40% jump in car purchase enquiries after UAE rains, says Al Futtaim Automotive

It is exactly a week ago when the first batch of torrential showers hit the UAE. Record rainfall, followed by flooding across the seven emirates, has left its mark on residents and businesses alike.

Seven days on, there are a multitude of questions around loss and damage of assets, as well as infrastructure that needs to be repaired.

Among the most visible damages in the storm’s aftermath are the cars and buses that littered highways and streets of Dubai and Sharjah. Initial estimates pegged the number of vehicles that were damaged by the floods at 10,000 but this could be much higher, according to an insurance executive who spoke to Dubai Eye 103.8.

The actual numbers will only be confirmed in four to six weeks, says Carlos Montenegro, managing director, Fleet and Pre owned division at Al Futtaim Automotive. He calls the current period a “holding pattern” as insurers assess the damage and car companies undertake repairs.

Speaking to Gulf Business, Montenegro provided insights into the impact of the storm on the automotive market, especially the pre-owned car segment.

From possible changes in car preferences to a direct impact on sales numbers, the trends are only just firming up, he said, as the city takes stock after the April 16 floods.

He explained that Al Futtaim Automotive sites had to be closed owing to operational challenges such as heavy rains. This was followed by road blockages.

He revealed that the Al Futtaim fleets and inventory did not suffer any damages because of the proactive measures implemented by their organisation to mitigate risks posed by the adverse weather conditions. He said these measures included “relocating vehicles to secure indoor facilities prior to rainfall alerts.”

“The company successfully averted any significant damage to inventory,” he told Gulf Business.

Impact on car sales and industry dynamics

Since reopening after the floods, these sites at Al Futtaim have seen a 40 per cent month on month increase in car enquiries, particularly in sports utility vehicles (SUVs) and large 4×4 vehicles, reveals Montenegro.

“Requests for information and bookings for vehicles such as the Toyota’s Land Cruiser, FJ, Prado, and Jeep Wranglers have spiked by approximately 40 per cent month-on-month. These enquiries range from information to bookings, timelines and more.”

Al Futtaim Automotive is the largest retailer of pre owned cars in the UAE, and sold over 25,000 used vehicles in 2023, according to numbers it released earlier this year.

The Al Futtaim executive attributes the surge in enquiries to customers’ uncertainties regarding the status of their damaged vehicles and their readiness to explore alternative options. However, he adds the initial trends will take time to firm up as insurers take time to assess damage and issue the decisions while simultaneously auto manufacturers and service centres do their best to make cars road-worth again.

He believes the “full impact of the weather event will only be evident in about two to five weeks time.”

He says his experience tells him “the industry-wide trend of SUV preference which offer more ground-clearance combined with more carriage capacity will only become stronger as passenger vehicles while more budget friendly seem to be more vulnerable to floods.”

Sales figures from 2023 for Al Futtaim Automotive’s used cars had SUVs dominate the segment at 48 per cent sales, followed by sedans at 29 per cent. Among the brands, Toyota and Honda ranked first in terms of residual value (the value that cars hold after a significant period of usage), with Prado, Yaris, and RAV4 models being the most in demand.

While this trend is currently more pronounced in the pre-owned car market due to affordability considerations, Montenegro said he anticipates a similar shift in preferences within the new car segment.

While acknowledging potential environmental considerations associated with SUVs, he emphasised the individual benefits and high residual value offered by these vehicles.

To go EV or not to go EV is the question

As of 2023, electric vehicles (EVs) made up 1 per cent of the car market in the UAE, according to government data. Dubai had over 25,000 EVs on the roads last year, as the country undertakes an energy transition to net zero.

So how did these cars fare in the recent floods and are they more vulnerable? Montenegro explains, like gasoline-powered vehicles, “the build and manufacturer design and quality determine a vehicle’s resilience to flooding”, suggesting that certain models may be better equipped to withstand such challenges.

“It’s the same as the petrol cars, there are some cars, let’s say, more suitable than others, or there are some manufacturers that build them more robustly than others.”

“Similarly, with EVs, you have a range available. A really good EV can perform very well in any condition, and contrary to common perception, in flood conditions as well because water does not enter into areas that are drawing in air for the combustion engine,” he adds.

Combined with the negligible impact seen on charging infrastructure, which are set up to withstand extreme weather conditions, EVs continue to be a compelling buy as we transition to a fossil fuel-free future.

However, when water levels rise dangerously high, combustion-engine vehicles can be salvaged to an extent which is not the case for an EV, which might have to be written off, cautions Montenegro.

Additionally, EV offerings are still limited and customers do not have enough options of models that combine the power, versatility and resilience of 4×4 SUV at varied price points, he highlights.

The future of car finance

The rains have also given rise to a storm of questions around car insurance and the coverage provided and to what extent. Montenegro reflected, “I believe that in the aftermath of such events, there will likely be a heightened awareness among consumers regarding the importance of comprehensive insurance coverage. Just as we’re seeing increased interest in auto insurance post-storm, I expect a similar trend in the realm of home insurance.”

“Many individuals may now recognise the necessity of safeguarding their assets against unforeseen natural disasters.”

He continued, “Insurance companies may also reassess their policies and coverage terms in light of recent events. There could be greater clarity and specificity regarding coverage for natural disasters, ensuring that customers are adequately protected.”

“While there may be a temporary surge in demand for comprehensive insurance, it’s possible that consumer behaviour will revert to pre-storm patterns once the immediate impact fades. Thus, the long-term impact on the financing and insurance framework is likely to be neutral, with some individuals opting for enhanced coverage while others maintain their existing arrangements.”

The Al Futtaim executive concludes that while recent events may prompt a temporary increase in demand for comprehensive insurance coverage, the long-term impact on the financing and insurance landscape as well as market trends in the GCC region is expected to remain relatively neutral.

Read: How to claim insurance due to rain damage: Understanding ‘force majeure’ clause