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Sales of new vehicles in Saudi Arabia have shown steady growth since the slump precipitated by the 2009 financial crisis. BMI estimates that 2011 will have seen a 7.0% year-on-year (y-o-y) increase in sales in 2011, to a total of 688,883 units. We forecast the market will remain stable throughout the forecast period with growth hovering between 7.5-9.5% a year to the end of the forecast period in 2016, when annual sales should total over 1mn units a year. Throughout the period we forecast that the kingdom will record steady economic growth and vehicle ownership will open up to a wider portion of society.

Saudi Arabia is a leading market for high-value and prestige automobiles and although we expect this trend to continue, it is evident that there is growth at the other end of the new car market. In 2010, sales of new smaller cars increased by 25% and as the benefits of economic growth filter down to people in lower income levels, we expect to see this market to continue to grow. This may be aided by the recent government regulation banning the import of used car parts which came into force on November 26 2011. As used spare parts are taken off the market, the attraction of buying higher value second-hand vehicles is likely to fall and as a result, more people are likely to buy smaller but new cars.

Meanwhile, in what could prove to be one of the seminal moments in the Saudi Arabian auto sector, Azzam Shalabi, the President of the National Industrial Clusters Development Program (NICDP), has announced that Saudi Arabias first automotive manufacturing centre will begin production in 2012.

Japanese auto manufacturer Izuzu Motors, in partnership with the Industrial Property Authority, will begin production on 25,000 Izuzu trucks for the local and regional market. The company plans an investment of SAR500mn (US$133mn) in the plant, which will be a full manufacturing centre rather than a simple assembly line.

There are two other vehicle manufacturing projects, the Gharzal Car Project and the Asilah Car Project, which are also in an advanced stage of development. Both proposals are currently seeking commercial backers to allow them to proceed with vehicle production and Gaharzal has already secured the support and a contribution of 30% of the US$500mn initial capital from Korean Digm Automotive Technology.

NICDP is also planning for the development of component manufacturers to support vehicle production in the kingdom, which will be an important factor in allowing these projects to develop to their full potential. BMI considers that the development of a strong supplier network absolutely crucial if Saudi Arabia is to develop its goal of the establishment of a viable automotive hub.

BMI has long considered Saudi Arabia to be a reliable regional performer in the auto sector. The kingdom ranks second in our Middle East North Africa ratings for the auto industry with the kind of strong and stable domestic demand for automobiles, which is important in emerging markets. The government is keen to develop the auto sector in a move to diversify away from an over reliance in oil and if it can successfully oversee the establishment of a credible vehicle production capacity, Saudi Arabia could be on the road to positioning itself as a regional leader in the auto industry.