(Corrects investment reference to Ford’s parts distribution center in Dubai in 16th paragraph in story published Feb. 1.)
Feb. 1 (Bloomberg) -- In the midst of rebellion and turmoil, automakers led by Volkswagen AG and Ford Motor Co. are investing more heavily in the Middle East.
VW plans to introduce the Polo subcompact and the U.S.- built Passat sedan in the region this year. VW’s Lamborghini projects growth of 50 percent.
“With the new models, we have new segments that we conquer,” said Stefan Mecha, managing director of Volkswagen’s operations in the Middle East. “Last year, we didn’t have the Passat at all, so I would say we have huge opportunities with this car.” He said VW may increase sales 40 percent this year in the region, which includes Iraq, Israel and the Gulf states.
Car sales are growing because oil prices are high and several countries are pumping money into their economies to seek social stability amid the Arab Spring uprisings. The price of crude has gained 6.7 percent over the past 12 months.
“The rest of the world is struggling, so you think, ‘Why are sales in the Gulf going up?’” said Pierluigi Bellini, a Milan-based IHS Automotive analyst who oversees the Middle East market. “You have oil prices that are not going down, and governments spending more because they want to reassure people.”
Abdullah Saeed, who works at a Saudi investment firm, was browsing for an Audi sedan at a Riyadh showroom this week.
“Most people, when an increase in their income happens, they spend it on buying cars,” he said, adding that unrest in nearby Bahrain and Syria didn’t make him think twice about making a major purchase to replace his Audi Q7 sport-utility vehicle.
Sales of cars and light commercial vehicles in the six-nation Gulf Arab region are expected to grow 6.6 percent this year to 1.28 million vehicles, according to IHS. Deliveries in Western Europe are projected to drop 5.7 percent to 13.6 million autos, which would mark the fifth consecutive annual decline.
The unrest that erupted last year toppled leaders in Tunisia, Egypt and Libya.
Saudi Arabia, the No. 1 oil exporter and the Arab world’s largest economy, is the automakers’ biggest regional market, representing 50 percent of sales. King Abdullah pledged 66,000 jobs in teaching and health care, as part of $130 billion of extra spending.
In the United Arab Emirates, the second-biggest Arab economy and home of Dubai, the region’s trade and business hub, the government plans to allocate 7 billion dirhams ($1.9 billion) of its budget for housing loans for citizens to maintain “social stability.” In March, it announced a 5.7 billion-dirham package to fund water and infrastructure projects in northern emirates.
Qatar raised salaries of government employees 60 percent, while army and police received a 120 percent raise.
“A stable political situation, of course, is a substantial driver for any economy, and the same is true for the Middle East,” said Bernhard Maier, head of sales at Porsche SE’s car-making business, which plans to start setting up a site in Qatar this year to test new materials. “We really experienced a very strong 12-year period here in the region and are very confident looking forward to 2012.”
Volkswagen, Ford and Renault SA said they plan to invest in showrooms and offer new vehicles to tap the region’s mainstream buyers.
“The middle class are more and more empowered now,” Hussein Murad, director of sales for Ford in the Middle East, said in a Jan. 22 interview in Dubai.
Ford plans to open six sales outlets in Saudi Arabia this year, after investing in a $53 million parts distribution center in Dubai in 2011. Eight new models will be brought to the region this year including the Focus, Taurus and Escape.
Toyota Motor Corp. recently introduced the Yaris and Camry to the U.A.E. and plans to roll out more models and open two showrooms this year, said Simon Frith, managing director at Al-Futtaim Motors, the carmaker’s distributor in the country.
Renault increased showrooms in the Gulf last year to 30 from 22 and plans to expand sales outlets by as much as 15 percent this year as it targets a 30 percent increase in deliveries, Mustansir Lakdawala, managing director for the French carmaker in the Gulf, said in a Jan. 30 interview.
VW’s Lamborghini expects sales to be boosted by demand for the V12-powered Aventador, which has a two-year waiting list, said Stephan Winkelmann, the brand’s chief executive officer.
“There is a change, a slow change but a steady change, an opening, which is good for us, which is good for everybody,” said Winkelmann.
The Gulf region’s appetite for cars stands in stark contrast to countries in North Africa and Syria, where thousands have died in clashes with President Bashar al-Assad’s government since March. In North Africa, where the Arab Spring movement began, sales fell 28 percent last year to 274,200 cars and will probably be little changed this year, according to IHS.
The situation in Syria has been more dramatic as residents worry about survival. Abdul Hafiz Attasi, 31, who drives a Land Rover in the capital of Damascus, where he owns a food distribution company, was considering buying a new car a year ago. He’s now keeping an eye on shrinking supplies.
“Everything’s changed,” said Attasi. “No one’s buying cars anymore, unless you’re into money laundering.”
To contact the editor responsible for this story: Chad Thomas at email@example.com