Outlook for the Kuwait auto sector is fairly dim

July 31, 2009 - PRLog -- Kuwait has a high GDP per capita, but the market appears to be well past its growth years. Nearly half of its population is comprised of non-nationals, and an expected exodus amid the economic downturn is likely to further pressure growth in passenger sales.

Like many of its neighbours in the Middle East, Kuwait has benefited from the oil boom years. It boasts a high standard of living, creating a market for luxury vehicles. But the country faces the challenges of an economy reliant on oil exports at a time when commodity prices have fallen sharply from their record highs.

Efforts to push through economic reforms have met resistance and the country is battling political deadlock. The Cabinet resigned in March after conflicting with parliament. The political crisis is delaying key investment projects and economic reforms, as well as the passage of measures designed to help Kuwait weather the global economic crisis. The ruler of Kuwait, Sheikh Sabah al-Ahmad al-Sabah, reappointed his nephew as prime minister in May, which suggests tensions are unlikely to be resolved in the near future.

BMI believes that the outlook for the Kuwait auto sector is fairly dim. Kuwait lacks the potential for rapid growth that some of its regional rivals offer. We expect passenger sales to steadily decline in 2009 and the following years. Kuwaiti investment firms have bought substantial stakes in autos companies, but these investments have not resulted in the establishment of production facilities in the country and may be at risk amid the economic downturn.

Kuwait's Investment Dar, for instance, has fallen on some hard times amid the credit crisis. That has brewed speculation that the company may be forced to unload part or all of its 50% stake in British luxury carmaker Aston Martin Lagonda. In May, however, Investment Dar said it plans to hold on to the sports car manufacturer, the Associated Press (AP) has reported.

Kuwait is also a shareholder in German autos group Daimler, although it is on the way to losing its position as the biggest stakeholder in the manufacturer. Aabar Investments, an Abu Dhabi investment fund, bought a 9.1% stake in the group in March. Once the deal is finalised, Aabar will become the firm's largest shareholder under the EUR1.95bn ($2US.66bn) deal, passing the Kuwait Investment Authority, which will have its share reduced from 7.6% to 6.9%. Aabar Investments is owned by the International Petroleum Investment Company (IPIC), which in turn is owned by the Abu Dhabi government.

Kuwait appears to have reached saturation point, with the market now stagnating. Performance varies across all segments, however. While the country's population is small, this could rise over the forecast period if another wave of expatriate workers arrive as the global economy recovers.

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