New car value halves once it is driven

DUBAI // The value of a new car now drops by as much as 55 per cent the moment it is driven off the forecourt, because the economic slump has left the market flooded with used vehicles. At the same time, there has been a surge in the popularity of auctions, which offer quick sales at low prices. Owners who have lost jobs or are struggling to make ends meet are either trying to sell their cars or abandoning them altogether.

Last year, the value of a new saloon or 4x4 fell immediately after purchase by about 20 to 35 per cent. This year, the loss is between 35 and 55 per cent, according to Pradeep Ramakrishnan, the head of used-car operations at Swaidan Trading, the Peugeot dealer for Dubai and the northern emirates. "They have fallen drastically," he said. "The market is very erratic but, basically, this drop is because many used cars are on the market.

"Most of these cars have been financed by the banks. Their owners have either taken salary cuts or completely lost their job, and they're no longer able to afford their vehicle. "So you're seeing more come on to the market." The fall in value of new luxury cars was even greater, he said - at least 55 per cent - because so many people wanted to get rid of them. That was confirmed when, in one day, The National spotted more than 60 cars, many high-end vehicles, abandoned on the streets of Dubai. Many had fines outstanding.

There had been an "increase in defaults given the market conditions", said a spokesman for HSBC. He declined to say what percentage of its "non-performing" loans were the result of defaults on car debt. Standard Chartered said: "The group has continued to de-risk the loan book by focusing on secured assets. We have tightened our underwriting standards and reshaped the unsecured business away from high-risk segments."

Niranjan Mendonca, the head of retail assets at Mashreq Bank, said it had "observed a marginal increase in non-performing loans over the past six months. However, this increase is not very significant". Last week Mashreq introduced a programme to help customers struggling with debt because, it said, consumers were increasingly starting "to feel the pressures of an economic slowdown". Most vehicles repossessed by banks end up in Dubai's burgeoning auction industry, where they are sold at rock-bottom prices.

According to a veteran Dubai auctioneer and debt collector, who declined to be named, the number of auction houses trading in cars has risen from two to five in a year. The increase was fuelled by the unusually large number of cars coming on to the market, primarily because people could not pay off vehicle loans, he said. "I'd say there's more than three times the number of car sales at auctions this year than last year." Most auctioned vehicles went to other Middle Eastern countries or Africa, he said.

Auctions had become popular with the banks because they yielded "fast cash and fast sales - and there's more margin", because sale prices were so low. "It's expensive for banks to repossess cars," he said. "They have to pay for transportation costs and storage. They want to sell it fast, and get fast cash." Banks were also responsible for outstanding fines on repossessed vehicles. "I've seen some with Dh25,000 (US$6,800) of fines," the auctioneer said.

A spokesman for Al Futtaim Automall, the used-car division of Al Futtaim Group, which has branches in Ras al Khaimah, Sharjah, Dubai and Abu Dhabi, confirmed that vehicles were depreciating more this year than in 2008. However, he said this could also be attributed to special offers for new-car buyers, such as free insurance or registration, which could constitute five to 10 per cent of the total value.

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