CAGR between 5.5% to 6.3% during the period 2019 to 2025. The market is forecasted to generate a revenue of $28.7 billion by 2025.

There has been a 65% decline in the sales of new cars in 2020 due to the complete lockdown owing to Covid-19. This dip in the sales of new cars continued for more than a year. As the Government imposed restrictions on movements and the economy received a setback, naturally, footfalls in car showrooms dipped.

Saudi Arabia’s used cars sales market is poised to take-off

However, as the virus continued to spread, there was a shift towards owning private automobiles. This gave rise to the used car market as people started looking for affordable cars for daily commute and traveling long distances. Consumers highly value less-aged cars and popular brands with good resale value.

Factors influencing the surge of used cars

Although, to a great extent, the Covid-19 pandemic is responsible for the surge in the used car market, other financial and economic factors have played their part in accelerating the growth. To counter the financial and economic impact of Covid-19, Saudi Arabia hiked its VAT from 5% to 15%, effective on 1st July 2020. The hike in the VAT implied an inevitable price increase for new automobiles.

Owing to the lockdown, many customers had postponed their decisions of purchasing new automobiles. This decision got further spurred by the announcement of the VAT hike. It has given the necessary impetus to the used car market, which is forecasted to see uninterrupted growth in the coming years. The consumers interested in buying a new car traded their existing car before the price hike during the pre-implementation of the VAT phase. The result: surplus sales of used cars.

Almost 50% of the population in Saudi Arabia is aged 30 years or younger. With lower incomes at their disposables, the youth population prefer used cars to new ones.

Another big customer segment of used car buyers are expats. Often many expats are on short duration contracts with their employers and prefer purchasing a used car rather than shelling out a significant amount for a brand-new one. As a result, the working professionals and expats constitute the major population of used-car buyers.

With domestic and international travel freeze among the expatriate population, there was an enormous supply of used cars from rental companies and expats who left for their home countries sold their cars at low prices. As these cars made their way into the market, the market price for used cars went down for a brief period.

On the back of these two developments, the used car market saw a surge as a used car seemed like the most affordable option to own a private vehicle during and post-pandemic.

Online used car market

In Saudi Arabia, the residents’ dependence on personal cars has always been high. In their opinion, owning a car is important now for safety and hygiene reasons owing to the pandemic.

The growth in online platforms to buy and sell used cars has also played its part in incremental increase towards sales of pre-owned cars. To meet the challenge of third-party online channels, many authorized dealerships have increased their online presence. Customers can now have 100% end-to-end transactions without visiting showrooms and at their convenience of sitting at home.

According to research on online behaviour, almost 6 out of 10 car shoppers are willing to consider purchasing a vehicle online.

Major independent dealers are leading the way in the used car market, holding a share of 16% of all transactions. Most of these dealers have opened up digital marketplaces to purchase and sell used cars. Digital marketplaces for vehicles like Carzaty, Syara, DubiCars, Motory, and are prominent players in the used car market.

Meanwhile, in comparison to purchasing a car, more shoppers are open to using online websites to sell their cars. There are several online platforms that allow consumers to sell and purchase second-hand vehicles on their own.

To give consumers an optimal ‘experience’, online platforms are using the latest technologies. They are implementing a 360 degrees view of the car purchasing/sale process, supported by a seamless journey. The growth in online maturity has helped pave the way for the online used car market.

Market trends in purchasing used cars

In the current situation, customers have postponed the purchase of new car until there is more clarity in the near future. As a result, close to 50% of the buyers have expressed a strong desire to purchase high-quality used cars at a reasonable price. This seems like the most rational decision as consumers are financially vigilant and are looking for affordable vehicle options.

In 2019, almost 20% of the vehicles on road were sold in the used car market. In the next five years, this ratio is likely to increase in favour of used vehicles. Online players will take advantage of this and provide good value for money. As this will lead to expansion of used cars in the market, consumers looking to purchase a car can secure a good deal on these vehicles.

The perception among used car dealers is that Saudis replace their cars every 2 to 4 years, while most of the expatriates change their cars after 4 years an average. However, given the current pandemic scenario, younger Saudis entering the workforce and women being allowed to drive, Saudis are also likely to retain their cars longer and the average age of most second-hand sale is likely to move towards 5 to 6 years.

Generally, new cars of Japanese brands are sold after 4 to 6 years of ownership, compared to American and European models which are sold after 2 to 4 years.

The resale value of Japanese cars (especially Toyota) is higher than European and American cars, as the market deems that Japanese cars have better performance in Saudi conditions, relatively low cost of ownership, better mileage, and easy availability of spares, and also lower price of spares.

New opportunities in the used car market

With the surge of used car market, the after component and accessories market is rapidly expanding. Used cars are more likely to require a faster part replacement or failure of other automotive components.

Rising awareness among vehicle drivers for boosting vehicle performance and efficiency in terms of looks, speed, and safety is also contributing to the market growth of the aftermarket component and accessories.

Moreover, add-on services on used cars are driving the growth of the used car market. As automotive groups launch new features, existing car owners are inclined to upgrade their cars with the latest features.

Dealers are refining their business models to tap into the growing used car market. Dealers are assuring aftersales assurance and servicing to increase consumers’ confidence in used cars. The growing number of retailers providing automotive aftermarket services, both online and in-store, is expected to expand in the coming years, strengthening the industry.

This aftermarket component demand can also create immense potential for OEMs. By entering the used car business, OEMs can open up alternative revenue streams, and also extend their client relationship and brand proposition. OEMs can for instance introduce value-added offers, vehicle certification, and pre plus post purchase inspections.

Vehicle certification is an important factor in building consumer trust in the used car market. Buyers have shown keen interest in purchasing certified used cars. Many independent automobile dealers provide certifications for pre-owned cars with detailed inspection reports available for consumers.

As the used car industry grows its maturity, more financing options will enter the landscape. The number of financial instruments for purchasing second-hand cars is forecasted to grow.