This is the fourth part in a series of features examining the impact of Covid-19 on the region's transport and mobility startups
For Saudi Arabia-based automotive marketplace Syarah, June 2020 was a fantastic month. Despite the pandemic, the company closed a bridge round and broke all of its previous sales records as Saudis rushed to buy new cars before the government increased its VAT rate from 5 per cent to 15 per cent.
“There has been a sharp increase in car buying activity before new value-added (VAT) taxes came into effect on 1 July and people wanted to purchase their cars before they can be subject to these taxes,” says Omar Tahboub, deputy chief executive officer at Syarah.
This sudden increase in demand, while short-lived, was a boon for the automotive industry in Saudi Arabia. At the start of the year, it was the mobility sector that attracted a substantial volume of funding in the Middle East and North Africa (Mena). Saudi Arabia’s Public Investment Fund (PIF) invested $35 million in the UAE’s online car trader SellAnyCar.com, while rental platforms Invygo, Telgani, and marketplace Seez and Syarah also raised investment. New business models of sharing and renting were making headway, but overall, the sector was devastated with the lockdown.
Now as lockdown has been lifted and people are moving again, there has been some relief for the mobility sector with interest rising in private car ownership throughout the Middle East, spurred on by the ongoing aversion to public transport, social distancing measures and the still-widely-adopted working from home practice.
For those who can afford it, purchasing a new car has become an attractive proposal to avoid the risk of contracting the coronavirus while overall demand has shifted to more economic cars.
“As people use their own vehicles less, this, in turn, leads to them questioning whether they should hold on to a depreciating asset and continue to pay for things such as insurance, parking,” says Anas Kiblawi, product manager at UAE-based automotive portal YallaMotor, who expects that people will be downgrading to more affordable car brands and those with lower running costs and better fuel efficiency.
While demand for car ownership has increased, it is unlikely to go back to pre-Covid levels anytime soon. The economic uncertainty brought on by the pandemic has made many rethink large financial commitments like that of purchasing a new car.
According to a report from YallaMotor, the current economic uncertainty has resulted in 64.5 per cent of GCC car buyers stalling their decision to purchase a car, while 74 per cent of those surveyed stated that an attractive financial agreement is the main factor when deciding to buy a new vehicle.
In the UAE the supply of new and used cars available for sale online has decreased by 2,500 units (43 per cent) since the introduction of Covid-19 measures, according to a report by UAE-based car aggregator platform Seez.
Antonio Al Asmar, CEO and general manager at UAE-based on-demand fuel delivery platform CAFU said that his company saw a slowdown once lockdown measures were enforced in the country and movement was restricted.“Our business has dropped significantly during Covid-19 however, after a short while, our consumer base increased as people started to get worried about visiting the brick-and-mortar gas stations,” he says.
For CAFU, its growth mostly came from its business-to-business (B2B) segment, specifically the fast-moving consumer goods (FMCG) sector and others providing on-demand delivery services. Companies that work in the logistics sector inside the country have seen their business either increase significantly or remain at pre-Covid levels.“What we saw is that our consumer-to-business (B2C) activity dropped significantly during the early stages of Covid-19 by 70 per cent, while our corporate business segment maintained the same and was even growing, even during the lockdown period, our corporate business was growing at 1-2 per cent every week,” says Al Asmar.
Such aversion to making a long-term financial commitment will help the car rental and subscription platforms thrive in terms of value proposition according to Pultik Ganjoo, co-founder of Dubai-based car subscription Invygo.
“In most economic recessions, the younger population is impacted the most - which results in a new era of frugality as society could end up being less materialistic, with young people prioritising meaningful experiences over material products,” he says.
The demand for car sharing/leasing services has seen an uptick since the beginning of the pandemic, logging an increase from 2 to 5 per cent, said Vilhelm Hedberg, founder of UAE-based motor service provider Ekar during RiseUp’s virtual edition held in August.
According to Global data, the car rental market in the Middle East and Africa was valued at $1.66 billion in 2017, expecting it to grow at a CAGR of 4.3 per cent from 2017 through to 2022.
“[We] were seeing more and more interest in car leasing as lockdown eased. This is because people are worried about being tied down to bigger financial commitments such as owning a car and all additional overheads that come with it,” says Tarek Kabrit, CEO and co-founder of Seez, which also operates in Kuwait and Saudi Arabia.
For Seez, the growth coming from the Saudi leasing market is three times the pace of that in the UAE. From a user perspective, user acquisition was half the price so it was cheaper in Saudi Arabia than it is in the UAE.
“The automotive industry is more digitised in Saudi, they are more used to leasing in the Saudi market despite the fact that there is very little bank financing, which is the opposite in the UAE,” says Kabrit.
Conversely, car-rental platforms that offer short-term rentals are facing far-reaching repercussions because of their reliance on the hard-hit tourism and travel industry.
“Our business in the UAE has been badly impacted due to the Covid-19 crisis and the negative impact it has had and continues to have on the air traffic,” says Ammar Akhtar, CEO and co-founder of Dubai-based Final Rentals, whose main clients are expats that frequently travel in and out of the country, short-term business travelers as well as tourists.
“Since 14 March until recently, we have almost 97 per cent of our locations closed and lost around 80 per cent of our sales,” says Akhtar, who expects that the market will start opening up as soon tourism begins to pick up.
Similarly, Egypt-based FriendyCar, has seen its sales go downhill due to the lockdown and virus-induced travel suspension.
“Like any other mobility-related company, the impact was devastating,” says Abdelrahman Elgamal, CEO and co-founder of peer-to-peer (P2P) car sharing platform FriendyCar. For FriendyCar, Egyptian holiday makers who are primarily living in the GCC constitute a large segment of the company’s user base when it comes to short-term rentals.
The opportunity for FriendyCar now lies primarily in its P2P business model, allowing car owners to rent out their own cars to consumers, but it requires the right licences and regulations in order to operate.
“We went to the UAE but could not sustain there because the peer-to-peer car sharing model is disallowed by the RTA [Road and Transport Authority],” says Elgamal, who plans to also expand into the Saudi Arabian market, which along with the UAE are positioned at the forefront of the short-term rental industry in the Mena region, as the sector is estimated to be valued at $3 billion in these two countries alone.
“Covid-19 has taken its toll on many families’ household income so they started to realise that their assets can be utilised in a much better way where it can become an income-generating asset,” says Mohammed Khashoggi, CEO and co-founder of P2P car-sharing platform ejaro, which is the first platform in Saudi Arabia to acquire a licence to operate as a P2P car-sharing model.
The high prices of new cars as well as the lack of vehicle variety listed in other auto rental platforms have presented an opportunity for ejaro to grow.
“[We] provide a wider selection of vehicles since they are owned by individuals. The key part of our business model is the social impact that it provides. We enable users to create an additional source of income by utilising the already existing vehicles, which ultimately leads to less congestion on the roads and makes for a sustainable ecosystem.”